As filed with the Securities and Exchange Commission on February 8, 2000
File Nos.
2-30761
811-1700
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. 51 (X)
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 26 (X)
FRANKLIN GOLD AND PRECIOUS METALS FUND
(Exact Name of Registrant as Specified in Charter)
777 MARINERS ISLAND BLVD., SAN MATEO, CA 94404
(Address of Principal Executive Offices) (Zip Code)Registrant's Telephone
Number, Including Area Code
(650) 312-2000
MURRAY L. SIMPSON, 777 MARINERS ISLAND BLVD.
SAN MATEO, CA 94404
(Name and Address of Agent for Service of Process)
Approximate Date of Proposed Public offering:
It is proposed that this filing will become effective (check
appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[X] on April 10, 2000 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.
This amendment is being filed pursuant to Rule 414 under the Securities Act
of 1933. The successor issuer is filing the amendment to the registration
statement of predecessor issuer, and expressly adopting the registration
statement as its own.
The filing is made in anticipation of the reorganization of Franklin Gold
Fund, a California corporation (the Corporation"), whereby the Corporation
will merge into Franklin Gold and Precious Metals Fund, a Delaware business
trust. Shareholders are expected to approve this reorganization at a meeting
expressly called for that purpose on March 14, 2000. The reorganization is
anticipated to take effect as of April 10, 2000.
Prospectus
FRANKLIN GOLD AND PRECIOUS METALS FUND
CLASS A, B & C
INVESTMENT STRATEGY
GROWTH
DECEMBER 1, 1999, AS AMENDED APRIL 10, 2000
[Insert Franklin Templeton Ben Head]
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.
CONTENTS
THE FUND
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INFORMATION ABOUT
THE FUND YOU SHOULD
KNOW BEFORE INVESTING
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2 Goals and Strategies
4 Main Risks
8 Performance
10 Fees and Expenses
12 Management
14 Distributions and Taxes
16 Financial Highlights
YOUR ACCOUNT
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INFORMATION ABOUT SALES CHARGES, ACCOUNT TRANSACTIONS AND SERVICES
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18 Choosing a Share Class
23 Buying Shares
25 Investor Services
28 Selling Shares
30 Account Policies
33 Questions
FOR MORE INFORMATION
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WHERE TO LEARN MORE ABOUT THE FUND
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Back Cover
THE FUND
[Insert graphic of bullseye and arrows] GOALS AND STRATEGIES
GOALS The fund's principal investment goal is capital appreciation. Its
secondary goal is to provide shareholders with current income through
dividends or interest received from its investments.
PRINCIPAL INVESTMENTS The fund normally invests at least 65% of its total
assets in equity securities of companies that mine, process, or deal in both
gold and other precious metals, such as silver, platinum, and paladium,
including mining finance companies as well as operating companies with long-,
medium-, or short-life mines ("gold and precious metals operation companies").
The fund may buy equity securities of gold and precious metals operation
companies located anywhere in the world and generally invests more than 50%
of its total assets in companies located outside the U.S. Although the fund
may invest in small, medium and large capitalization companies, it expects to
invest a significant portion of its assets in companies falling within the
small-cap (less than $1.5 billion) and medium-cap (less than $8 billion)
range.
Equity securities generally entitle the holder to participate in a company's
general operating results. These include common stocks and preferred stocks.
The fund also invests in American, Global and European Depositary Receipts,
which are certificates typically issued by a bank or trust company that give
their holders the right to receive securities issued by a foreign or domestic
corporation.
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The fund invests primarily in equity securities of gold and precious metals
operation companies.
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PORTFOLIO SELECTION The fund's manager looks for companies with established
records, as well as companies having low-cost reserves to bring into
production. The manager also considers a company's potential for reserve
growth and retention and production growth.
TEMPORARY INVESTMENTS The manager may take a temporary defensive position
when it believes the securities trading markets or the economies of countries
where the fund invests are experiencing excessive volatility or a prolonged
general decline, or other adverse conditions exist. Under these
circumstances, the fund may be unable to pursue its investment goals, because
it may not invest or may invest substantially less in gold or other precious
metals stocks.
THE VALUE OF FUND SHARES WILL GENERALLY MOVE IN THE SAME DIRECTION
AS THE PRICE OF GOLD AND THE PRICE OF THE OTHER PRECIOUS METALS IN WHICH THE
FUND INVESTS.
[Insert graphic of chart with line going up and down] MAIN RISKS
GOLD AND PRECIOUS METALS The price of gold, and other precious metals such
as platinum, palladium and silver, may fluctuate substantially over short
periods of time so the fund's share price may be more volatile than other
types of investments.
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Because the securities the fund holds fluctuate in price, the value of your
investment in the fund will go up and down. This means you could lose money
over short or even extended periods.
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The price of gold and other precious metals is affected by several factors
including (1) how much of the worldwide supply is held among the major
producers, as economic, political, or other conditions affecting one of the
major sources could have a substantial effect on the world's gold and
precious metals supply in countries throughout the world; (2) environmental,
labor, and other costs in mining and production; (3) changes in laws relating
to mining, production, or sales; and (4) unpredictable monetary policies and
economic and political conditions in countries throughout the world; for
example, if Russia or another large holder decided to sell some of its gold
reserves, the supply would go up, and the price would generally go down.
In addition, changes in U.S. or foreign tax, currency or mining laws may make
it more expensive and/or more difficult to pursue the fund's investment
strategies.
THE VALUE OF A COMPANY MAY BE AFFECTED BY FACTORS THAT AFFECT THE COMPANY
ALONE, THE INDUSTRY, OR THE COUNTRY IN WHICH IT IS LOCATED.
FOREIGN SECURITIES Securities of companies located outside the U.S. may
involve risks that can increase the potential for losses in the fund.
Investments in depositary receipts also involve some or all of the following
risks.
COUNTRY. General securities market movements in any country where the fund
has investments are likely to affect the value of the securities the fund
owns that trade in that country. These movements will affect the fund's share
price and fund performance.
The political, economic and social structures of some countries the fund
invests in may be less stable and more volatile than those in the U.S. The
risks of investing in these countries include the possibility of the
imposition of exchange controls, currency devaluations, foreign ownership
limitations, expropriation, restrictions on removal of currency and other
assets, nationalization of assets, punitive taxes and certain custody and
settlement risks.
The fund's investments in developing or emerging markets are subject to all
of the risks of foreign investing generally, and have additional heightened
risks due to a lack of established legal, political, business and social
frameworks to support securities markets. Foreign securities markets,
including emerging markets, may have substantially lower trading volumes than
U.S. markets, resulting in less liquidity and more volatility than in the
U.S. While short-term volatility in these markets can be disconcerting,
declines of more than 50% are not unusual.
Because of current conditions in South Africa, the fund's investments in
South African companies, approximately 30% of the portfolio as of July 31,
1999, may be subject to somewhat greater risk than investments in companies
of countries with more stable political profiles.
COMPANY. Foreign companies are not subject to the same disclosure,
accounting, auditing and financial reporting standards and practices as U.S.
companies and their securities may not be as liquid as securities of similar
U.S. companies. Foreign stock exchanges, trading systems, brokers and
companies generally have less government supervision and regulation than in
the U.S. The fund may have greater difficulty voting proxies, exercising
shareholder rights, pursuing legal remedies and obtaining judgments with
respect to foreign investments in foreign courts than with respect to U.S.
companies in U.S. courts.
CURRENCY Many of the fund's investments are denominated in foreign
currencies. Changes in foreign currency exchange rates will affect the value
of what the fund owns and the fund's share price. Generally, when the U.S.
dollar rises in value against a foreign currency, an investment in that
country loses value because that currency is worth fewer U.S. dollars.
Devaluation of a currency by a country's government or banking authority also
will have a significant impact on the value of any securities denominated in
that currency. Currency markets generally are not as regulated as securities
markets.
EURO. On January 1, 1999, the European Monetary Union (EMU) introduced a new
single currency, the euro, which will replace the national currency for
participating member countries.
Because this change to a single currency is new and untested, it is not
possible to predict the impact of the euro on the business or financial
condition of European issuers which the fund may hold in its portfolio, and
their impact on fund performance. To the extent the 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.
SMALLER COMPANIES Historically, smaller company securities have been more
volatile in price than larger company securities, especially over the
short-term. Among the reasons for the greater price volatility are the less
certain growth prospects of smaller companies, the lower degree of liquidity
in the markets for such securities, and the greater sensitivity of smaller
companies to changing economic conditions.
In addition, small companies may lack depth of management, they may be unable
to generate funds necessary for growth or development, or they may be
developing or marketing new products or services for which markets are not
yet established and may never become established.
Therefore, while smaller companies may offer greater opportunities for
capital growth than larger, more established companies, they also involve
greater risks and should be considered speculative.
MARKET A security's value may be reduced by market activity or the results
of supply and demand. This is a basic risk associated with all securities.
When there are more sellers than buyers, prices tend to fall. Likewise, when
there are more buyers than sellers, prices tend to rise.
YEAR 2000 At this date, it appears neither the fund's operations nor those
of the companies in which it invests were adversely affected by Year 2000
computer-related problems. However, Year 2000 problems could still emerge. If
a company in which the fund is invested develops problems related to Year
2000, the price of its securities may be adversely affected, and this may
have an adverse effect on the fund's performance.
Year 2000 has been one of the many factors the manager considers when making
investment decisions. The manager reviewed public filings and other
statements made by companies about their Year 2000 readiness, but could not
audit each company to verify its readiness. Although the risk of the Year
2000 problem should decrease over time, especially after the leap day of
February 29, 2000, the possibility remains that the fund and the companies in
which it is invested may be adversely affected by Year 2000 problems until
all of their various data processing activities for the year have been
completed.
More detailed information about the fund, its policies (including temporary
investments), and risks can be found in the fund's Statement of Additional
Information (SAI).
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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.
[End callout]
[Insert graphic of bull and bear] PERFORMANCE
This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns from year to year over the past 10 calendar
years. The table shows how the fund's average annual total returns compare to
those of a broad-based securities market index. Of course, past performance
cannot predict or guarantee future results.
CLASS A ANNUAL TOTAL RETURNS 1
[Insert bar graph]
- -19.50% 5.90% -20.34%73.72% -4.73% -1.28% 1.04% -35.70%-7.57% 25.39%
90 91 92 93 94 95 96 97 98 99
YEAR
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BEST
QUARTER:
Q2 '93
27.28%
WORST
QUARTER:
Q4 '97
- -27.95%
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AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1999
1 YEAR 5 YEARS 10 YEARS
- ---------------------------------------------------------------
Franklin Gold and Precious 18.20% -6.87% -2.36%
Metals Fund - Class A 2
S&P 500 Index 3 21.04% 28.56% 18.21%
FT Gold Mines Index -0.66% -14.01% -11.32%
SINCE
INCEPTION
1 YEAR (1/1/99)
- ---------------------------------------------------------------
Franklin Gold and Precious Metals Fund 20.52% 20.52%
- - Class B
S&P 500 Index 3 21.04% 21.04%
FT Gold Mines Index 4 -0.66% -0.66%
SINCE
INCEPTION
1 YEAR (5/1/95)
- ---------------------------------------------------------------
Franklin Gold and Precious Metals Fund 22.19% -7.06%
- - Class C 2
S&P 500 Index 3 21.04% 27.51%
FT Gold Mines Index 4 -0.66% -14.47%
1. Figures do not reflect sales charges. If they did, returns would be lower.
2. Figures reflect sales charges.
All fund performance assumes reinvestment of dividends and capital gains. May
1, 1994, Class A implemented a Rule 12b-1 plan, which affects subsequent
performance.
3. Source: Standard & Poor's(R) Micropal. The S&P 500(R) Index is an unmanaged
group of widely held common stocks covering a variety of industries. It
includes reinvested dividends. One cannot invest directly in an index, nor is
an index representative of the fund's portfolio.
4. The unmanaged Financial Times (FT) Gold Mines Index(R) is a price index
intended to illustrate the trend or "mood" of this market sector, not measure
long-term performance. It does not include reinvested dividends. One cannot
invest directly in an index, nor is an index representative of the fund's
portfolio.
[Insert graphic of percentage sign] FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and
hold shares of the fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A 1 CLASS B 2 CLASS C 1
- -------------------------------------------------------------------
Maximum sales charge (load) as a
percentage of offering price 5.75% 4.00% 1.99%
Load imposed on purchases 5.75% None 1.00%
Maximum deferred sales charge None 3 4.00% 0.99% 4
(load)
Exchange fee 5 $5.00 $5.00 $5.00
Please see "Choosing a Share Class" on page 18 for an explanation of how and
when these sales charges apply.
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
CLASS A 1 CLASS B 2 CLASS C 1
- -------------------------------------------------------------------
Management fees 0.55% 0.55% 0.55%
Distribution and service (12b-1) 0.23% 0.98% 0.99%
fees 6
Other expenses 0.53% 0.57% 0.53%
-----------------------------
Total annual fund operating expenses 1.31% 2.10% 2.07%
=============================
1. Before January 1, 1999, Class A shares were designated Class I and Class C
shares were designated Class II.
2. The fund began offering Class B shares on January 1, 1999. Annual fund
operating expenses for Class B are annualized. While the expenses for Class B
and C are expected to be the same, the amounts shown above based on the
fiscal year ended July 31, 1999, differ because Class B did not exist for the
entire fiscal year.
3. Except for investments of $1 million or more (see page 19) and purchases
by certain retirement plans without an initial sales charge.
4. This is equivalent to a charge of 1% based on net asset value.
5. This fee is only for market timers (see page 31).
6. Because of the distribution and service (12b-1) fees, over the long term
you may indirectly pay more than the equivalent of the maximum permitted
initial sales charge.
EXAMPLE
This example can help you compare the cost of investing in the fund with the
cost of investing in other mutual funds. It assumes:
o You invest $10,000 for the periods shown;
o Your investment has a 5% return each year; and
o The fund's operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------
If you sell your shares at the
end of the period:
CLASS A $701 1 $966 $1,252 $2,063
CLASS B $613 $958 $1,329 $2,229 2
CLASS C $407 $742 $1,202 $2,476
If you do not sell your shares:
CLASS B $213 $658 $1,129 $2,229 2
CLASS C $308 $742 $1,202 $2,476
1. Assumes a contingent deferred sales charge (CDSC) will not apply.
2. Assumes conversion of Class B shares to Class A shares after eight years,
lowering your annual expenses from that time on.
[Insert graphic of briefcase] MANAGEMENT
Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo, CA
94404, is the fund's investment manager. Together, Advisers and its
affiliates manage over $218 billion in assets.
The team responsible for the fund's management is:
R. MARTIN WISKEMANN, SENIOR VICE PRESIDENT OF ADVISERS
Mr. Wiskemann has been a manager on the fund since 1972 and has more than 30
years' experience in the securities industry.
STEVE LAND, PORTFOLIO MANAGER OF ADVISERS
Mr. Land has been a manager of the fund since April 1999. He joined the
Franklin Templeton Group in 1997.
The fund pays Advisers a fee for managing the fund's assets and making its
investment decisions. For the fiscal year ended July 31, 1999, the fund paid
0.55% of its average monthly net assets to the manager.
The fund's manager 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 fund's ability to reduce the
effects of the Year 2000 problem is also very much dependent upon the efforts
of third parties over which the fund and its manager may have no control.
[Insert graphic of dollar signs and stacks of coins]
DISTRIBUTIONS AND TAXES
INCOME AND CAPITAL GAINS DISTRIBUTIONS The fund intends to pay a dividend at
least annually representing substantially all of its net investment income
and any net realized capital gains. The amount of this dividend will vary and
there is no guarantee the fund will pay dividends.
To receive a distribution, you must be a shareholder on the record date. The
record date for the fund's distributions will vary. Please keep in mind that
if you invest in the 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 fund's distributions, please call 1-800/DIAL BEN(R).
TAX CONSIDERATIONS In general, fund distributions are taxable to you as
either ordinary income or capital gains. This is true whether you reinvest
your distributions in additional fund shares or receive them in cash. Any
capital gains the fund distributes are taxable to you as long-term capital
gains no matter how long you have owned your shares.
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BACKUP WITHHOLDING
By law, the fund must withhold 31% of your taxable distributions and proceeds
if you do not provide your correct social security or taxpayer identification
number and certify that you are not subject to backup withholding, or if the
IRS instructs the fund to do so.
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Every January, you will receive a statement that shows the tax status of
distributions you received for the previous year. Distributions declared in
December but paid in January are taxable as if they were paid
in December.
When you sell your shares of the fund, you may have a capital gain or loss.
For tax purposes, an exchange of your fund shares for shares of a different
Franklin Templeton Fund is the same as a sale.
Fund distributions and gains from the sale or exchange of your shares
generally will be subject to state and local income tax. Any foreign taxes
the fund pays on its investments may be passed through to you as a foreign
tax credit. Non-U.S. investors may be subject to U.S. withholding and estate
tax. You should consult your tax advisor about the federal, state, local or
foreign tax consequences of your investment in the fund.
[Insert graphic of dollar bill] FINANCIAL HIGHLIGHTS
This table presents the fund's financial performance for the past five years.
This information has been audited by PricewaterhouseCoopers LLP.
CLASS A YEAR ENDED JULY 31,
- ------------------------------------------------------------------------
1999 3 1998 1997 1996 1995
- ---------------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of 7.48 11.44 14.65 15.07 14.88
year
--------------------------------------
Net investment income .07 .10 .07 .21 .18
Net realized and unrealized
gains (losses) .79 (3.96) (2.37) .01 .27
--------------------------------------
Total from investment .86 (3.86) (2.30) .22 .45
operations
--------------------------------------
Dividends from net
investment income (.04) (.10) (.09) (.13) (.20)
In excess of net investment - - - - (.06)
income
Distributions from net - - (.82) (.51) -
realized gains
--------------------------------------
Total distributions (.04) (.10) (.91) (.64) (.26)
--------------------------------------
Net asset value, end of year 8.30 7.48 11.44 14.65 5.07
======================================
Total return (%) 1 11.51 (33.83) (16.45) 1.65 3.14
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year ($ x 205,889 189,591 291,544 364,032 391,966
1,000)
Ratios to average net assets:
(%)
Expenses 1.31 1.19 1.05 .95 .95
Net investment income .85 1.05 .55 .99 1.20
Portfolio turnover rate (%) 4.29 6.09 16.05 28.74 6.36
CLASS B 2
PER SHARE DATA ($)
Net asset value, beginning of 7.72
year
-------
Net investment loss (.04)
Net realized and unrealized .58
gains
-------
Total from investment .54
operations
-------
Net asset value, end of period 8.26
=======
Total return (%) 1 6.99
Ratios/supplemental data
Net assets, end of period ($ 1,217
x 1,000)
Ratios to average net assets:
(%)
Expenses 2.10 4
Net investment income (.84) 4
Portfolio turnover rate (%) 4.29
CLASS C YEAR ENDED JULY 31,
1999 3 1998 1997 1996 1995 5
PER SHARE DATA ($)
Net asset value, beginning of 7.43 11.37 14.61 15.05 15.02
year
--------------------------------------
Net investment income (loss) .01 .03 (.02) .12 .12
Net realized and unrealized
gains (losses) .80 (3.93) (2.38) (.02) .09
--------------------------------------
Total from investment .81 (3.90) (2.40) .10 .21
operations
--------------------------------------
Dividends from net
investment income (.01) (.04) (.02) (.03) (.12)
--------------------------------------
In excess of net investment - - - - (.06)
income
Distributions from net - - (.82) (.51) -
realized gains
Total distributions (.01) (.04) (.84) (.54) (.18)
Net asset value, end of year 8.23 7.43 11.37 14.61 15.05
======================================
Total return (%) 1 10.85 (34.35) (17.18) .81 1.45
Ratios/supplemental data
Net assets, end of year ($ x 23,473 20,353 20,783 12,977 3,104
1,000)
Ratios to average net assets:
(%)
Expenses 2.07 1.96 1.83 1.74 1.73 4
Net investment income (loss) .08 .25 (.16) .16 .33 4
Portfolio turnover rate (%) 4.29 6.09 16.05 28.74 6.36
1. Total return does not include sales charges, and is not annualized for
periods less than one year.
2. For the period January 1, 1999 (effective date) to July 31, 1999.
3. Based on average shares outstanding.
4. Annualized.
5. For the period May 1, 1995 (effective date) to July 31, 1995.
YOUR ACCOUNT
[Insert graphic of pencil marking an X] 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 investment
representative can help you decide.
CLASS A CLASS B CLASS C
- ----------------------------------------------------------------------
o Initial sales o No initial o Initial sales charge
charge of 5.75% or sales charge of 1%
less
o Deferred sales o Deferred sales o Deferred sales
charge of 1% on charge of 4% on charge of 1% on
purchases of $1 shares you sell shares you sell
million or more within the first within 18 months
sold within 12 year, declining to
months 1% within six
years and
eliminated after
that
o Lower annual o Higher annual o Higher annual
expenses than Class expenses than expenses than
B or C due to lower Class A (same as Class A (same as
distribution fees Class C) due to Class B) due to
higher higher
distribution fees. distribution fees.
Automatic No conversion to
conversion to Class A shares, so
Class A shares annual expenses do
after eight years, not decrease.
reducing future
annual expenses.
SALES CHARGES - CLASS A
THE SALES CHARGE
MAKES UP THIS % WHICH EQUALS THIS %
WHEN YOU INVEST THIS AMOUNT OF THE OFFERING PRICE OF YOUR NET INVESTMENT
-----------------------------------------------------------------------------
Under $50,000 5.75 6.10
$50,000 but under $100,000 4.50 4.71
$100,000 but under 3.50 3.63
$250,000
$250,000 but under 2.50 2.56
$500,000
$500,000 but under $1 2.00 2.04
million
INVESTMENTS OF $1 MILLION OR MORE If you invest $1 million or more, either
as a lump sum or through our cumulative quantity discount or letter of intent
programs (see page 21), you can buy Class A shares without an initial sales
charge. However, there is a 1% contingent deferred sales charge (CDSC) on any
shares you sell within 12 months of purchase. The way we calculate the CDSC
is the same for each class (please see page 20).
DISTRIBUTION AND SERVICE (12B-1) FEES Class A has a distribution plan,
sometimes known as a Rule 12b-1 plan, that allows the fund to pay
distribution fees of up to 0.25% per year to those who sell and distribute
Class A shares and provide other services to shareholders. Because these fees
are paid out of Class A's assets on an on-going basis, over time these fees
will increase the cost of your investment and may cost you more than paying
other types of sales charges.
SALES CHARGES - CLASS B
IF YOU SELL YOUR SHARES WITHIN THIS % IS DEDUCTED FROM
THIS MANY YEARS AFTER BUYING THEM YOUR PROCEEDS AS A CDSC
- ----------------------------------------------------------------------
1 Year 4
2 Years 4
3 Years 3
4 Years 3
5 Years 2
6 Years 1
7 Years 0
With Class B shares, there is no initial sales charge. However, there is a
CDSC if you sell your shares within six years, as described in the table
above. The way we calculate the CDSC is the same for each class (please see
page 20). After 8 years, your Class B shares automatically convert to Class A
shares, lowering your annual expenses from that time on.
MAXIMUM PURCHASE AMOUNT The maximum amount you may invest in Class B shares
at one time is $249,999. We place any investment of $250,000 or more in Class
A shares, since a reduced initial sales charge is available and Class A's
annual expenses are lower.
RETIREMENT PLANS Class B shares are available to certain retirement plans,
including IRAs (of any type), Franklin Templeton Trust Company 403(b) plans,
and Franklin Templeton Trust Company qualified plans with participant or
earmarked accounts.
DISTRIBUTION AND SERVICE (12B-1) FEES Class B has a distribution plan,
sometimes known as a Rule 12b-1 plan, that allows the fund to pay
distribution and other fees of up to 1% per year for the sale of Class B
shares and for services provided to shareholders. Because these fees are paid
out of Class B's assets on an on-going basis, over time these fees will
increase the cost of your investment and may cost you more than paying other
types of sales charges.
SALES CHARGES - CLASS C
THE SALES CHARGE
MAKES UP THIS % WHICH EQUALS THIS %
WHEN YOU INVEST THIS OF THE OFFERING OF YOUR NET
AMOUNT PRICE INVESTMENT
- --------------------------------------------------------------------
Under $1 million 1.00 1.01
WE PLACE ANY INVESTMENT OF $1 MILLION OR MORE IN CLASS A SHARES, SINCE THERE
IS NO INITIAL SALES CHARGE AND CLASS A'S ANNUAL EXPENSES ARE LOWER.
CDSC There is a 1% contingent deferred sales charge (CDSC) on any Class C
shares you sell within 18 months of purchase. The way we calculate the CDSC
is the same for each class (please see below).
DISTRIBUTION AND SERVICE (12B-1) FEES Class C has a distribution plan,
sometimes known as a Rule 12b-1 plan, that allows the fund to pay
distribution and other fees of up to 1% per year for the sale of Class C
shares and for services provided to shareholders. Because these fees are paid
out of Class C's assets on an on-going basis, over time these fees will
increase the cost of your investment and may cost you more than paying other
types of sales charges.
CONTINGENT DEFERRED SALES CHARGE (CDSC) -
CLASS A, B & C
The CDSC for each class is based on the current value of the shares being
sold or their net asset value when purchased, whichever is less. There is no
CDSC on shares you acquire by reinvesting your dividends or capital gains
distributions.
[Begin callout]
The HOLDING PERIOD FOR THE CDSC begins on the day you buy your shares. Your
shares will age one month on that same date the next month and each following
month.
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.
[End callout]
To keep your CDSC as low as possible, each time you place a request to sell
shares we will first sell any shares in your account that are not subject to
a CDSC. If there are not enough of these to meet your request, we will sell
the shares in the order they were purchased. We will use this same method if
you exchange your shares into another Franklin Templeton Fund (please see
page 26 for exchange information).
SALES CHARGE REDUCTIONS AND WAIVERS
If you qualify for any of the sales charge reductions or waivers below,
please let us know at the time you make your investment to help ensure you
receive the lower sales charge.
QUANTITY DISCOUNTS We offer several ways for you to combine your purchases
in the Franklin Templeton Funds to take advantage of the lower sales charges
for large purchases of Class A shares.
[Begin callout]
The Franklin Templeton Funds include all of the Franklin Templeton U.S.
registered mutual funds, except Franklin Templeton Variable Insurance
Products Trust, Templeton Capital Accumulator Fund, Inc., and Templeton
Variable Products Series Fund.
[End callout]
o CUMULATIVE QUANTITY DISCOUNT - lets you combine all of your shares in
the Franklin Templeton Funds for purposes of calculating the sales charge.
You also may combine the shares of your spouse, and your children or
grandchildren, if they are under the age of 21. Certain company and
retirement plan accounts also may be included.
o LETTER OF INTENT (LOI) - expresses your intent to buy a stated dollar
amount of shares over a 13-month period and lets you receive the same sales
charge as if all shares had been purchased at one time. We will reserve a
portion of your shares to cover any additional sales charge that may apply
if you do not buy the amount stated in your LOI.
TO SIGN UP FOR THESE PROGRAMS, COMPLETE THE APPROPRIATE
SECTION OF YOUR ACCOUNT APPLICATION.
REINSTATEMENT PRIVILEGE If you sell shares of a Franklin Templeton Fund, you
may reinvest some or all of the proceeds within 365 days without an initial
sales charge. The proceeds must be reinvested within the same share class,
except proceeds from the sale of Class B shares will be reinvested in Class A
shares.
If you paid a CDSC when you sold your Class A or C shares, we will credit
your account with the amount of the CDSC paid but a new CDSC will apply. For
Class B shares reinvested in Class A, a new CDSC will not apply, although
your account will not be credited with the amount of any CDSC paid when you
sold your Class B shares.
Proceeds immediately placed in a Franklin Bank Certificate of Deposit (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 privilege 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.
SALES CHARGE WAIVERS Class A shares may be purchased without an initial
sales charge or CDSC by various individuals, institutions and retirement
plans or by investors who reinvest certain distributions and proceeds within
365 days. Certain investors also may buy Class C shares without an initial
sales charge. The CDSC for each class may be waived for certain redemptions
and distributions. If you would like information about available sales charge
waivers, call your investment representative or call Shareholder Services at
1-800/632-2301. For information about retirement plans, you may call
Retirement Plan Services at 1-800/527-2020. A list of available sales charge
waivers also may be found in the Statement of Additional Information (SAI).
GROUP INVESTMENT PROGRAM Allows established groups of 11 or more investors
to invest as a group. For sales charge purposes, the group's investments are
added together. There are certain other requirements and the group must have
a purpose other than buying fund shares at a discount.
[Insert graphic of paper with lines and someone writing]
BUYING SHARES
MINIMUM INVESTMENTS
- -------------------------------------------------------------------
INITIAL ADDITIONAL
- -------------------------------------------------------------------
Regular accounts $1,000 $50
- -------------------------------------------------------------------
UGMA/UTMA accounts $100 $50
- -------------------------------------------------------------------
Retirement accounts no minimum no minimum
(other than IRAs, IRA rollovers,
Education IRAs or Roth IRAs)
- -------------------------------------------------------------------
IRAs, IRA rollovers, Education IRAs or $250 $50
Roth IRAs
- -------------------------------------------------------------------
Broker-dealer sponsored wrap account $250 $50
programs
- -------------------------------------------------------------------
Full-time employees, officers, trustees $100 $50
and directors of Franklin Templeton
entities, and their immediate family members
- -------------------------------------------------------------------
PLEASE NOTE THAT YOU MAY ONLY BUY SHARES OF A FUND ELIGIBLE FOR SALE IN YOUR
STATE OR JURISDICTION.
ACCOUNT APPLICATION If you are opening a new account, please complete and
sign the enclosed account application. Make sure you indicate the share class
you have chosen. If you do not indicate a class, we will place your purchase
in Class A shares. To save time, you can sign up now for services you may
want on your account by completing the appropriate sections of the
application (see the next page).
BUYING SHARES
- ---------------------------------------------------------------------
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- ---------------------------------------------------------------------
[Insert graphic of Contact your Contact your
hands shaking] investment investment
representative representative
THROUGH YOUR INVESTMENT
REPRESENTATIVE
- ---------------------------------------------------------------------
[Insert graphic of Make your check Make your check
envelope] payable to Franklin payable to Franklin
Gold and Precious Gold and Precious
BY MAIL Metals Fund. Metals Fund. Include
your account number
Mail the check and on the check.
your signed
application to Fill out the deposit
Investor Services. slip from your
account statement. If
you do not have a
slip, include a note
with your name, the
fund name, and your
account number.
Mail the check and
deposit slip or note
to Investor Services.
- ---------------------------------------------------------------------
[Insert graphic of Call to receive a Call to receive a
three lightning bolts] wire control number wire control number
and wire and wire instructions.
BY WIRE instructions.
To make a same day
1-800/632-2301 Wire the funds and wire investment,
(or 1-650/312-2000 mail your signed please call us by
collect) application to 1:00 p.m. Pacific
Investor Services. time and make sure
Please include the your wire arrives by
wire control number 3:00 p.m.
or your new account
number on the
application.
To make a same day
wire investment,
please call us by
1:00 p.m. Pacific
time and make sure
your wire arrives by
3:00 p.m.
- ---------------------------------------------------------------------
[Insert graphic of two Call Shareholder Call Shareholder
arrows pointing in Services at the Services at the
opposite directions] number below, or number below or our
send signed written automated TeleFACTS
BY EXCHANGE instructions. The system, or send
TeleFACTS system signed written
TeleFACTS(R) cannot be used to instructions.
1-800/247-1753 open a new account.
(around-the-clock (Please see page 26
access) (Please see page 26 for information on
for information on exchanges.)
exchanges.)
- ---------------------------------------------------------------------
FRANKLIN TEMPLETON INVESTOR SERVICES P.O. BOX 997151,
SACRAMENTO, CA 95899-9983
CALL TOLL-FREE: 1-800/632-2301
(MONDAY THROUGH FRIDAY 5:30 A.M. TO 5:00 P.M., PACIFIC TIME
SATURDAY 6:30 A.M. TO 2:30 P.M., PACIFIC TIME)
[Insert graphic of person with handset] INVESTOR SERVICES
AUTOMATIC INVESTMENT PLAN This plan offers a convenient way for you to
invest in the fund by automatically transferring money from your checking or
savings account each month to buy shares. The minimum investment to open an
account with an automatic investment plan is $50 ($25 for an Education IRA).
To sign up, complete the appropriate section of your account application.
AUTOMATIC PAYROLL DEDUCTION You may be able to invest automatically in Class
A shares of the fund by transferring money from your paycheck to the fund by
electronic funds transfer. If you are interested, indicate on your
application that you would like to receive an Automatic Payroll Deduction
Program kit.
DISTRIBUTION OPTIONS You may reinvest distributions you receive from the
fund in an existing account in the same share class* of the fund or another
Franklin Templeton Fund. Initial sales charges and CDSCs will not apply if
you reinvest your distributions within 365 days. You can also have your
distributions deposited in a bank account, or mailed by check. Deposits to a
bank account may be made by electronic funds transfer.
[Begin callout]
For Franklin Templeton Trust Company retirement plans, special forms may be
needed to receive distributions in cash. Please call 1-800/527-2020 for
information.
[End callout]
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.
*Class B and C shareholders may reinvest their distributions in Class A
shares of any Franklin Templeton money fund.
RETIREMENT PLANS Franklin Templeton offers a variety of retirement plans for
individuals and businesses. 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
at 1-800/527-2020.
TELEFACTS(R) Our TeleFACTS system offers around-the-clock access to
information about your account or any Franklin Templeton Fund. This service
is available from touch-tone phones at 1-800/247-1753. For a free TeleFACTS
brochure, call 1-800/DIAL BEN.
TELEPHONE PRIVILEGES You will automatically receive telephone privileges
when you open your account, allowing you and your investment representative
to sell or exchange your shares and make certain other changes to your
account by phone.
For accounts with more than one registered owner, telephone privileges also
allow the fund to accept 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.
As long as we take certain measures to verify telephone requests, we will not
be responsible for any losses that may occur from unauthorized requests. Of
course, you can decline telephone exchange or redemption privileges on your
account application.
EXCHANGE PRIVILEGE You can exchange shares between most Franklin Templeton
Funds within the same class*, 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 initial 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.
[Begin callout]
An exchange is really two transactions: a sale of one fund and the purchase
of another. In general, the same policies that apply to purchases and sales
apply to exchanges, including minimum investment amounts. Exchanges also have
the same tax consequences as ordinary sales and purchases.
[End callout]
Generally exchanges may only be made between identically registered accounts,
unless you send written instructions with a signature guarantee. Any CDSC
will continue to be calculated from the date of your initial investment and
will not be charged at the time of the exchange. The purchase price for
determining a CDSC on exchanged shares will be the price you paid for the
original shares. If you exchange shares subject to a CDSC into a Class A
money fund, the time your shares are held in the money fund will not count
towards the CDSC holding period.
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.
Frequent exchanges can interfere with fund management or operations and drive
up costs for all shareholders. To protect shareholders, there are limits on
the number and amount of exchanges you may make (please see "Market Timers"
on page 31).
*Certain Class Z shareholders of Franklin Mutual Series Fund Inc. may
exchange into Class A without any sales charge.
SYSTEMATIC WITHDRAWAL PLAN This plan allows you to automatically sell your
shares and receive regular payments from your account. A CDSC may apply to
withdrawals that exceed certain amounts. Certain terms and minimums apply. To
sign up, complete the appropriate section of your application.
[Insert graphic of certificate] SELLING SHARES
You can sell your shares at any time. Please keep in mind that a contingent
deferred sales charge (CDSC) may apply.
SELLING SHARES IN WRITING Generally, requests to sell $100,000 or less can
be made over the phone or with a simple letter. Sometimes, however, to
protect you and the fund we will need written instructions signed by all
registered owners, with a signature guarantee for each owner, if:
[Begin callout]
A SIGNATURE GUARANTEE helps protect your account against fraud.You can obtain
a signature guarantee at most banks and securities dealers.
A notary public CANNOT provide a signature guarantee.
[End callout]
o you are selling more than $100,000 worth of shares
o you want your proceeds paid to someone who is not a registered owner
o you want to send your proceeds somewhere other than the address of
record, or preauthorized bank or brokerage firm account
We also may require a signature guarantee on instructions we receive from an
agent, not the registered owners, or when we believe it would protect the
fund against potential claims based on the instructions received.
SELLING RECENTLY PURCHASED SHARES If you sell shares 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.
REDEMPTION PROCEEDS Your redemption check will be sent within seven days
after we receive your request in proper form. We are not able to receive or
pay out cash in the form of currency. Redemption proceeds may be delayed if
we have not yet received your signed account application.
RETIREMENT PLANS You may need to complete additional forms to sell shares in
a Franklin Templeton Trust Company retirement plan. For participants under
age 591/2, tax penalties may apply. Call Retirement Plan Services at
1-800/527-2020 for details.
SELLING SHARES
- ---------------------------------------------------------------------
TO SELL SOME OR ALL OF YOUR SHARES
- ---------------------------------------------------------------------
[Insert graphic of
hands shaking]
THROUGH YOUR Contact your investment representative
INVESTMENT
REPRESENTATIVE
- ---------------------------------------------------------------------
[Insert graphic of Send written instructions and endorsed share
envelope] certificates (if you hold share certificates)
to Investor Services. Corporate, partnership
BY MAIL or trust accounts may need to send additional
documents.
Specify the fund, the account number and the
dollar value or number of shares you wish to
sell.
If you own both Class A and B shares, also
specify the class of shares, otherwise we will
sell your Class A shares first. Be sure to
include all necessary signatures and any
additional documents, as well as signature
guarantees if required.
A check will be mailed to the name(s) and
address on the account, or otherwise according
to your written instructions.
- ---------------------------------------------------------------------
[Insert graphic of As long as your transaction is for $100,000 or
phone] less, you do not hold share certificates and
you have not changed your address by phone
BY PHONE within the last 15 days, you can sell your
shares by phone.
A check will be mailed to the name(s) and
1-800/632-2301 address on the account. Written instructions,
with a signature guarantee, are required to
send the check to another address or to make
it payable to another person.
- ---------------------------------------------------------------------
[Insert graphic of You can call or write to have redemption
three lightning proceeds sent to a bank account. See the
bolts] policies above for selling shares by mail or
phone.
BY ELECTRONIC FUNDS Before requesting to have redemption proceeds
TRANSFER (ACH) sent to a bank account, please make sure we
have your bank account information on file. If
we do not have this information, you will need
to send written instructions with your bank's
name and address, a voided check or savings
account deposit slip, and a signature
guarantee if the ownership of the bank and
fund accounts is different.
If we receive your request in proper form by
1:00 p.m. Pacific time, proceeds sent by ACH
generally will be available within two to
three business days.
- ---------------------------------------------------------------------
[Insert graphic of Obtain a current prospectus for the fund you
two arrows pointing are considering.
in opposite
directions]
BY EXCHANGE Call Shareholder Services at the number below
or our automated TeleFACTS system, or send
TeleFACTS(R) signed written instructions. See the policies
1-800/247-1753 above for selling shares by mail or phone.
(around-the-clock
access) If you hold share certificates, you will need
to return them to the fund before your
exchange can be processed.
- ---------------------------------------------------------------------
FRANKLIN TEMPLETON INVESTOR SERVICES P.O. BOX 997151,
SACRAMENTO, CA 95899-9983
CALL TOLL-FREE: 1-800/632-2301
(MONDAY THROUGH FRIDAY 5:30 A.M. TO 5:00 P.M., PACIFIC TIME
SATURDAY 6:30 A.M. TO 2:30 P.M., PACIFIC TIME)
[Insert graphic of paper and pen] ACCOUNT POLICIES
CALCULATING SHARE PRICE The fund calculates the net asset value per share
(NAV) each business day at the close of trading on the New York Stock
Exchange (normally 1:00 p.m. Pacific time). Each class's NAV is calculated by
dividing its net assets by the number of its shares outstanding.
[Begin callout]
When you buy shares, you pay the offering price. The offering price is the
NAV plus any applicable sales charge.
When you sell shares, you receive the NAV minus any applicable contingent
deferred sales charge (CDSC).
[End callout]
The fund's assets are generally valued at their market value. If market
prices are unavailable, or if an event occurs after the close of the trading
market that materially affects the values, assets may be valued at their fair
value. If the fund holds securities listed primarily on a foreign exchange
that trades on days when the fund is not open for business, the value of your
shares may change on days that you cannot buy or sell shares.
Requests to buy and sell shares are processed at the NAV next calculated
after we receive your request in proper form.
ACCOUNTS WITH LOW BALANCES If the value of your account falls below $250
($50 for employee and UGMA/UTMA accounts) because you sell some of your
shares, we may mail you a notice asking you to bring the account back up to
its applicable minimum investment amount. If you choose not to do so within
30 days, we may close your account and mail the proceeds to the address of
record. You will not be charged a CDSC if your account is closed for this
reason.
STATEMENTS AND REPORTS You will receive quarterly account statements that
show all your account transactions during the quarter. You also will receive
written notification after each transaction affecting your account (except
for distributions and transactions made through automatic investment or
withdrawal programs, which will be reported on your quarterly statement). You
also will receive the fund's financial reports every six months. To reduce
fund expenses, we try to identify related shareholders in a household and
send only one copy of the financial reports. If you need additional copies,
please call 1-800/DIAL BEN.
If there is a dealer or other investment representative of record on your
account, he or she also will receive copies of all notifications and
statements and other information about your account directly from the fund.
STREET OR NOMINEE ACCOUNTS You may transfer your shares from the street or
nominee name account of one dealer to another, as long as both dealers have
an agreement with Franklin Templeton Distributors, Inc. We will process the
transfer after we receive authorization in proper form from your delivering
securities dealer.
JOINT ACCOUNTS Unless you specify a different registration, accounts with
two or more owners are registered as "joint tenants with rights of
survivorship" (shown as "Jt Ten" on your account statement). To make any
ownership changes to a joint account, all owners must agree in writing,
regardless of the law in your state.
MARKET TIMERS The fund may restrict or refuse exchanges by market timers. If
accepted, each exchange by a market timer will be charged $5 by
Franklin/Templeton Investor Services, Inc., the fund's transfer agent. You
will be considered a market timer if you have (i) requested an exchange out
of the fund within two weeks of an earlier exchange request, or (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, or (iv) otherwise seem to follow a timing pattern. Shares
under common ownership or control are combined for these limits.
ADDITIONAL POLICIES Please note that the fund maintains additional policies
and reserves certain rights, including:
o The fund may refuse any order to buy shares, including any purchase
under the exchange privilege.
o At any time, the fund may change its investment minimums or waive or
lower its minimums for certain purchases.
o The fund may modify or discontinue the exchange privilege on 60 days'
notice.
o In unusual circumstances, we may temporarily suspend redemptions, or
postpone the payment of proceeds, as allowed by federal securities laws.
o For redemptions over a certain amount, the fund reserves the right to
make payments in securities or other assets of the fund, in the case of an
emergency or if the payment by check, wire or electronic funds transfer
would be harmful to existing shareholders.
o To permit investors to obtain the current price, dealers are responsible
for transmitting all orders to the fund promptly.
DEALER COMPENSATION Qualifying dealers who sell fund shares may receive
sales commissions and other payments. These are paid by Franklin Templeton
Distributors, Inc. (Distributors) from sales charges, distribution and
service (12b-1) fees and its other resources.
CLASS A CLASS B CLASS C
- -------------------------------------------------------------------
COMMISSION (%) - 4.00 2.00
Investment under $50,000 5.00 - -
$50,000 but under $100,000 3.75 - -
$100,000 but under $250,000 2.80 - -
$250,000 but under $500,000 2.00 - -
$500,000 but under $1 million 1.60 - -
$1 million or more up to 1.00 1 - -
12B-1 FEE TO DEALER 0.25 0.25 2 1.00 3
A dealer commission of up to 1% may be paid on Class A NAV purchases by
certain retirement plans1 and on Class C NAV purchases. A dealer commission
of up to 0.25% may be paid on Class A NAV purchases by certain trust
companies and bank trust departments, eligible governmental authorities, and
broker-dealers or others on behalf of clients participating in comprehensive
fee programs.
1. During the first year after purchase, dealers may not be eligible to
receive the 12b-1 fee.
2. Dealers may be eligible to receive up to 0.25% from the date of purchase.
After 8 years, Class B shares convert to Class A shares and dealers may then
receive the 12b-1 fee applicable to Class A.
3. Dealers may be eligible to receive up to 0.25% during the first year after
purchase and may be eligible to receive the full 12b-1 fee starting in the
13th month.
[Insert graphic of question mark] QUESTIONS
If you have any questions about the fund or your account, you can write to us
at P.O. Box 997151, Sacramento, CA 95899-9983. You can also call us at one of
the following numbers. For your protection and to help ensure we provide you
with quality service, all calls may be monitored
or recorded.
HOURS (PACIFIC TIME,
DEPARTMENT NAME TELEPHONE NUMBER MONDAY THROUGH FRIDAY)
--------------------------------------------------------------------
Shareholder Services 1-800/632-2301 5:30 a.m. to 5:00 p.m.
6:30 a.m. to 2:30
p.m. (Saturday)
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.
Dealer Services 1-800/524-4040 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.
FOR MORE INFORMATION
You can learn more about the fund in the following documents:
ANNUAL/SEMIANNUAL REPORT TO SHAREHOLDERS
Includes a discussion of recent market conditions and fund strategies,
financial statements, detailed performance information, portfolio holdings,
and the auditor's report.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
Contains more information about the fund, its investments and policies. It is
incorporated by reference (is legally a part of this prospectus).
For a free copy of the current annual/semiannual report or the SAI, please
contact your investment representative or call us at the number below.
FRANKLIN(R)TEMPLETON(R)
1-800/DIAL BEN(R) (1-800/342-5236)
TDD (Hearing Impaired) 1-800/851-0637
www.franklintempleton.com
You can also obtain information about the fund by visiting the SEC's Public
Reference Room in Washington, D.C. (phone 1-800/SEC-0330) or by sending your
request and a duplicating fee to the SEC's Public Reference Section,
Washington, D.C. 20549-6009. You can also visit the SEC's Internet site at
http://www.sec.gov.
Investment Company Act file #811-1700 132 P 4/00
Prospectus
Franklin Gold and Precious Metals Fund
ADVISOR CLASS
INVESTMENT STRATEGY
GROWTH
DECEMBER 1, 1999, AS AMENDED APRIL 10, 2000
[Insert Franklin Templeton Ben Head]
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.
CONTENTS
THE FUND
[Begin callout]
INFORMATION ABOUT THE FUND YOU SHOULD KNOW BEFORE INVESTING
[End callout]
2 Goals and Strategies
4 Main Risks
8 Performance
9 Fees and Expenses
10 Management
12 Distributions and Taxes
14 Financial Highlights
YOUR ACCOUNT
[Begin callout]
INFORMATION ABOUT QUALIFIED INVESTORS, ACCOUNT TRANSACTIONS AND SERVICES
[End callout]
15 Qualified Investors
17 Buying Shares
18 Investor Services
21 Selling Shares
23 Account Policies
25 Questions
FOR MORE INFORMATION
[Begin callout]
WHERE TO LEARN MORE ABOUT THE FUND
[End callout]
Back Cover
THE FUND
[Insert graphic of bullseye and arrows] GOALS AND STRATEGIES
GOALS The fund's principal investment goal is capital appreciation. Its
secondary goal is to provide shareholders with current income through
dividends or interest received from its investments.
PRINCIPAL INVESTMENTS The fund normally invests at least 65% of its total
assets in equity securities of companies that mine, process, or deal in both
gold and other precious metals, such as silver, platinum, and paladium,
including mining finance companies as well as operating companies with long-,
medium-, or short-life mines ("gold and precious metals operation
companies").
The fund may buy equity securities of gold and precious metals operation
companies located anywhere in the world and generally invests more than 50%
of its total assets in companies located outside the U.S. Although the fund
may invest in small, medium and large capitalization companies, it expects to
invest a significant portion of its assets in companies falling within the
small-cap (less than $1.5 billion) and medium-cap (less than $8 billion)
range.
Equity securities generally entitle the holder to participate in a company's
general operating results. These include common stocks and preferred stocks.
The fund also invests in American, Global and European Depositary Receipts,
which are certificates typically issued by a bank or trust company that give
their holders the right to receive securities issued by a foreign or domestic
corporation.
[Begin callout]
The fund invests primarily in equity securities of gold and precious metals
operation companies.
[End callout]
PORTFOLIO SELECTION The fund's manager looks for companies with established
records, as well as companies having low-cost reserves to bring into
production. The manager also considers a company's potential for reserve
growth and retention and production growth.
TEMPORARY INVESTMENTS The manager may take a temporary defensive position
when it believes the securities trading markets or the economies of countries
where the fund invests are experiencing excessive volatility or a prolonged
general decline, or other adverse conditions exist. Under these
circumstances, the fund may be unable to pursue its investment goals, because
it may not invest or may invest substantially less in gold or other precious
metals stocks.
THE VALUE OF FUND SHARES WILL GENERALLY MOVE IN THE
SAME DIRECTION AS THE PRICE OF GOLD AND THE PRICE OF THE OTHER PRECIOUS
METALS IN WHICH THE FUND INVESTS.
[Insert graphic of chart with line going up and down] MAIN RISKS
GOLD AND PRECIOUS METALS The price of gold and other precious metals, such
as platinum, palladium and silver, may fluctuate substantially over short
periods of time so the fund's share price may be more volatile than other
types of investments.
Because the securities the fund holds fluctuate in price, the value of your
investment in the fund will go up and down. This means you could lose money
over short or even extended periods.
The price of gold and other precious metals is affected by several factors
including (1) how much of the worldwide supply is held among the major
producers, as economic, political, or other conditions affecting one of the
major sources could have a substantial effect on the world's gold and
precious metals supply in countries throughout the world; (2) environmental,
labor, and other costs in mining and production; (3) changes in laws relating
to mining, production, or sales; and (4) unpredictable monetary policies and
economic and political conditions in countries throughout the world; for
example, if Russia or another large holder decided to sell some of its gold
reserves, the supply would go up, and the price would generally go down.
In addition, changes in U.S. or foreign tax, currency or mining laws may make
it more expensive and/or more difficult to pursue the fund's investment
strategies.
The value of a company may be affected by factors that affect the company
alone, the industry, or the country in which it is located.
FOREIGN SECURITIES Securities of companies located outside the U.S. may
involve risks that can increase the potential for losses in the fund.
Investments in depositary receipts also involve some or all of the following
risks.
COUNTRY. General securities market movements in any country where the fund
has investments are likely to affect the value of the securities the fund
owns that trade in that country. These movements will affect the fund's share
price and fund performance.
The political, economic and social structures of some countries the fund
invests in may be less stable and more volatile than those in the U.S. The
risks of investing in these countries include the possibility of the
imposition of exchange controls, currency devaluations, foreign ownership
limitations, expropriation, restrictions on removal of currency and other
assets, nationalization of assets, punitive taxes and certain custody and
settlement risks.
The fund's investments in developing or emerging markets are subject to all
of the risks of foreign investing generally, and have additional heightened
risks due to a lack of established legal, political, business and social
frameworks to support securities markets. Foreign securities markets,
including emerging markets, may have substantially lower trading volumes than
U.S. markets, resulting in less liquidity and more volatility than in the
U.S. While short-term volatility in these markets can be disconcerting,
declines of more than 50% are not unusual.
Because of current conditions in South Africa, the fund's investments in
South African companies, approximately 30% of the portfolio as of July 31,
1999, may be subject to somewhat greater risk than investments in companies
of countries with more stable political profiles.
COMPANY. Foreign companies are not subject to the same disclosure,
accounting, auditing and financial reporting standards and practices as U.S.
companies and their securities may not be as liquid as securities of similar
U.S. companies. Foreign stock exchanges, trading systems, brokers and
companies generally have less government supervision and regulation than in
the U.S. The fund may have greater difficulty voting proxies, exercising
shareholder rights, pursuing legal remedies and obtaining judgments with
respect to foreign investments in foreign courts than with respect to U.S.
companies in U.S. courts.
CURRENCY Many of the fund's investments are denominated in foreign
currencies. Changes in foreign currency exchange rates will affect the value
of what the fund owns and the fund's share price. Generally, when the U.S.
dollar rises in value against a foreign currency, an investment in that
country loses value because that currency is worth fewer U.S. dollars.
Devaluation of a currency by a country's government or banking authority also
will have a significant impact on the value of any securities denominated in
that currency. Currency markets generally are not as regulated as securities
markets.
EURO. On January 1, 1999, the European Monetary Union (EMU) introduced a new
single currency, the euro, which will replace the national currency for
participating member countries.
Because this change to a single currency is new and untested, it is not
possible to predict the impact of the euro on the business or financial
condition of European issuers which the fund may hold in its portfolio, and
their impact on fund performance. To the extent the 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.
SMALLER COMPANIES Historically, smaller company securities have been more
volatile in price than larger company securities, especially over the
short-term. Among the reasons for the greater price volatility are the less
certain growth prospects of smaller companies, the lower degree of liquidity
in the markets for such securities, and the greater sensitivity of smaller
companies to changing economic conditions.
In addition, small companies may lack depth of management, they may be unable
to generate funds necessary for growth or development, or they may be
developing or marketing new products or services for which markets are not
yet established and may never become established.
Therefore, while smaller companies may offer greater opportunities for
capital growth than larger, more established companies, they also involve
greater risks and should be considered speculative.
MARKET A security's value may be reduced by market activity or the results
of supply and demand. This is a basic risk associated with all securities.
When there are more sellers than buyers, prices tend to fall. Likewise, when
there are more buyers than sellers, prices tend to rise.
YEAR 2000 At this date, it appears neither the fund's operations nor those
of the companies in which it invests were adversely affected by Year 2000
computer-related problems. However, Year 2000 problems could still emerge. If
a company in which the fund is invested develops problems related to Year
2000, the price of its securities may be adversely affected, and this may
have an adverse effect on the fund's performance.
Year 2000 has been one of the many factors the manager considers when making
investment decisions. The manager reviewed public filings and other
statements made by companies about their Year 2000 readiness, but could not
audit each company to verify its readiness. Although the risk of the Year
2000 problem should decrease over time, especially after the leap day of
February 29, 2000, the possibility remains that the fund and the companies in
which it is invested may be adversely affected by Year 2000 problems until
all of their various data processing activities for the year have been
completed.
More detailed information about the fund, its policies (including temporary
investments), and risks can be found in the fund's Statement of Additional
Information (SAI).
[Begin callout]
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.
[End callout]
[Insert graphic of bull and bear] PERFORMANCE
This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns from year to year over the past 10 calendar
years. The table shows how the fund's average annual total returns compare to
those of a broad-based securities market index. Of course, past performance
cannot predict or guarantee future results.
ADVISOR CLASS ANNUAL TOTAL RETURNS 1,2
[Insert bar graph]
- -19.50% 5.90% -20.34% 73.72% -4.73% -1.28% 1.04% -35.54%-5.43% 25.95
90 91 92 93 94 95 96 97 98 99
YEAR
[Begin callout]
BEST
QUARTER:
Q2 '93
27.28%
WORST
QUARTER:
Q4 '97
- -27.93%
[End callout]
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1999
1 YEAR 5 YEARS 10 YEARS
- -------------------------------------------------------------
FRANKLIN GOLD AND PRECIOUS 25.95% -4.96% -1.37%
METALS FUND - ADVISOR CLASS 2
S&P 500 INDEX 3 21.04% 28.56% 18.21%
FT GOLD MINES INDEX -0.66% -14.01% -11.32%
1. Performance figures reflect a "blended" figure combining the following
methods of calculation: (a) For periods before January 1, 1997, a restated
figure is used based on the fund's Class A performance, excluding the effect
of Class A's maximum initial sales charge and including the effect of the
Class A distribution and service (12b-1) fees; and (b) for periods after
January 1, 1997, an actual Advisor Class figure is used reflecting a
deduction of all applicable charges and fees for that class. This blended
figure assumes reinvestment of dividends and capital gains.
2. Source: Standard & Poor's(R) Micropal. The S&P 500(R) Index is an unmanaged
group of widely held common stocks covering a variety of industries. It
includes reinvested dividends. One cannot invest directly in an index, nor is
an index representative of the fund's portfolio.
3. The unmanaged Financial Times (FT) Gold Mines Index(R) is a price index
intended to illustrate the trend or "mood" of this market sector, not measure
long-term performance. It does not include reinvested dividends. One cannot
invest directly in an index, nor is an index representative of the fund's
portfolio.
[Insert graphic of percentage sign] FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and
hold shares of the fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
ADVISOR
CLASS
- --------------------------------------------------------------------
Maximum sales charge (load) imposed on purchases None
Exchange fee 1 $5.00
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) 2
ADVISOR
CLASS
- --------------------------------------------------------------------
Management fees 0.55%
Distribution and service (12b-1) fees None
Other expenses 0.53%
------------
Total annual fund operating expenses 1.08%
============
1. This fee is only for market timers (see page 23).
EXAMPLE
This example can help you compare the cost of investing in the fund with the
cost of investing in other mutual funds. It assumes:
o You invest $10,000 for the periods shown;
o Your investment has a 5% return each year;
o The fund's operating expenses remain the same; and
You sell your shares at the end of the periods shown.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------------------
$110 $343 $595 $1,317
MANAGEMENT
Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo, CA
94404, is the fund's investment manager. Together, Advisers and its
affiliates manage over $218 billion in assets.
The team responsible for the fund's management is:
R. MARTIN WISKEMANN, SENIOR VICE PRESIDENT OF ADVISERS
Mr. Wiskemann has been a manager on the fund since 1972 and has more than 30
years' experience in the securities industry.
STEVE LAND, PORTFOLIO MANAGER OF ADVISERS
Mr. Land has been a manager of the fund since April 1999. He joined the
Franklin Templeton Group in 1997.
The fund pays Advisers a fee for managing the fund's assets and making its
investment decisions. For the fiscal year ended July 31, 1999, the fund paid
0.55% of its average monthly net assets to the manager.
[Insert graphic of dollar signs and stacks of coins]
DISTRIBUTIONS AND TAXES
INCOME AND CAPITAL GAINS DISTRIBUTIONS The fund intends to pay a dividend at
least annually representing substantially all of its net investment income
and any net realized capital gains. The amount of this dividend will vary and
there is no guarantee the fund will pay dividends.
To receive a distribution, you must be a shareholder on the record date. The
record date for the fund's distributions will vary. Please keep in mind that
if you invest in the 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 fund's distributions, please call 1-800/DIAL BEN(R).
TAX CONSIDERATIONS In general, fund distributions are taxable to you as
either ordinary income or capital gains. This is true whether you reinvest
your distributions in additional fund shares or receive them in cash. Any
capital gains the fund distributes are taxable to you as long-term capital
gains no matter how long you have owned your shares.
[Begin callout]
BACKUP WITHHOLDING
By law, the fund must withhold 31% of your taxable distributions and proceeds
if you do not provide your correct social security or taxpayer identification
number and certify that you are not subject to backup withholding, or if the
IRS instructs the fund to do so.
[End callout]
Every January, you will receive a statement that shows the tax status of
distributions you received for the previous year. Distributions declared in
December but paid in January are taxable as if they were paid in December.
When you sell your shares of the fund, you may have a capital gain or loss.
For tax purposes, an exchange of your fund shares for shares of a different
Franklin Templeton Fund is the same as a sale.
Fund distributions and gains from the sale or exchange of your shares
generally will be subject to state and local income tax. Any foreign taxes
the fund pays on its investments may be passed through to you as a foreign
tax credit. Non-U.S. investors may be subject to U.S. withholding and estate
tax. You should consult your tax advisor about the federal, state, local or
foreign tax consequences of your investment in the fund.
[Insert graphic of dollar bill] FINANCIAL HIGHLIGHTS
This table presents the financial performance for Advisor Class since its
inception. This information has been audited by Pricewaterhouse-
Coopers LLP.
ADVISOR CLASS YEAR ENDED JULY 31,
- --------------------------------------------------------------------
1999 3 1998 1997 4
- --------------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of year 7.61 11.43 13.12
-------------------------
Net investment income .08 16.05 .07
Net realized and unrealized gains .85 (3.84) (1.67)
(losses)
-------------------------
Total from investment operations .93 (3.70) (1.60)
-------------------------
Dividends from net investment income (.05) (.12) (.09)
-------------------------
Net asset value, end of year 8.49 7.61 11.43
=========================
Total return (%) 1 12.30 (32.46) (12.24)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year ($ x 1,000) 3,204 2,207 3,211
Ratios to average net assets: (%)
Expenses 1.08 .96 .83 2
Net investment income .98 1.30 .80 2
Portfolio turnover rate (%) 4.29 6.09 16.05
1. Total return is not annualized for periods less than one year.
2. Annualized.
3. Based on average shares outstanding.
4. For the period January 1, 1997 (effective date) to July 31, 1997.
YOUR ACCOUNT
[Insert graphic of pencil marking an X] QUALIFIED INVESTORS
The following investors may qualify to buy Advisor Class shares of the fund.
o Qualified registered investment advisors with clients invested in any
series of Franklin Mutual Series Fund Inc. on October 31, 1996, or who buy
through a broker-dealer or service agent who has an agreement with Franklin
Templeton Distributors, Inc. (Distributors). Minimum investments: $1,000
initial and $50 additional.
o Broker-dealers, registered investment advisors or certified financial
planners who have an agreement with Distributors for clients participating
in comprehensive fee programs. Minimum investments: $250,000 initial
($100,000 initial for an individual client) and $50 additional.
o Officers, trustees, directors and full-time employees of Franklin
Templeton and their immediate family members. Minimum investments: $100
initial ($50 for accounts with an automatic investment plan) and $50
additional.
o Each series of the Franklin Templeton Fund Allocator Series. Minimum
investments: $1,000 initial and $1,000 additional.
[Begin callout]
The FRANKLIN TEMPLETON FUNDS include all of the Franklin Templeton U.S.
registered mutual funds, except Franklin Templeton Variable Insurance
Products Trust, Templeton Capital Accumulator Fund, Inc., and Templeton
Variable Products Series Fund.
[End callout]
o Governments, municipalities, and tax-exempt entities that meet the
requirements for qualification under section 501 of the Internal Revenue
Code. Minimum investments: $1 million initial investment in Advisor Class
or Class Z shares of any of the Franklin Templeton Funds and $50 additional.
o Accounts managed by the Franklin Templeton Group. Minimum investments:
No initial minimum and $50 additional.
o The Franklin Templeton Profit Sharing 401(k) Plan. Minimum investments:
No initial or additional minimums.
o Defined contribution plans such as employer stock, bonus, pension or
profit sharing plans that meet the requirements for qualification under
section 401 of the Internal Revenue Code, including salary reduction plans
qualified under section 401(k) of the Internal Revenue Code, and that are
sponsored by an employer (i) with at least 10,000 employees, or (ii) with
retirement plan assets of $100 million or more. Minimum investments: No
initial or additional minimums.
o Trust companies and bank trust departments initially investing in
the Franklin Templeton Funds 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. Minimum investments: No initial or additional
minimums.
o Individual investors. Minimum investments: $5 million initial and $50
additional. You may combine all of your shares in the Franklin Templeton
Funds for purposes of determining whether you meet the $5 million minimum,
as long as $1 million is in Advisor Class or Class Z shares of any of the
Franklin Templeton Funds.
o Any other investor, including a private investment vehicle such as a
family trust or foundation, who is a member of an established group of 11
or more investors. Minimum investments: $5 million initial and $50
additional. For minimum investment purposes, the group's investments are
added together. The group may combine all of its shares in the Franklin
Templeton Funds for purposes of determining whether it meets the $5 million
minimum, as long as $1 million is in Advisor Class or Class Z shares of any
of the Franklin Templeton Funds. There are certain other requirements and
the group must have a purpose other than buying fund shares without a sales
charge.
Please note that Advisor Class shares of the fund generally are not available
to retirement plans through Franklin Templeton's ValuSelect(R) program.
Retirement plans in the ValuSelect program before January 1, 1998, however,
may invest in the fund's Advisor Class shares.
[Insert graphic of paper with lines and someone writing]
BUYING SHARES
ACCOUNT APPLICATION If you are opening a new account, please complete and
sign the enclosed account application. To save time, you can sign up now for
services you may want on your account by completing the appropriate sections
of the application (see the next page).
BUYING SHARES
- ---------------------------------------------------------------------
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- ---------------------------------------------------------------------
[Insert graphic of Contact your Contact your
hands shaking] investment investment
representative representative
THROUGH YOUR INVESTMENT
REPRESENTATIVE
- ---------------------------------------------------------------------
[Insert graphic of Make your check Make your check
envelope] payable to Franklin payable to Franklin
Gold and Precious Gold and Precious
BY MAIL Metals Fund. Metals Fund. Include
your account number
Mail the check and on the check.
your signed
application to Fill out the deposit
Investor Services. slip from your
account statement. If
you do not have a
slip, include a note
with your name, the
fund name, and your
account number.
Mail the check and
deposit slip or note
to Investor Services.
- ---------------------------------------------------------------------
[Insert graphic of Call to receive a Call to receive a
three lightning bolts] wire control number wire control number
and wire and wire instructions.
BY WIRE instructions.
To make a same day
1-800/632-2301 Wire the funds and wire investment,
(or 1-650/312-2000 mail your signed please call us by
collect) application to 1:00 p.m. Pacific
Investor Services. time and make sure
Please include the your wire arrives by
wire control number 3:00 p.m.
or your new account
number on the
application.
To make a same day
wire investment,
please call us by
1:00 p.m. Pacific
time and make sure
your wire arrives by
3:00 p.m.
- ---------------------------------------------------------------------
[Insert graphic of two Call Shareholder Call Shareholder
arrows pointing in Services at the Services at the
opposite directions] number below, or number below, or send
send signed written signed written
BY EXCHANGE instructions. instructions. (Please
(Please see page 18 see page 18 for
for information on information on
exchanges.) exchanges.)
- ---------------------------------------------------------------------
FRANKLIN TEMPLETON INVESTOR SERVICES P.O. BOX 997151,
SACRAMENTO, CA 95899-9983
CALL TOLL-FREE: 1-800/632-2301
(MONDAY THROUGH FRIDAY 5:30 A.M. TO 5:00 P.M., PACIFIC TIME
SATURDAY 6:30 A.M. TO 2:30 P.M., PACIFIC TIME)
[Insert graphic of person with handset] INVESTOR SERVICES
AUTOMATIC INVESTMENT PLAN This plan offers a convenient way for you to
invest in the fund by automatically transferring money from your checking or
savings account each month to buy shares. To sign up, complete the
appropriate section of your account application.
DISTRIBUTION OPTIONS You may reinvest distributions you receive from the
fund in an existing account in the same share class of the fund or in Advisor
Class or Class A shares of another Franklin Templeton Fund. To reinvest your
distributions in Advisor Class shares of another Franklin Templeton Fund, you
must qualify to buy that fund's Advisor Class shares. For distributions
reinvested in Class A shares of another Franklin Templeton Fund, initial
sales charges and contingent deferred sales charges (CDSCs) will not apply if
you reinvest your distributions within 365 days. You can also have your
distributions deposited in a bank account, or mailed by check. Deposits to a
bank account may be made by electronic funds transfer.
[Begin callout]
For Franklin Templeton Trust Company retirement plans, special forms may be
needed to receive distributions in cash. Please call 1-800/527-2020 for
information.
[End callout]
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.
RETIREMENT PLANS Franklin Templeton offers a variety of retirement plans for
individuals and businesses. 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 at 1-800/527-2020.
TELEFACTS(R) Our TeleFACTS system offers around-the-clock access to
information about your account or any Franklin Templeton Fund. This service
is available from touch-tone phones at 1-800/247-1753. For a free TeleFACTS
brochure, call 1-800/DIAL BEN.
TELEPHONE PRIVILEGES You will automatically receive telephone privileges
when you open your account, allowing you and your investment representative
to sell or exchange your shares and make certain other changes to your
account by phone.
For accounts with more than one registered owner, telephone privileges also
allow the fund to accept 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.
As long as we take certain measures to verify telephone requests, we will not
be responsible for any losses that may occur from unauthorized requests. Of
course, you can decline telephone exchange or redemption privileges on your
account application.
EXCHANGE PRIVILEGE You can exchange shares between most Franklin Templeton
Funds within the same class. You also may exchange your Advisor Class shares
for Class A shares of a fund that does not currently offer an Advisor Class
(without any sales charge)* or for Class Z shares of Franklin Mutual Series
Fund Inc.
[Begin callout]
An EXCHANGE is really two transactions: a sale of one fund and the purchase
of another. In general, the same policies that apply to purchases and sales
apply to exchanges, including minimum investment amounts. Exchanges also have
the same tax consequences as ordinary sales and purchases.
[End callout]
If you do not qualify to buy Advisor Class shares of Templeton Developing
Markets Trust or Templeton Foreign Fund, you also may exchange your shares
for Class A shares of those funds (without any sales charge)* or for shares
of Templeton Institutional Funds, Inc.
Generally exchanges may only be made between identically registered accounts,
unless you send written instructions with a signature guarantee.
*If you exchange into Class A shares and you later decide you would like to
exchange into a fund that offers an Advisor Class, you may exchange your
Class A shares for Advisor Class shares if you otherwise qualify to buy the
fund's Advisor Class shares.
Frequent exchanges can interfere with fund management or operations and drive
up costs for all shareholders. To protect shareholders, there are limits on
the number and amount of exchanges you may make (please see "Market Timers"
on page 23).
SYSTEMATIC WITHDRAWAL PLAN This plan allows you to automatically sell your
shares and receive regular payments from your account. Certain terms and
minimums apply. To sign up, complete the appropriate section of your
application.
[Insert graphic of certificate] SELLING SHARES
You can sell your shares at any time.
SELLING SHARES IN WRITING Generally, requests to sell $100,000 or less can
be made over the phone or with a simple letter. Sometimes, however, to
protect you and the fund we will need written instructions signed by all
registered owners, with a signature guarantee for each owner, if:
A signature guarantee helps protect your account against fraud. You can
obtain a signature guarantee at most banks and securities dealers.
A notary public CANNOT provide a signature guarantee.
o you are selling more than $100,000 worth of shares
o you want your proceeds paid to someone who is not a registered owner
o you want to send your proceeds somewhere otherthan the address of
record, or preauthorized bank or brokerage firm account
We also may require a signature guarantee on instructions we receive from an
agent, not the registered owners, or when we believe it would protect the
fund against potential claims based on the instructions received.
SELLING RECENTLY PURCHASED SHARES If you sell shares 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.
REDEMPTION PROCEEDS Your redemption check will be sent within seven days
after we receive your request in proper form. We are not able to receive or
pay out cash in the form of currency. Redemption proceeds may be delayed if
we have not yet received your signed account application.
RETIREMENT PLANS You may need to complete additional forms to sell shares in
a Franklin Templeton Trust Company retirement plan. For participants under
age 591/2, tax penalties may apply. Call Retirement Plan Services at
1-800/527-2020 for details.
SELLING SHARES
- ---------------------------------------------------------------------
TO SELL SOME OR ALL OF YOUR SHARES
- ---------------------------------------------------------------------
[Insert graphic of
hands shaking]
THROUGH YOUR Contact your investment representative
INVESTMENT
REPRESENTATIVE
- ---------------------------------------------------------------------
[Insert graphic of Send written instructions and endorsed share
envelope] certificates (if you hold share certificates)
to Investor Services. Corporate, partnership
BY MAIL or trust accounts may need to send additional
documents.
Specify the fund, the account number and the
dollar value or number of shares you wish to
sell.
Be sure to include all necessary signatures
and any additional documents, as well as
signature guarantees if required.
A check will be mailed to the name(s) and
address on the account, or otherwise according
to your written instructions.
- ---------------------------------------------------------------------
[Insert graphic of As long as your transaction is for $100,000 or
phone] less, you do not hold share certificates and
you have not changed your address by phone
BY PHONE within the last 15 days, you can sell your
shares by phone.
A check will be mailed to the name(s) and
1-800/632-2301 address on the account. Written instructions,
with a signature guarantee, are required to
send the check to another address or to make
it payable to another person.
- ---------------------------------------------------------------------
[Insert graphic of You can call or write to have redemption
three lightning proceeds sent to a bank account. See the
bolts] policies above for selling shares by mail or
phone.
BY ELECTRONIC FUNDS Before requesting to have redemption proceeds
TRANSFER (ACH) sent to a bank account, please make sure we
have your bank account information on file. If
we do not have this information, you will need
to send written instructions with your bank's
name and address, a voided check or savings
account deposit slip, and a signature
guarantee if the ownership of the bank and
fund accounts is different.
If we receive your request in proper form by
1:00 p.m. Pacific time, proceeds sent by ACH
generally will be available within two to
three business days.
- ---------------------------------------------------------------------
[Insert graphic of Obtain a current prospectus for the fund you
two arrows pointing are considering.
in opposite
directions] Call Shareholder Services at the number below,
or send signed written instructions. See the
BY EXCHANGE policies above for selling shares by mail or
phone.
If you hold share certificates, you will need
to return them to the fund before your
exchange can be processed.
- ---------------------------------------------------------------------
FRANKLIN TEMPLETON INVESTOR SERVICES P.O. BOX 997151,
SACRAMENTO, CA 95899-9983
CALL TOLL-FREE: 1-800/632-2301
(MONDAY THROUGH FRIDAY 5:30 A.M. TO 5:00 P.M., PACIFIC TIME
SATURDAY 6:30 A.M. TO 2:30 P.M., PACIFIC TIME)
[Insert graphic of paper and pen] ACCOUNT POLICIES
CALCULATING SHARE PRICE The fund calculates the net asset value per share
(NAV) each business day at the close of trading on the New York Stock
Exchange (normally 1:00 p.m. Pacific time). The NAV for Advisor Class is
calculated by dividing its net assets by the number of its shares outstanding.
The fund's assets are generally valued at their market value. If market
prices are unavailable, or if an event occurs after the close of the trading
market that materially affects the values, assets may be valued at their fair
value. If the fund holds securities listed primarily on a foreign exchange
that trades on days when the fund is not open for business, the value of your
shares may change on days that you cannot buy or sell shares.
Requests to buy and sell shares are processed at the NAV next calculated
after we receive your request in proper form.
ACCOUNTS WITH LOW BALANCES If the value of your account falls below $250
($50 for employee accounts) because you sell some of your shares, we may mail
you a notice asking you to bring the account back up to its applicable
minimum investment amount. If you choose not to do so within 30 days, we may
close your account and mail the proceeds to the address of record.
STATEMENTS AND REPORTS You will receive quarterly account statements that
show all your account transactions during the quarter. You also will receive
written notification after each transaction affecting your account (except
for distributions and transactions made through automatic investment or
withdrawal programs, which will be reported on your quarterly statement). You
also will receive the fund's financial reports every six months. To reduce
fund expenses, we try to identify related shareholders in a household and
send only one copy of the financial reports. If you need additional copies,
please call 1-800/DIAL BEN.
If there is a dealer or other investment representative of record on your
account, he or she also will receive copies of all notifications and
statements and other information about your account directly from the fund.
STREET OR NOMINEE ACCOUNTS You may transfer your shares from the street or
nominee name account of one dealer to another, as long as both dealers have
an agreement with Franklin Templeton Distributors, Inc. We will process the
transfer after we receive authorization in proper form from your delivering
securities dealer.
JOINT ACCOUNTS Unless you specify a different registration, accounts with
two or more owners are registered as "joint tenants with rights of
survivorship" (shown as "Jt Ten" on your account statement). To make any
ownership changes to a joint account, all owners must agree in writing,
regardless of the law in your state.
MARKET TIMERS The fund may restrict or refuse exchanges by market timers. If
accepted, each exchange by a market timer will be charged $5 by
Franklin/Templeton Investor Services, Inc., the fund's transfer agent. You
will be considered a market timer if you have (i) requested an exchange out
of the fund within two weeks of an earlier exchange request, or (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, or (iv) otherwise seem to follow a timing pattern. Shares
under common ownership or control are combined for these limits.
ADDITIONAL POLICIES Please note that the fund maintains additional policies
and reserves certain rights, including:
o The fund may refuse any order to buy shares, including any purchase
under the exchange privilege.
o At any time, the fund may change its investment minimums or waive or
lower its minimums for certain purchases.
o The fund may modify or discontinue the exchange privilege on 60 days'
notice.
o You may only buy shares of a fund eligible for sale in your state or
jurisdiction.
o In unusual circumstances, we may temporarily suspend redemptions, or
postpone the payment of proceeds, as allowed by federal securities laws.
o For redemptions over a certain amount, the fund reserves the right to
make payments in securities or other assets of the fund, in the case of an
emergency or if the payment by check, wire or electronic funds transfer
would be harmful to existing shareholders.
o To permit investors to obtain the current price, dealers are responsible
for transmitting all orders to the fund promptly.
DEALER COMPENSATION Qualifying dealers who sell Advisor Class shares may
receive up to 0.25% of the amount invested. This amount is paid by Franklin
Templeton Distributors, Inc. from its own resources.
[Insert graphic of question mark] QUESTIONS
If you have any questions about the fund or your account, you can write to us
at P.O. Box 997151, Sacramento, CA 95899-9983. You can also call us at one of
the following numbers. For your protection and to help ensure we provide you
with quality service, all calls may be monitored or recorded.
HOURS (PACIFIC TIME,
DEPARTMENT NAME TELEPHONE NUMBER MONDAY THROUGH FRIDAY)
- ----------------------------------------------------------------------
Shareholder Services 1-800/632-2301 5:30 a.m. to 5:00 p.m.
6:30 a.m. to 2:30 p.m.
(Saturday)
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 1-800/527-2020 5:30 a.m. to 5:00 p.m.
Services
Dealer Services 1-800/524-4040 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.
FOR MORE INFORMATION
You can learn more about the fund in the following documents:
ANNUAL/SEMIANNUAL REPORT TO SHAREHOLDERS
Includes a discussion of recent market conditions and fund strategies,
financial statements, detailed performance information, portfolio holdings,
and the auditor's report.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
Contains more information about the fund, its investments and policies. It is
incorporated by reference (is legally a part of this prospectus).
For a free copy of the current annual/semiannual report or the SAI, please
contact your investment representative or call us at the number below.
FRANKLIN(R)TEMPLETON(R)
1-800/DIAL BEN(R) (1-800/342-5236)
TDD (Hearing Impaired) 1-800/851-0637
www.franklintempleton.com
You can also obtain information about the fund by visiting the SEC's Public
Reference Room in Washington, D.C. (phone 1-800/SEC-0330) or by sending your
request and a duplicating fee to the SEC's Public Reference Section,
Washington, D.C. 20549-6009. You can also visit the SEC's Internet site at
http://www.sec.gov.
Investment Company Act file #811-1700 132 PA 4/00
FRANKLIN GOLD AND PRECIOUS METALS FUND
CLASS A, B & C
STATEMENT OF ADDITIONAL INFORMATION
DECEMBER 1, 1999, AS AMENDED APRIL 10, 2000
[Insert Franklin Templeton Ben Head]
P.O. BOX 997151, SACRAMENTO, CA 95899-9983 1-800/DIAL BEN(R)
- -------------------------------------------------------------------------------
This Statement of Additional Information (SAI) is not a prospectus. It
contains information in addition to the information in the fund's prospectus.
The fund's prospectus, dated December 1, 1999, as amended April 10, 2000,
which we may amend from time to time, contains the basic information you
should know before investing in the fund. You should read this SAI together
with the fund's prospectus.
The audited financial statements and auditor's report in the fund's Annual
Report to Shareholders, for the fiscal year ended July 31, 1999, are
incorporated by reference (are legally a part of this SAI).
For a free copy of the current prospectus or annual report, contact your
investment representative or call
1-800/DIAL BEN (1-800/342-5236).
CONTENTS
Goals and Strategies ................... 2
Risks .................................. 7
Officers and Trustees .................. 11
Management and Other Services .......... 13
Portfolio Transactions ................. 14
Distributions and Taxes ................ 15
Organization, Voting Rights
and Principal Holders ................. 17
Buying and Selling Shares .............. 17
Pricing Shares ......................... 23
The Underwriter ........................ 24
Performance ............................ 26
Miscellaneous Information .............. 28
Description of Ratings ................. 29
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MUTUAL FUNDS, ANNUITIES, AND OTHER INVESTMENT PRODUCTS:
o ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE U.S. GOVERNMENT;
o ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY
BANK;
o ARE SUBJECT TO INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
- -------------------------------------------------------------------------------
GOALS AND STRATEGIES
- -------------------------------------------------------------------------------
The fund's principal investment goal is capital appreciation. Its secondary
goal is to provide current income through the receipt of dividends or
interest from its investments. These goals are fundamental, which means they
may not be changed without shareholder approval.
The fund tries to achieve its goal of capital appreciation by investing in
equity securities with the potential to increase in value, so that its own
shares will in turn increase in value. The fund may also consider the payment
of dividends in trying to achieve its secondary goal of current income.
The fund concentrates its investments in securities of issuers engaged in
mining, processing, or dealing in gold or other precious metals, such as
silver, platinum, and palladium. This means that the fund invests at least
25% of its total assets in these securities, except for temporary periods
when unusual and adverse economic conditions exist in those industries. This
policy is fundamental, which means that it may not be changed without
shareholder approval.
The fund will normally invest in common stocks and securities convertible
into common stocks, such as convertible preferred stock, convertible
debentures, and convertible rights and warrants, all of which may be traded
on a securities exchange or over the counter. The fund may also buy preferred
stocks and debt securities, such as notes, bonds, debentures, or commercial
paper (short-term debt securities of large corporations).
EQUITY SECURITIES Equity securities generally entitle the holder to
participate in a company's general operating results. 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. Equity securities generally take the
form of common stock or preferred stock, as well as securities convertible
into common stocks. Preferred stockholders typically receive greater
dividends but may receive less appreciation than common stockholders and may
have greater voting rights as well. Equity securities may also include
convertible securities, warrants, or rights. Warrants or rights give the
holder the right to buy a common stock at a given time for a specified price.
DEBT SECURITIES A debt security typically has a fixed payment schedule that
obligates the issuer 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 dividend to holders of its equity securities. Bonds,
notes, debentures, and commercial paper differ in the length of the issuer's
payment schedule, with bonds carrying the longest repayment schedule and
commercial paper the shortest.
The market value of debt securities generally varies in response to changes
in interest rates and the financial condition of each issuer. During periods
of declining interest rates, the value of debt securities generally
increases. Conversely, during periods of rising interest rates, the value of
such securities generally declines. These changes in market value will be
reflected in the fund's net asset value per share.
Independent rating organizations rate debt and convertible securities based
upon their assessment of the financial soundness of the issuer. Generally, a
lower rating indicates higher risk. The fund may invest in fixed-income and
convertible securities rated below investment grade by Moody's Investors
Service, Inc. (Moody's) or Standard & Poor's Corporation(R) (S&P), or that are
unrated but considered by the manager to be of comparable quality. Below
investment grade securities are generally those rated Ba or lower by Moody's
or BB or lower by S&P. Please see the Appendix for a description of ratings.
CASH MANAGEMENT TECHNIQUES The fund may place some of its cash reserves in
securities of the U.S. government and its agencies, various bank debt
instruments, or repurchase agreements collateralized by U.S. government
securities.
REPURCHASE AGREEMENTS The fund generally will have a portion of its assets in
cash or cash equivalents for a variety of reasons, including waiting for a
special investment opportunity or taking a defensive position. To earn income
on this portion of its assets, the fund may enter into repurchase agreements.
Under a repurchase agreement, the fund agrees to buy securities guaranteed as
to payment of principal and interest by the U.S. government or its agencies
from a qualified bank or broker-dealer and then to sell the securities back
to the bank or broker-dealer after a short period of time (generally, less
than seven days) at a higher price. The bank or broker-dealer must transfer
to the fund's custodian securities with an initial market value of at least
102% of the dollar amount invested by the fund in each repurchase agreement.
The manager will monitor the value of such securities daily to determine that
the value equals or exceeds the repurchase price.
Repurchase agreements may involve risks in the event of default or insolvency
of the bank or broker-dealer, including possible delays or restrictions upon
the fund's ability to sell the underlying securities. The fund will enter
into repurchase agreements only with parties who meet certain
creditworthiness standards, i.e., banks or broker-dealers that the manager
has determined present no serious risk of becoming involved in bankruptcy
proceedings within the time frame contemplated by the repurchase transaction.
FOREIGN SECURITIES Because the fund concentrates its investments in gold and
precious metal-related issuers, the fund invests a substantial portion of its
assets in foreign securities. Foreign securities are securities issued by
companies domiciled and operating outside the U.S. or securities issued by
foreign governments. Although the fund is not obligated to do so, the fund
presently expects that under normal conditions, it will invest more than 50%
of the value of its assets in foreign securities. At any particular time a
substantial portion of the fund's assets may be invested in companies
domiciled or operating in one or a very few foreign countries. The fund may,
however, invest some or all of its assets in U.S. securities when the fund's
manager concludes that investments in U.S. companies are more likely to
accomplish the fund's goals.
The fund ordinarily buys foreign securities that are traded in the U.S., as
well as American, European, and Global Depositary Receipts. The fund may buy
foreign securities for which there is an established public trading market
directly in foreign markets. This means that there is a sufficient number of
shares traded regularly relative to the number of shares the fund would buy.
DEPOSITARY RECEIPTS American Depositary Receipts (ADRs) are typically issued
by a U.S. bank or trust company and evidence ownership of underlying
securities issued by a foreign corporation. European Depositary Receipts
(EDRs) and Global Depositary Receipts (GDRs) are typically issued by foreign
banks or trust companies, although they may be issued by U.S. banks or trust
companies, and evidence ownership of underlying securities issued by either a
foreign or a U.S. corporation. Generally, depositary receipts in registered
form are designed for use in the U.S. securities market, and depositary
receipts in bearer form are designed for use in securities markets outside
the U.S. Depositary receipts may not necessarily be denominated in the same
currency as the underlying securities into which they may be converted.
Depositary receipts may be issued pursuant to sponsored or unsponsored
programs. In sponsored programs, an issuer has made arrangements to have its
securities traded in the form of depositary receipts. In unsponsored
programs, the issuer may not be directly involved in the creation of the
program. Although regulatory requirements with respect to sponsored and
unsponsored programs are generally similar, in some cases it may be easier to
obtain financial information from an issuer that has participated in the
creation of a sponsored program. Accordingly, there may be less information
available regarding issuers of securities underlying unsponsored programs,
and there may not be a correlation between such information and the market
value of the depositary receipts.
Depositary receipts also involve the risks of other investments in foreign
securities, as discussed below. For purposes of the fund's investment
policies, the fund will consider its investments in depositary receipts to be
investments in the underlying securities.
CONVERTIBLE SECURITIES The fund may invest in convertible securities. A
convertible security is generally a debt obligation or preferred stock that
may be converted within a specified period of time into a certain amount of
common stock of the same or a different issuer. A convertible security
provides a fixed-income stream and, through its conversion feature, the
potential for capital appreciation resulting from a market price advance in
its underlying common stock. The fund uses the same criteria to rate
convertible debt securities that it uses to rate other debt securities.
A convertible security tends to increase in market value when interest rates
decline and decrease in value when interest rates rise. The value of a
convertible security also tends to increase as the market value of the
underlying stock rises, and it tends to decrease as the market value of the
underlying stock declines. Because both interest rate and market movements
can influence its value, a convertible security is not as sensitive to
interest rates as a similar fixed-income security, nor is it as sensitive to
changes in share price as its underlying stock.
A convertible security is usually issued either by an operating company or by
an investment bank. A convertible security issued by an operating company is
generally senior to common stock, but subordinate to other types of
fixed-income securities issued by that company. When a convertible security
issued by an operating company is "converted," the operating company often
issues new stock to the holder of the convertible security. However, if the
parity price of the convertible security is less than the call price, the
operating company may pay out cash instead of common stock. A convertible
security issued by an investment bank is an obligation of and is convertible
through the issuing investment bank. The issuer of a convertible security may
be important in determining the security's true value, because the holder of
a convertible security will have recourse only to the issuer. In addition,
the issuer may redeem a convertible security after a specified date and under
circumstances established at the time the security is issued.
A convertible preferred stock is treated like a preferred stock for the
fund's financial reporting, credit rating, and investment limitation
purposes. A preferred stock is subordinated to the issuer's debt obligations
in the event of insolvency. An issuer's failure to make a dividend payment is
generally not an event of default entitling a preferred shareholder to take
action. A preferred stock generally has no maturity date, so that its market
value is dependent on the issuer's business prospects for an indefinite
period of time. In addition, distributions from preferred stock are
dividends, rather than interest payments, and are usually treated as such for
corporate tax purposes.
GOLD BULLION As a means of seeking its principal goal of capital appreciation
and when the fund considers it to be appropriate as a possible hedge against
inflation, the fund may invest a portion of its assets in gold bullion and
may hold a portion of its cash in foreign currency in the form of gold coins.
The fund has not used these techniques recently but may use them if it
determines that they could help the fund achieve its goals. There is, of
course, no assurance that these investments will provide capital appreciation
or a hedge against inflation.
LOANS OF PORTFOLIO SECURITIES To generate additional income, the fund may
lend certain of its portfolio securities to qualified banks and
broker-dealers. These loans may not exceed 10% of the value of the fund's
total assets, measured at the time of the most recent loan. For each loan,
the borrower must maintain with the fund's custodian collateral (consisting
of any combination of cash, securities issued by the U.S. government and its
agencies and instrumentalities, or irrevocable letters of credit) with a
value at least equal to the current market value of the loaned securities.
The fund retains all or a portion of the interest received on investment of
the cash collateral or receives a fee from the borrower. The fund also
continues to receive any distributions paid on the loaned securities. The
fund may terminate a loan at any time and obtain the return of the securities
loaned within the normal settlement period for the security involved.
Where voting rights with respect to the loaned securities pass with the
lending of the securities, the manager intends to call the loaned securities
to vote proxies, or to use other practicable and legally enforceable means to
obtain voting rights, when the manager has knowledge that, in its opinion, a
material event affecting the loaned securities will occur or the manager
otherwise believes it necessary to vote. As with other extensions of credit,
there are risks of delay in recovery or even loss of rights in collateral in
the event of default or insolvency of the borrower. The fund will loan its
securities only to parties who meet creditworthiness standards approved by
the fund's board of trustees, i.e., banks or broker-dealers that the manager
has determined present no serious risk of becoming involved in bankruptcy
proceedings within the time frame contemplated by the loan.
DERIVATIVE SECURITIES Although the fund has no present intention of investing
in the following, it has the authority to enter into options, futures,
options on financial futures, and forward foreign currency exchange
contracts, which are generally considered "derivative securities."
The fund may take advantage of opportunities in derivative investments that
are not presently contemplated for use by the fund or that are not currently
available but that may be developed, to the extent these opportunities are
both consistent with the fund's investment goals and legally permissible for
the fund. Before making such an investment, the fund will supplement its
prospectus, if appropriate.
OPTIONS The fund may buy or write (sell) put and call options that trade on
securities exchanges or in the over-the-counter (OTC) market. The fund may
also buy or write put and call options on currencies and may buy call and put
options on stock indices. The fund may write an option only if the option is
"covered." The fund does not currently intend to engage in options
transactions, although the fund reserves the right to do so.
An option on a security or currency is a contract that gives the purchaser of
the option the right to buy (a call option) or to sell (a put option) the
security or currency from or to the writer of the option at a set price
during the term of the option.
The fund receives a premium when it writes a call option. A decline in the
price or value of the security or currency during the option period would
offset the amount of the premium. If a call option the fund has written is
exercised, the fund incurs a profit or loss from the sale of the underlying
security or currency.
The fund may generally terminate its obligation under an option by entering
into a closing transaction. When the fund has written an option, the fund
will realize a profit from a closing transaction if the price of the
transaction is less than the premium and will realize a loss if the price is
more than the premium.
The operation of put options, including their related risks and rewards, is
substantially identical to that of call options. The fund will commit no more
than 5% of its assets to premiums when buying put options.
If a put option the fund holds is not sold when it has remaining value, and
if the market price of the underlying security or currency remains equal to
or greater than the exercise price, the fund will lose its entire investment
in the put option. In order for the purchase of a put option to be
profitable, the market price of the underlying security or currency must
decline sufficiently below the exercise price to cover the premium and
transaction costs, unless the put option is sold in a closing sale
transaction.
OTC options are available for a greater variety of securities, and in a wider
range of expiration dates and exercise prices, than exchange-traded options.
OTC options, however, are arranged directly with dealers and not, as is the
case with exchange-traded options, with a clearing corporation. Thus, there
is a risk of non-performance by the dealer.
Call and put options on stock indices are similar to options on securities.
An option on a stock index gives the holder the right to receive cash if the
closing level of the underlying index is greater than (or less than, in the
case of a put option) the exercise price of the option. The amount of cash is
equal to the difference between the closing level and the exercise price,
expressed in dollars multiplied by a specified number. Gain or loss depends
on price movements in the stock market generally (or in a particular industry
or segment of the market).
FUTURES CONTRACTS The fund may enter into futures contracts based upon
financial indices (financial futures). Although some financial futures
contracts call for making or taking delivery or acquisition of securities, in
most cases these obligations are closed out before the settlement date by
buying or selling an identical financial futures contract. Other financial
futures contracts call for cash settlements. A stock index futures contract
obligates the seller to deliver (and the buyer to take) an amount of cash
equal to a specific dollar amount times the change in the value of a specific
stock index during the term of the contract.
The fund will not enter into futures contracts or related options for
speculation, but only as a hedge against changes in the value of its
securities, or securities that it intends to buy, resulting from market
conditions and, to the extent consistent with this policy, to accommodate
cash flows. The sum of the fund's initial deposits on its existing financial
futures and premiums paid on options on financial futures contracts may not
exceed 5% of the market value of the fund's total assets.
The fund may buy and sell call and put options on stock index futures to
hedge against risks of market-side price movements. Options on stock index
futures are similar to options on securities. An option on a stock index
future gives the holder the right to receive in cash the amount by which the
market price of the futures contract, at exercise, exceeds, in the case of a
call, or is less than, in the case of a put, the exercise price of the option
on the futures contract.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS A forward foreign currency
exchange contract (forward contract) is an obligation to purchase or sell a
specific currency for an agreed price at a future date that is individually
negotiated and privately traded by currency traders and their customers.
ILLIQUID INVESTMENTS Illiquid securities are generally securities that cannot
be sold within seven days in the normal course of business at approximately
the amount at which the fund has valued them.
The fund does not consider securities that it acquires outside the U.S. and
that are publicly traded in the U.S. or on a foreign securities exchange or
in a foreign securities market to be illiquid investments, if (a) the fund
reasonably believes it can readily dispose of the securities for cash in the
U.S. or foreign market, or (b) current market quotations are readily
available.
TEMPORARY INVESTMENTS When the fund's manager believes that the securities
trading markets or the economy are experiencing excessive volatility or a
prolonged general decline, or other adverse conditions exist, it may invest
the fund's portfolio in a temporary defensive manner. Under such
circumstances, the fund may buy preferred stocks and rated or unrated debt
securities, such as notes, bonds, debentures, or commercial paper. The fund
may also place some of its cash reserves in securities of the U.S. government
and its agencies, various bank debt instruments, or repurchase agreements
collateralized by U.S. government securities.
TIMING OF THE FUND'S SECURITIES TRANSACTIONS Normally, the fund will buy
securities for investment with a view to long-term appreciation. The fund may
on occasion, however, buy securities with the expectation of realizing gains
over the short-term. Because the investment outlook of the types of
securities that the fund may buy may change as a result of unexpected
developments in national or international securities markets, or in economic,
monetary or political relationships, the fund will not treat its portfolio
turnover as a limiting factor. The fund may make changes in particular
portfolio holdings whenever the fund considers that a security no longer has
optimum growth potential or has reached its anticipated level of performance,
or that another security appears to have a relatively greater potential for
capital appreciation and will make such changes without regard to the length
of time the fund has held a security. The fund may consider the differences
between the tax treatment of long-term gains and short-term gains, however,
in determining the timing of portfolio transactions.
INVESTMENT RESTRICTIONS The fund has adopted the following restrictions as
fundamental policies. This means they may only be changed if the change is
approved by (i) more than 50% of the fund's outstanding shares or (ii) 67% or
more of the fund's shares present at a shareholder meeting if more than 50%
of the fund's outstanding shares are represented at the meeting in person or
by proxy, whichever is less.
The fund may not:
1. Borrow money, except that the fund may borrow money from banks or
affiliated investment companies to the extent permitted by the 1940 Act, or
any exemptions therefrom which may be granted by the SEC, or for temporary or
emergency purposes and then in an amount not exceeding 331/3% of the value of
the fund's total assets (including the amount borrowed);
2. Make loans to other persons except (a) through the lending of its
portfolio securities, (b) through the purchase of debt securities, loan
participations and/or engaging in direct corporate loans in accordance with
its investment objectives and policies, and (c) to the extent the entry into
a repurchase agreement is deemed to be a loan. The fund may also make loans
to affiliated investment companies to the extent permitted by the 1940 Act or
any exemptions therefrom which may be granted by the SEC;
3. Act as an underwriter except to the extent the fund may be deemed to be an
underwriter when disposing of securities it owns or when selling its own
shares;
4. Purchase or sell real estate and commodities, except that the fund may
purchase or sell securities of real estate investment trusts, may purchase or
sell currencies, may enter into futures contracts on securities, currencies,
and other indices or any other financial instruments, and may purchase and
sell options on such futures contracts, and may also invest in gold bullion
and foreign currency in the form of gold coins.
The fund presently has the following additional restrictions, which are not
fundamental and may be changed without shareholder approval.
The fund may not:
1. Pledge, mortgage, or hypothecate its assets as security for loans, nor
engage in joint or joint and several trading accounts in securities, except
that an order to buy or sell may be combined with orders from other persons
to obtain lower brokerage commissions, and except that the fund may
participate in a joint repurchase agreement with other funds in the Franklin
Templeton Group of Funds;
2. Invest in real estate limited partnerships or in interests, other than
publicly traded equity securities, in oil, gas, or other mineral leases,
exploration, or development. Investments in marketable securities issued by
real estate investment trusts are not subject to this restriction.
3. Invest more than 5% of its net assets in warrants, other than those
acquired by the fund as a part of a unit, valued at the lower of cost or
market, including not more than 2% that are not listed on the New York or
American Stock Exchange.
4. Invest in commodities or commodity contracts, except that the fund may
invest up to 10% of its total assets in gold bullion and gold coins, up to 5%
of its total assets in options and futures, and more than 5% of its total
assets in options and futures for hedging purposes only or when these
investments are covered by cash or securities.
The fund may also be subject to investment limitations imposed by foreign
jurisdictions in which the fund sells its shares.
If a bankruptcy or other extraordinary event occurs concerning a particular
security the fund owns, the fund may receive stock, real estate, or other
investments that the fund would not, or could not, buy. If this happens, the
fund intends to sell such investments as soon as practicable while maximizing
the return to shareholders.
Generally, the policies and restrictions discussed in this SAI and in the
prospectus apply when the 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.
If a percentage restriction or limitation is met at the time of investment, a
later increase or decrease in the percentage due to a change in the value or
liquidity of portfolio securities will not be considered a violation of the
restriction or limitation.
RISKS
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GOLD AND PRECIOUS METALS Like all investments, there are risks associated
with an investment in the fund and its policies of investing in securities of
companies engaged in mining, processing, or dealing in gold or other precious
metals.
The price of gold has recently been subject to substantial upward and
downward movements over short periods of time. It may be affected by
unpredictable international monetary and political policies, such as currency
devaluations or reevaluations, economic conditions within an individual
country, trade imbalances or trade or currency restrictions between
countries, and world inflation rates and interest rates. The price of gold,
in turn, is likely to affect the market prices of securities of companies
mining, processing, or dealing in gold and, accordingly, the value of the
fund's investments in these securities.
The following provides more detail about factors that may affect the price of
gold and other precious metals:
1. POTENTIAL EFFECT OF CONCENTRATION OF SOURCE OF SUPPLY AND CONTROL OF
sales. One of the largest national producers of gold bullion and platinum is
the Republic of South Africa. Changes in political and economic conditions
affecting South Africa may have a direct impact on its sales of gold. Under
South African law, the only authorized sales agent for gold produced in South
Africa is the Reserve Bank of South Africa, which, through its retention
policies, controls the time and place of any sale of South African bullion.
The South African Ministry of Mines determines gold mining policy. South
Africa depends predominantly on gold sales for the foreign exchange necessary
to finance its imports, and its sales policy is necessarily subject to
national and international economic and political developments.
2. TAX AND CURRENCY LAWS. Changes in the tax or currency laws of the U.S. and
foreign countries may inhibit the fund's ability to pursue, or may increase
the cost of pursuing, its investment policies.
3. UNPREDICTABLE MONETARY POLICIES, ECONOMIC AND POLITICAL CONDITIONS. The
fund's assets may be less liquid or the change in the value of its assets may
be more volatile (and less related to general price movements in the U.S.
markets) than investments in the securities of U.S. companies, particularly
because the price of gold and other precious metals may be affected by
unpredictable international monetary policies, economic and political
considerations, governmental controls, and conditions of scarcity, surplus,
or speculation. In addition, the use of gold or Special Drawing Rights (which
are also used by members of the International Monetary Fund for international
settlements) to settle net deficits and surpluses in trade and capital
movements between nations subjects the supply and demand, and therefore the
price, of gold to a variety of economic factors that normally would not
affect other types of commodities.
4. NEW AND DEVELOPING MARKETS FOR PRIVATE GOLD OWNERSHIP. Between 1933 and
December 31, 1974, a market did not exist in the U.S. in which gold bullion
could be purchased by individuals for investment purposes. Since it became
legal to invest in gold, markets have developed in the U.S. Any large
purchases or sales of gold bullion could have an effect on the price of gold
bullion. Recently, several central banks have sold gold bullion from their
reserves. Sales by central banks and/or rumors of these sales have had a
negative effect on gold prices.
The successful management of the fund's portfolio may be more dependent upon
the skills and expertise of the fund's manager than is the case for most
mutual funds because of the need to evaluate the factors identified above.
Moreover, in some countries, disclosures concerning an issuer's financial
condition and results and other matters may be subject to less stringent
regulatory provisions, or may be presented on a less uniform basis than is
the case for issuers subject to U.S. securities laws. Issuers and securities
exchanges in some countries may be subject to less stringent governmental
regulations than is the case for U.S. companies.
Most gold companies engage in some form of hedging in order to create more
stable and predictable cash flows. This hedging includes, but is not limited
to forwards, options, futures contracts, and in some cases more advanced
derivative structures covering gold, other metals or currency. Although the
fund's managers attempt to determine the impact of these financial
instruments, extreme events in the gold bullion market may result in these
positions becoming financial liabilities. The fund continues to analyze
hedging risks on a company by company basis.
FOREIGN SECURITIES The value of foreign (and U.S.) securities is affected by
general economic conditions and individual company and industry earnings
prospects. While foreign securities may offer significant opportunities for
gain, they also involve additional risks that can increase the potential for
losses in the fund. These risks can be significantly greater for investments
in emerging markets. Investments in depositary receipts also involve some or
all of the risks described below.
There is the possibility of cessation of trading on national exchanges,
expropriation, nationalization of assets, confiscatory or punitive taxation,
withholding and other foreign taxes on income or other amounts, foreign
exchange controls (which may include suspension of the ability to transfer
currency from a given country), restrictions on removal of assets, political
or social instability, or diplomatic developments that could affect
investments in securities of issuers in foreign nations.
There may be less publicly available information about foreign companies
comparable to the reports and ratings published about companies in the U.S.
Foreign companies are not generally subject to uniform accounting or
financial reporting standards, and auditing practices and requirements may
not be comparable to those applicable to U.S. companies. The fund, therefore,
may encounter difficulty in obtaining market quotations for purposes of
valuing its portfolio and calculating its net asset value.
Certain countries' financial markets and services are less developed than
those in the U.S. or other major economies. In many foreign countries there
is less government supervision and regulation of stock exchanges, brokers,
and listed companies than in the U.S. Foreign markets have substantially less
volume than the New York Stock Exchange and securities of some foreign
companies are less liquid and more volatile than securities of comparable
U.S. companies. Commission rates in foreign countries, which are generally
fixed rather than subject to negotiation as in the U.S., are likely to be
higher. Settlement practices may be cumbersome and result in delays that may
affect portfolio liquidity. The fund may have greater difficulty voting
proxies, exercising shareholder rights, pursuing legal remedies, and
obtaining judgments with respect to foreign investments in foreign courts
than with respect to domestic issuers in U.S. courts.
The fund's investments in foreign securities may increase the risks with
respect to the liquidity of the fund's portfolio. This could inhibit the
fund's ability to meet a large number of shareholder redemption requests in
the event of economic or political turmoil in a country in which the fund has
a substantial portion of its assets invested or deterioration in relations
between the U.S. and the foreign country.
Investments in companies domiciled in developing countries may be subject to
potentially higher risks than investments in developed countries. These risks
include (i) less economic stability; (ii) political and social uncertainty
(for example, regional conflicts and risk of war); (iii) pervasiveness of
corruption and crime; (iv) the small current size of the markets for such
securities and the currently low or nonexistent volume of trading, which
result in a lack of liquidity and in greater price volatility; (v) delays in
settling portfolio transactions; (vi) risk of loss arising out of the system
of share registration and custody; (vii) certain national policies that may
restrict the fund's investment opportunities, including restrictions on
investment in issuers or industries deemed sensitive to national interests;
(viii) foreign taxation; (ix) the absence of developed legal structures
governing private or foreign investment or allowing for judicial redress for
injury to private property; (x) the absence of a capital market structure or
market-oriented economy; and (xi) the possibility that recent favorable
economic developments may be slowed or reversed by unanticipated political or
social events.
In addition, many countries in which the fund may invest have experienced
substantial, and in some periods extremely high, rates of inflation for many
years. Inflation and rapid fluctuations in inflation rates have had and may
continue to have negative effects on the economies and securities markets of
certain countries. Moreover, the economies of some developing countries may
differ favorably or unfavorably from the U.S. economy in such respects as
growth of gross domestic product, rate of inflation, currency depreciation,
capital reinvestment, resource self-sufficiency, and balance of payments
position.
The fund's management endeavors to buy and sell foreign currencies on as
favorable a basis as practicable. Some price spread in currency exchange (to
cover service charges) may be incurred, particularly when the fund changes
investments from one country to another or when proceeds of the sale of
shares in U.S. dollars are used for the purchase of securities in foreign
countries. Some countries may adopt policies that would prevent the fund from
transferring cash out of the country or withhold portions of interest and
dividends at the source.
The fund may be affected either unfavorably or favorably by fluctuations in
the relative rates of exchange between the currencies of different nations,
by exchange control regulations, and by indigenous economic and political
developments. Some countries in which the fund may invest may also have fixed
or managed currencies that are not free-floating against the U.S. dollar.
Certain currencies may not be internationally traded.
Certain currencies have experienced a steady devaluation relative to the U.S.
dollar. Any devaluations in the currencies in which the fund's portfolio
securities are denominated may have a detrimental impact on the fund. The
fund's manager endeavors to avoid unfavorable consequences and to take
advantage of favorable developments in particular nations where, from time to
time, it places the fund's investments.
Any investments by the fund in foreign securities where delivery takes place
outside the U.S. will be made in compliance with applicable U.S. and foreign
currency restrictions and other tax laws and laws limiting the amount and
types of foreign investments. Although current regulations do not, in the
opinion of the fund's manager, limit seriously the fund's investment
activities, if they were changed in the future they might restrict the
ability of the fund to make its investments or tend to impair the liquidity
of the fund's investments. Changes in governmental administrations, economic
or monetary policies in the U.S. or abroad, or circumstances in dealings
between nations could result in investment losses for the fund and could
adversely affect the fund's operations.
The fund's Board of Trustees (board) considers at least annually the
likelihood of the imposition by any foreign government of exchange control
restrictions that would affect the liquidity of the fund's assets maintained
with custodians in foreign countries, as well as the degree of risk from
political acts of foreign governments to which such assets may be exposed.
The board also considers the degree of risk involved through the holding of
portfolio securities in domestic and foreign securities depositories.
However, in the absence of willful misfeasance, bad faith, or gross
negligence on the part of the fund's manager, any losses resulting from the
holding of the fund's portfolio securities in foreign countries and/or with
securities depositories will be at the risk of the shareholders. No assurance
can be given that the board's appraisal of the risks will always be correct
or that such exchange control restrictions or political acts of foreign
governments might not occur.
EURO On January 1, 1999, the European Monetary Union (EMU) introduced a new
single currency, the euro, which will replace the national currency for
participating member countries. The transition and the elimination of
currency risk among EMU countries may change the economic environment and
behavior of investors, particularly in European markets. While the
implementation of the euro could have a negative effect on the fund, the
fund's manager and its affiliated services providers are taking steps they
believe are reasonably designed to address the euro issue.
INTEREST RATE To the extent the fund invests in debt securities, changes in
interest rates in any country where the fund is invested will affect the
value of the fund's portfolio and, consequently, its share price. Rising
interest rates, which often occur during times of inflation or a growing
economy, are likely to cause the face value of a debt security to decrease,
having a negative effect on the value of the fund's shares. Of course,
interest rates have increased and decreased, sometimes very dramatically, in
the past. These changes are likely to occur again in the future at
unpredictable times.
LOWER-RATED SECURITIES To the extent the fund invests in lower-rated
fixed-income securities, commonly known as junk bonds, it will be subject to
a higher degree of risk than an investment in a fund that invests exclusively
in higher-quality securities. The market value of these securities tends to
reflect individual developments affecting the issuer to a greater degree than
the market value of higher-rated securities, which react primarily to
fluctuations in the general level of interest rates. Prices of high-yield
securities are often closely linked with the issuer's stock price and
typically will rise and fall in response to business developments, general
stock market activity, or other factors that affect stock prices. Lower-rated
securities also tend to be more sensitive to economic conditions than
higher-rated securities.
Issuers of high yield, fixed-income securities are often highly leveraged and
may not have more traditional methods of financing available to them.
Therefore, the risk associated with buying the securities of these issuers is
generally greater than the risk associated with higher-rated securities. For
example, during an economic downturn or a sustained period of rising interest
rates, issuers of lower-rated securities may experience financial stress and
may not have sufficient cash flow to make interest payments. The issuer's
ability to make timely interest and principal payments may also be adversely
affected by specific developments affecting the issuer, including the
issuer's inability to meet specific projected business forecasts or the
unavailability of additional financing.
The risk of loss due to default may also be considerably greater with
lower-rated securities because they are generally unsecured and are often
subordinated to other creditors of the issuer. If the issuer of a security in
the fund's portfolio defaults, the fund may have unrealized losses on the
security, which may lower the fund's net asset value. Defaulted securities
tend to lose much of their value before they default. Thus, the fund's net
asset value may be adversely affected before an issuer defaults. In addition,
the fund may incur additional expenses if it must try to recover principal or
interest payments on a defaulted security.
Lower-rated, fixed-income securities may not be as liquid as higher-rated
securities. Reduced liquidity in the secondary market may have an adverse
impact on the market price of a security and on the fund's ability to sell a
security. Reduced liquidity may also make it more difficult to obtain market
quotations based on actual trades for purposes of valuing the fund's
portfolio.
The fund may buy high yield, fixed-income securities that are sold without
registration under the federal securities laws and therefore carry
restrictions on resale. If the fund is required to sell restricted securities
before the securities have been registered, it may be deemed an underwriter
of the securities under the Securities Act of 1933, which entails special
responsibilities and liabilities. The fund may also incur special costs in
disposing of restricted securities, although the fund will generally not
incur any costs when the issuer is responsible for registering the securities.
The fund may buy high yield, fixed-income securities during an initial
underwriting. These securities involve special risks because they are new
issues. The fund's manager will carefully review their credit and other
characteristics. The fund has no arrangement with its underwriter or any
other person concerning the acquisition of these securities.
Economic conditions, such as a recession, may adversely affect the value of
outstanding securities, as well as the ability of issuers of high yield
securities to make timely principal and interest payments. For example,
highly publicized defaults on some high yield securities and concerns about a
sluggish economy could depress the prices of many of these securities. While
market prices may be temporarily depressed due to these factors, the ultimate
price of any security generally reflects the true operating results of the
issuer. Factors adversely impacting the market value of high yield securities
may lower the fund's net asset value.
The fund relies on the manager's judgment, analysis and experience in
evaluating the creditworthiness of an issuer. In this evaluation, the manager
takes into consideration, among other things, the issuer's financial
resources, its sensitivity to economic conditions and trends, its operating
history, the quality of the issuer's management, and regulatory matters.
OPTIONS, FUTURES, AND OPTIONS ON FUTURES The fund's ability to hedge
effectively all or a portion of its securities through transactions in
options, futures, and options on futures depends on the degree to which price
movements in the underlying security, currency, or index correlate with price
movements in the relevant portion of the fund's securities. The correlation
will not be perfect. Consequently, the fund bears the risk that the prices of
the securities being hedged will not move in the same amount as the hedging
instrument. It is also possible that there may be a negative correlation
between the index, currency, or other securities underlying the hedging
instrument and the hedged securities that would result in a loss on both the
securities and the hedging instrument. Accordingly, successful use by the
fund of options, futures, and options on futures will be subject to the
manager's ability to predict correctly movements in the direction of the
securities or currency markets generally or of a particular segment. This
requires different skills and techniques than predicting changes in the price
of individual securities.
Positions in options, futures, and options on futures may be closed out only
on an exchange that provides a secondary market. There can be no assurance
that a liquid secondary market will exist for any particular option or
futures contract at any specific time. Thus, it may not be possible to close
an option or futures position. The inability to close an option or futures
position also could have an adverse impact on the fund's ability to hedge its
securities effectively. The fund will enter into an option or futures
position only if there appears to be a liquid secondary market for the option
or futures contract.
The ordinary spreads between prices in the cash and futures markets, due to
differences in the nature of those markets, are subject to distortions. Due
to the possibility of distortion, a correct forecast of general market trends
by the manager may still not result in a successful transaction.
Futures contracts entail other risks as well. Although the fund believes that
the use of these contracts will benefit the fund, if the manager's judgment
about the general direction of the market is incorrect, the fund's overall
performance would be poorer than if it had not entered into any futures
contract. For example, if the fund has hedged against the possibility of an
increase in interest rates that would adversely affect the price of bonds
held in its portfolio, and interest rates decrease instead, the fund will
lose part or all of the benefit of the increased value of its bonds that it
has hedged because it will have offsetting losses in its futures positions.
In addition, if the fund has insufficient cash, it may have to sell
securities from its portfolio to meet daily variation margin requirements.
These sales may or may not be at increased prices that reflect the rising
market. The fund may have to sell securities at a time when it may be
disadvantageous to do so.
FORWARD CONTRACTS Forward contracts will reduce the potential gain from a
positive change in the relationship between the U.S. dollar and foreign
currencies. Unanticipated changes in currency prices may result in poorer
overall performance for the fund than if it had not entered into these
contracts. The use of forward foreign currency contracts will not eliminate
fluctuations in the underlying U.S. dollar equivalent value of, or rates of
return on, the fund's foreign currency denominated portfolio securities.
The matching of the increase in value of a forward contract and the decline
in the U.S. dollar equivalent value of the foreign currency denominated asset
that is the subject of the hedge generally will not be precise. In addition,
the fund may not always be able to enter into forward foreign currency
contracts at attractive prices, and this will limit the fund's ability to use
these contracts to hedge or cross-hedge its assets. Also, with regard to the
fund's use of cross-hedges, there can be no assurance that historical
correlations between the movement of certain foreign currencies relative to
the U.S. dollar will continue. Thus, at any time, poor correlation may exist
between movements in the exchange rates of the foreign currencies in which
the fund's assets that are the subject of the cross-hedges are denominated.
REPURCHASE AGREEMENTS The use of repurchase agreements involves certain
risks. For example, if the other party to the agreement defaults on its
obligation to repurchase the underlying security at a time when the value of
the security has declined, the fund may incur a loss upon disposition of the
security. If the other party to the agreement becomes insolvent and subject
to liquidation or reorganization under the bankruptcy code or other laws, a
court may determine that the underlying security is collateral for a loan by
the fund not within the control of the fund, and therefore the realization by
the fund on the collateral may be automatically stayed. Finally, it is
possible that the fund may not be able to substantiate its interest in the
underlying security and may be deemed an unsecured creditor of the other
party to the agreement. While the manager acknowledges these risks, it is
expected that if repurchase agreements are otherwise deemed useful to the
fund, these risks can be controlled through careful monitoring procedures.
OFFICERS AND TRUSTEES
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The fund has a board of trustees. The board is responsible for the overall
management of the fund, including general supervision and review of the
fund's investment activities. The board, in turn, elects the officers of the
fund who are responsible for administering the fund's day-to-day operations.
The board also monitors the fund to ensure no material conflicts exist among
share classes. While none is expected, the board will act appropriately to
resolve any material conflict that may arise.
The name, age and address of the officers and board members, as well as their
affiliations, positions held with the fund, and principal occupations during
the past five years are shown below.
Frank H. Abbott, III (79)
1045 Sansome Street, San Francisco, CA 94111
TRUSTEE
President and Director, Abbott Corporation (an investment company); director
or trustee, as the case may be, of 27 of the investment companies in the
Franklin Templeton Group of Funds; and FORMERLY, Director, MotherLode Gold
Mines Consolidated (gold mining) (until 1996) and Vacu-Dry Co. (food
processing) (until 1996).
Harris J. Ashton (67)
191 Clapboard Ridge Road, Greenwich, CT 06830
TRUSTEE
Director, RBC Holdings, Inc. (bank holding company) and Bar-S Foods (meat
packing company); director or trustee, as the case may be, of 47 of the
investment companies in the Franklin Templeton Group of Funds; and FORMERLY,
President, Chief Executive Officer and Chairman of the Board, General Host
Corporation (nursery and craft centers) (until 1998).
*Harmon E. Burns (55)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT AND TRUSTEE
Vice Chairman, Member - Office of the Chairman and Director, Franklin
Resources, Inc.; Executive Vice President and Director, Franklin Templeton
Distributors, Inc. and Franklin Templeton Services, Inc.; Executive Vice
President, Franklin Advisers, Inc.; Director, Franklin Investment Advisory
Services, Inc. and Franklin/Templeton Investor Services, Inc.; and officer
and/or director or trustee, as the case may be, of most of the other
subsidiaries of Franklin Resources, Inc. and of 51 of the investment
companies in the Franklin Templeton Group of Funds.
S. Joseph Fortunato (67)
Park Avenue at Morris County, P.O. Box 1945
Morristown, NJ 07962-1945
TRUSTEE
Member of the law firm of Pitney, Hardin, Kipp & Szuch; and director or
trustee, as the case may be, of 49 of the investment companies in the
Franklin Templeton Group of Funds.
*Charles B. Johnson (67)
777 Mariners Island Blvd., San Mateo, CA 94404
CHAIRMAN OF THE BOARD AND TRUSTEE
Chairman of the Board, Chief Executive Officer, Member - Office of the
Chairman and Director, Franklin Resources, Inc.; Chairman of the Board and
Director, Franklin Advisers, Inc. and Franklin Investment Advisory Services,
Inc.; Vice President, Franklin Templeton Distributors, Inc.; Director,
Franklin/Templeton Investor Services, Inc. and Franklin Templeton Services,
Inc.; officer and/or director or trustee, as the case may be, of most of the
other subsidiaries of Franklin Resources, Inc. and of 48 of the investment
companies in the Franklin Templeton Group of Funds.
*Rupert H. Johnson, Jr. (59)
777 Mariners Island Blvd., San Mateo, CA 94404
PRESIDENT AND TRUSTEE
Vice Chairman, Member - Office of the Chairman and Director, Franklin
Resources, Inc.; Executive Vice President and Director, Franklin Templeton
Distributors, Inc.; Director, Franklin Advisers, Inc. and Franklin Investment
Advisory Services, Inc.; Senior Vice President, Franklin Advisory Services,
LLC; Director, Franklin/Templeton Investor Services, Inc.; and officer and/or
director or trustee, as the case may be, of most of the other subsidiaries of
Franklin Resources, Inc. and of 51 of the investment companies in the
Franklin Templeton Group of Funds.
Frank W.T. LaHaye (71)
20833 Stevens Creek Blvd., Suite 102, Cupertino, CA 95014
TRUSTEE
Chairman, Peregrine Venture Management Company (venture capital); Director,
The California Center for Land Reclamation (redevelopment); director or
trustee, as the case may be, of 27 of the investment companies in the
Franklin Templeton Group of Funds; and FORMERLY, General Partner, Miller &
LaHaye and Peregrine Associates, the general partners of Peregrine Venture
funds.
Gordon S. Macklin (71)
8212 Burning Tree Road, Bethesda, MD 20817
TRUSTEE
Director, Martek Biosciences Corporation, MCI WorldCom, Inc. (information
services), MedImmune, Inc. (biotechnology), Overstock.com (internet
services), White Mountains Insurance Group, Ltd. (holding company) and
Spacehab, Inc. (aerospace services); director or trustee, as the case may be,
of 47 of the investment companies in the Franklin Templeton Group of Funds;
and FORMERLY, Chairman, White River Corporation (financial services) and
Hambrecht & Quist Group (investment banking), and President, National
Association of Securities Dealers, Inc.
*R. Martin Wiskemann (73)
777 Mariners Island Blvd., San Mateo, CA 94404
PRESIDENT AND TRUSTEE
Senior Vice President, Portfolio Manager and Director, Franklin Advisers,
Inc.; Senior Vice President, Franklin Management, Inc.; and officer and/or
director or trustee, as the case may be, of 15 of the investment companies in
the Franklin Templeton Group of Funds; and FORMERLY, Vice President and
Director, ILA Financial Services, Inc. (until 1998).
Martin L. Flanagan (39)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
President, Member - Office of the President, Franklin Resources, Inc.; Senior
Vice President, Chief Financial Officer and Director, Franklin/Templeton
Investor Services, Inc.; Senior Vice President and Chief Financial Officer,
Franklin Mutual Advisers, LLC; Executive Vice President, Chief Financial
Officer and Director, Templeton Worldwide, Inc.; Executive Vice President,
Chief Operating Officer and Director, Templeton Investment Counsel, Inc.;
Executive Vice President and Chief Financial Officer, Franklin Advisers,
Inc.; Chief Financial Officer, Franklin Advisory Services, LLC and Franklin
Investment Advisory Services, Inc.; President and Director, Franklin
Templeton Services, Inc.; officer and/or director of some of the other
subsidiaries of Franklin Resources, Inc.; and officer and/or director or
trustee, as the case may be, of 51 of the investment companies in the
Franklin Templeton Group of Funds.
Deborah R. Gatzek (51)
1840 Gateway Drive, San Mateo, CA 94404
SECRETARY
Partner, Stradley, Ronon, Stevens & Young, LLP; officer of 33 of the
investment companies in the Franklin Templeton Group of Funds; and FORMERLY,
Senior Vice President and General Counsel, Franklin Resources, Inc., Senior
Vice President, Franklin Templeton Services, Inc. and Franklin Templeton
Distributors, Inc., Executive Vice President, Franklin Advisers, Inc., Vice
President, Franklin Advisory Services, LLC and Franklin Mutual Advisers, LLC,
and Vice President, Chief Legal Officer and Chief Operating Officer, Franklin
Investment Advisory Services, Inc. (until January 2000).
David Goss (52)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
President, Chief Executive Officer and Director, Franklin Select Realty
Trust, Property Resources, Inc., Property Resources Equity Trust and Franklin
Real Estate Management, Inc.; President and Chief Executive Officer, Franklin
Properties, Inc.; officer of 27 of the investment companies in the Franklin
Templeton Group of Funds; and FORMERLY, President, Chief Executive Officer
and Director, Franklin Real Estate Income Fund and Franklin Advantage Real
Estate Income Fund (until 1996).
Barbara J. Green (52)
500 East Broward Blvd., Fort Lauderdale, FL 33394-3091
VICE PRESIDENT
Vice President and Deputy General Counsel, Franklin Resources, Inc.; Senior
Vice President, Templeton Worldwide, Inc. and Templeton Global Investors,
Inc.; officer of 46 of the investment companies in the Franklin Templeton
Group of Funds; and FORMERLY, Deputy Director, Division of Investment
Management, Executive Assistant and Senior Advisor to the Chairman, Counselor
to the Chairman, Special Counsel and Attorney Fellow, U.S. Securities and
Exchange Commission (1986-1995), Attorney, Rogers & Wells, and Judicial
Clerk, U.S. District Court (District of Massachusetts).
Edward V. McVey (62)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
Senior Vice President and National Sales Manager, Franklin Templeton
Distributors, Inc.; and officer of 28 of the investment companies in the
Franklin Templeton Group of Funds.
Kimberley Monasterio (36)
777 Mariners Island Blvd., San Mateo, CA 94404
TREASURER AND PRINCIPAL ACCOUNTING OFFICER
Vice President, Franklin Templeton Services, Inc.; and officer of 30 of the
investment companies in the Franklin Templeton Group of Funds.
Murray L. Simpson (62)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
Executive Vice President and General Counsel, Franklin Resources, Inc.;
officer of 27 of the investment companies in the Franklin Templeton Group of
Funds; and FORMERLY, Chief Executive Officer and Managing Director, Templeton
Franklin Investment Services (Asia) Limited (until January 2000) and
Director, Templeton Asset Management Ltd. (until 1999).
*This board member is considered an "interested person" under federal
securities laws.
Note: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers.
The fund pays noninterested board members $150 per month plus $150 per
meeting attended. Board members who serve on the audit committee of the fund
and other funds in the Franklin Templeton Group of Funds receive a flat fee
of $2,000 per committee meeting attended, a portion of which is allocated to
the fund. Members of a committee are not compensated for any committee
meeting held on the day of a board meeting. Noninterested board members also
may serve as directors or trustees of other funds in the Franklin Templeton
Group of Funds and may receive fees from these funds for their services. The
fees payable to noninterested board members by the fund are subject to
reductions resulting from fee caps limiting the amount of fees payable to
board members who serve on other boards within the Franklin Templeton Group
of Funds. The following table provides the total fees paid to noninterested
board members by the fund and by the Franklin Templeton Group of Funds.
NUMBER OF
BOARDS IN
TOTAL FEES THE FRANKLIN
RECEIVED FROM TEMPLETON
TOTAL FEES THE FRANKLIN GROUP
RECEIVED TEMPLETON OF FUNDS
FROM THE GROUP OF ON WHICH
NAME FUND 1 ($) FUNDS 2 ($) EACH SERVES 3
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Frank H. Abbott, III 2,345 156,060 27
Harris J. Ashton 2,745 363,165 47
S. Joseph Fortunato 2,560 363,238 49
Frank W.T. LaHaye 2,495 156,060 27
Gordon S. Macklin 2,745 363,165 47
1. For the fiscal year ended July 31, 1999.
2. For the calendar year ended December 31, 1999.
3. We base the number of boards on the number of registered investment
companies in the Franklin Templeton Group of Funds. This number does not
include the total number of series or funds within each investment company
for which the board members are responsible. The Franklin Templeton Group of
Funds currently includes 53 registered investment companies, with
approximately 155 U.S. based funds or series.
Noninterested board members are reimbursed for expenses incurred in
connection with attending board meetings, paid pro rata by each fund in the
Franklin Templeton Group of Funds for which they serve as director or
trustee. No officer or board member received any other compensation,
including pension or retirement benefits, directly or indirectly from the
fund or other funds in the Franklin Templeton Group of Funds. Certain
officers or board members who are shareholders of Franklin Resources, Inc.
may be deemed to receive indirect remuneration by virtue of their
participation, if any, in the fees paid to its subsidiaries.
Board members historically have followed a policy of having substantial
investments in one or more of the funds in the Franklin Templeton Group of
Funds, as is consistent with their individual financial goals. In February
1998, this policy was formalized through adoption of a requirement that each
board member invest one-third of fees received for serving as a director or
trustee of a Templeton fund in shares of one or more Templeton funds and
one-third of fees received for serving as a director or trustee of a Franklin
fund in shares of one or more Franklin funds until the value of such
investments equals or exceeds five times the annual fees paid such board
member. Investments in the name of family members or entities controlled by a
board member constitute fund holdings of such board member for purposes of
this policy, and a three year phase-in period applies to such investment
requirements for newly elected board members. In implementing such policy, a
board member's fund holdings existing on February 27, 1998, are valued as of
such date with subsequent investments valued at cost.
MANAGEMENT AND OTHER SERVICES
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MANAGER AND SERVICES PROVIDED The fund's manager is Franklin Advisers, Inc.
The manager is a wholly owned subsidiary of Franklin Resources, Inc.
(Resources), a publicly owned company engaged in the financial services
industry through its subsidiaries. Charles B. Johnson and Rupert H. Johnson,
Jr. are the principal shareholders of Resources.
The manager provides investment research and portfolio management services,
and selects the securities for the fund to buy, hold or sell. The manager
also selects the brokers who execute the fund's portfolio transactions. The
manager provides periodic reports to the board, which reviews and supervises
the manager's investment activities. To protect the fund, the manager and its
officers, directors and employees are covered by fidelity insurance.
The manager and its affiliates manage numerous other investment companies and
accounts. The manager may give advice and take action with respect to any of
the other funds it manages, or for its own account, that may differ from
action taken by the manager on behalf of the fund. Similarly, with respect to
the fund, the manager is not obligated to recommend, buy or sell, or to
refrain from recommending, buying or selling any security that the manager
and access persons, as defined by applicable federal securities laws, may buy
or sell for its or their own account or for the accounts of any other fund.
The manager is not obligated to refrain from investing in securities held by
the fund or other funds it manages.
The fund, its manager and principal underwriter have each adopted a code of
ethics, as required by federal securities laws. Under the code of ethics,
employees who are designated as access persons may engage in personal
securities transactions, including transactions involving securities that are
being considered for the fund or that are currently held by the fund, subject
to certain general restrictions and procedures. The personal securities
transactions of access persons of the fund, its manager and principal
underwriter will be governed by the code of ethics.
MANAGEMENT FEES The fund pays the manager a fee equal to a monthly rate of:
o 5/96 of 1% of the value of net assets up to and including $100 million;
o 1/24 of 1% of the value of net assets over $100 million and not over
$250 million; and
o 9/240 of 1% of the value of net assets in excess of $250 million.
The fee is computed at the close of business on the last business day of each
month according to the terms of the management agreement. Each class of the
fund's shares pays its proportionate share of the fee.
For the last three fiscal years ended July 31, the fund paid the following
management fees:
MANAGEMENT
FEES PAID ($)
- ---------------------------------------------------------------
1999 1,255,216
1998 1,416,311
1997 1,822,259
ADMINISTRATOR AND SERVICES PROVIDED Franklin Templeton Services, Inc. (FT
Services) has an agreement with the manager to provide certain administrative
services and facilities for the fund. FT Services is wholly owned by
Resources and is an affiliate of the fund's manager and principal underwriter.
The administrative services FT Services provides include preparing and
maintaining books, records, and tax and financial reports, and monitoring
compliance with regulatory requirements.
ADMINISTRATION FEES The manager pays FT Services a monthly fee equal to an
annual rate of:
o 0.15% of the fund's average daily net assets up to $200 million;
o 0.135% of average daily net assets over $200 million up to $700 million;
o 0.10% of average daily net assets over $700 million up to $1.2 billion;
and
o 0.075% of average daily net assets over $1.2 billion.
During the last three fiscal years ended July 31, the manager paid FT
Services the following administration fees:
ADMINISTRATION
FEES PAID ($)
--------------------------------------------------------------
1999 337,706
1998 382,884
19971 413,362
1. For the period from October 1, 1996, through July 31, 1997.
SHAREHOLDER SERVICING AND TRANSFER AGENT Franklin/
Templeton Investor Services, Inc. (Investor Services) is the fund's
shareholder servicing agent and acts as the fund's transfer agent and
dividend-paying agent. Investor Services is located at 777 Mariners Island
Blvd., San Mateo, CA 94404. Please send all correspondence to Investor
Services to P.O. Box 997151, Sacramento, CA 95899-9983.
For its services, Investor Services receives a fixed fee per account. The
fund also will reimburse Investor Services for certain out-of-pocket
expenses, which may include payments by Investor Services to entities,
including affiliated entities, that provide sub-shareholder services,
recordkeeping and/or transfer agency services to beneficial owners of the
fund. The amount of reimbursements for these services per benefit plan
participant fund account per year will not exceed the per account fee payable
by the fund to Investor Services in connection with maintaining shareholder
accounts.
CUSTODIAN Bank of New York, Mutual Funds Division, 90 Washington Street, New
York, NY 10286, acts as custodian of the fund's securities and other assets.
AUDITOR PricewaterhouseCoopers LLP, 333 Market Street, San Francisco, CA
94105, is the fund's independent auditor. The auditor gives an opinion on the
financial statements included in the fund's Annual Report to Shareholders and
reviews the fund's registration statement filed with the U.S. Securities and
Exchange Commission (SEC).
PORTFOLIO TRANSACTIONS
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The manager selects brokers and dealers to execute the fund's portfolio
transactions in accordance with criteria set forth in the management
agreement and any directions that the board may give.
When placing a portfolio transaction, the manager seeks to obtain prompt
execution of orders at the most favorable net price. For portfolio
transactions on a securities exchange, the amount of commission paid is
negotiated between the manager and the broker executing the transaction. The
determination and evaluation of the reasonableness of the brokerage
commissions paid are based to a large degree on the professional opinions of
the persons responsible for placement and review of the transactions. These
opinions are based on the experience of these individuals in the securities
industry and information available to them about the level of commissions
being paid by other institutional investors of comparable size. The manager
will ordinarily place orders to buy and sell over-the-counter securities on a
principal rather than agency basis with a principal market maker unless, in
the opinion of the manager, a better price and execution can otherwise be
obtained. Purchases of portfolio securities from underwriters will include a
commission or concession paid by the issuer to the underwriter, and purchases
from dealers will include a spread between the bid and ask price.
The manager may pay certain brokers commissions that are higher than those
another broker may charge, if the manager determines in good faith that the
amount paid is reasonable in relation to the value of the brokerage and
research services it receives. This may be viewed in terms of either the
particular transaction or the manager's overall responsibilities to client
accounts over which it exercises investment discretion. The services that
brokers may provide to the manager include, among others, supplying
information about particular companies, markets, countries, or local,
regional, national or transnational economies, statistical data, quotations
and other securities pricing information, and other information that provides
lawful and appropriate assistance to the manager in carrying out its
investment advisory responsibilities. These services may not always directly
benefit the fund. They must, however, be of value to the manager in carrying
out its overall responsibilities to its clients.
It is not possible to place a dollar value on the special executions or on
the research services the manager receives from dealers effecting
transactions in portfolio securities. The allocation of transactions to
obtain additional research services allows the manager to supplement its own
research and analysis activities and to receive the views and information of
individuals and research staffs of other securities firms. As long as it is
lawful and appropriate to do so, the manager and its affiliates may use this
research and data in their investment advisory capacities with other clients.
If the fund's officers are satisfied that the best execution is obtained, the
sale of fund shares, as well as shares of other funds in the Franklin
Templeton Group of Funds, also may be considered a factor in the selection of
broker-dealers to execute the fund's portfolio transactions.
Because Franklin Templeton Distributors, Inc. (Distributors) is a member of
the National Association of Securities Dealers, Inc., it may sometimes
receive certain fees when the fund tenders portfolio securities pursuant to a
tender-offer solicitation. To recapture brokerage for the benefit of the
fund, any portfolio securities tendered by the fund will be tendered through
Distributors if it is legally permissible to do so. In turn, the next
management fee payable to the manager will be reduced by the amount of any
fees received by Distributors in cash, less any costs and expenses incurred
in connection with the tender.
If purchases or sales of securities of the fund and one or more other
investment companies or clients supervised by the manager are considered at
or about the same time, transactions in these securities will be allocated
among the several investment companies and clients in a manner deemed
equitable to all by the manager, taking into account the respective sizes of
the funds and the amount of securities to be purchased or sold. In some cases
this procedure could have a detrimental effect on the price or volume of the
security so far as the fund is concerned. In other cases it is possible that
the ability to participate in volume transactions may improve execution and
reduce transaction costs to the fund.
During the last three fiscal years ended July 31, the fund paid the following
brokerage commissions:
BROKERAGE
COMMISSIONS ($)
- -----------------------------------------------------------------
1999 102,700
1998 113,547
1997 279,557
For the fiscal year ended July 31, 1999, the fund did not pay brokerage
commissions to brokers who provided research services.
As of July 31, 1999, the fund did not own securities of its regular
broker-dealers.
DISTRIBUTIONS AND TAXES
- -------------------------------------------------------------------------------
DISTRIBUTIONS OF NET INVESTMENT income The fund receives income generally in
the form of dividends and interest on its investments. This income, less
expenses incurred in the operation of the fund, constitutes the fund's net
investment income from which dividends may be paid to you. Any distributions
by the fund from such income will be taxable to you as ordinary income,
whether you take them in cash or in additional shares.
DISTRIBUTIONS OF CAPITAL GAINS The fund may derive capital gains and losses
in connection with sales or other dispositions of its portfolio securities.
Distributions from net short-term capital gains will be taxable to you as
ordinary income. Distributions from net long-term capital gains will be
taxable to you as long-term capital gain, regardless of how long you have
held your shares in the fund. Any net capital gains realized by the fund
generally will be distributed once each year, and may be distributed more
frequently, if necessary, in order to reduce or eliminate excise or income
taxes on the fund.
EFFECT OF FOREIGN INVESTMENTS ON DISTRIBUTIONS Most foreign exchange gains
realized on the sale of debt securities are treated as ordinary income by the
fund. Similarly, foreign exchange losses realized by the fund on the sale of
debt securities are generally treated as ordinary losses by the fund. These
gains when distributed will be taxable to you as ordinary dividends, and any
losses will reduce the fund's ordinary income otherwise available for
distribution to you. This treatment could increase or decrease fund's
ordinary income distributions to you, and may cause some or all of the fund's
previously distributed income to be classified as a return of capital.
The fund may be subject to foreign withholding taxes on income from certain
of its foreign securities. If more than 50% of the fund's total assets at the
end of the fiscal year are invested in securities of foreign corporations,
the fund may elect to pass-through to you your pro rata share of foreign
taxes paid by the fund. If this election is made, the year-end statement you
receive from the fund will show more taxable income than was actually
distributed to you. However, you will be entitled to either deduct your share
of such taxes in computing your taxable income or (subject to limitations)
claim a foreign tax credit for such taxes against your U.S. federal income
tax. The fund will provide you with the information necessary to complete
your individual income tax return if it makes this election.
INFORMATION ON THE TAX CHARACTER OF DISTRIBUTIONS The fund will inform you of
the amount of your ordinary income dividends and capital gains distributions
at the time they are paid, and will advise you of their tax status for
federal income tax purposes shortly after the close of each calendar year. If
you have not held fund shares for a full year, the fund may designate and
distribute to you, as ordinary income or capital gain, a percentage of income
that is not equal to the actual amount of such income earned during the
period of your investment in the fund.
ELECTION TO BE TAXED AS A REGULATED INVESTMENT COMPANY The fund has elected
to be treated as a regulated investment company under Subchapter M of the
Internal Revenue Code, has qualified as such for its most recent fiscal year,
and intends to so qualify during the current fiscal year. As a regulated
investment company, the fund generally pays no federal income tax on the
income and gains it distributes to you. The board reserves the right not to
maintain the qualification of the fund as a regulated investment company if
it determines such course of action to be beneficial to shareholders. In such
case, the fund will be subject to federal, and possibly state, corporate
taxes on its taxable income and gains, and distributions to you will be taxed
as ordinary dividend income to the extent of the fund's earnings and profits.
EXCISE TAX DISTRIBUTION REQUIREMENTS To avoid federal excise taxes, the
Internal Revenue Code requires the fund to distribute to you by December 31
of each year, at a minimum, the following amounts: 98% of its taxable
ordinary income earned during the calendar year; 98% of its capital gain net
income earned during the twelve month period ending October 31; and 100% of
any undistributed amounts from the prior year. The fund intends to declare
and pay these distributions in December (or to pay them in January, in which
case you must treat them as received in December), but can give no assurances
that its distributions will be sufficient to eliminate all taxes.
REDEMPTION OF FUND SHARES Redemptions (including redemptions in kind) and
exchanges of fund shares are taxable transactions for federal and state
income tax purposes. If you redeem your fund shares, or exchange your fund
shares for shares of a different Franklin Templeton Fund, the IRS will
require that you report any gain or loss on your redemption or exchange. If
you hold your shares as a capital asset, the gain or loss that you realize
will be capital gain or loss and will be long-term or short-term, generally
depending on how long you hold your shares. Any loss incurred on the
redemption or exchange of shares held for six months or less will be treated
as a long-term capital loss to the extent of any long-term capital gains
distributed to you by the fund on those shares.
All or a portion of any loss that you realize upon the redemption of your
fund shares will be disallowed to the extent that you buy other shares in the
fund (through reinvestment of dividends or otherwise) within 30 days before
or after your share redemption. Any loss disallowed under these rules will be
added to your tax basis in the new shares you buy.
DEFERRAL OF BASIS If you redeem some or all of your shares in the fund, and
then reinvest the sales proceeds in the fund or in another Franklin Templeton
Fund within 90 days of buying the original shares, the sales charge that
would otherwise apply to your reinvestment may be reduced or eliminated. The
IRS will require you to report gain or loss on the redemption of your
original shares in the fund. In doing so, all or a portion of the sales
charge that you paid for your original shares in the fund will be excluded
from your tax basis in the shares sold (for the purpose of determining gain
or loss upon the sale of such shares). The portion of the sales charge
excluded will equal the amount that the sales charge is reduced on your
reinvestment. Any portion of the sales charge excluded from your tax basis in
the shares sold will be added to the tax basis of the shares you acquire from
your reinvestment.
U.S. GOVERNMENT OBLIGATIONS States grant tax-free status to dividends paid to
you from interest earned on direct obligations of the U.S. government,
subject in some states to minimum investment or reporting requirements that
must be met by the fund. Investments in Government National Mortgage
Association or Federal National Mortgage Association securities, bankers'
acceptances, commercial paper and repurchase agreements collateralized by
U.S. government securities do not generally qualify for tax-free treatment.
The rules on exclusion of this income are different for corporations.
DIVIDENDS-RECEIVED DEDUCTION FOR CORPORATIONS If you are a corporate
shareholder, you should note that 20.52% of the dividends paid by the fund
for the most recent fiscal year qualified for the dividends-received
deduction. You may be allowed to deduct these qualified dividends, thereby
reducing the tax that you would otherwise be required to pay on these
dividends. The dividends-received deduction will be available only with
respect to dividends designated by the fund as eligible for such treatment.
All dividends (including the deducted portion) must be included in your
alternative minimum taxable income calculation.
INVESTMENT IN COMPLEX SECURITIES The fund may invest in complex securities.
These investments may be subject to numerous special and complex tax rules.
These rules could affect whether gains and losses recognized by the fund are
treated as ordinary income or capital gain, accelerate the recognition of
income to the fund and/or defer the fund's ability to recognize losses, and,
in limited cases, subject the fund to U.S. federal income tax on income from
certain of its foreign securities. In turn, these rules may affect the
amount, timing or character of the income distributed to you by the fund.
ORGANIZATION, VOTING RIGHTS AND PRINCIPAL HOLDERS
- -------------------------------------------------------------------------------
The fund is a non-diversified, open-end management investment company,
commonly called a mutual fund. The fund was oriignally organized as a
California corporation on June 20, 1968 and was reorganized as a Delaware
business trust on April 10, 2000, and is registered with the SEC.
The fund currently offers four classes of shares, Class A, Class B, Class C
and Advisor Class. Before January 1, 1999, Class A shares were designated
Class I and Class C shares were designated Class II. The fund began offering
Class B shares on January 1, 1999. The fund may offer additional classes of
shares in the future. The full title of each class is:
o Franklin Gold and Precious Metals Fund - Class A
o Franklin Gold and Precious Metals Fund - Class B
o Franklin Gold and Precious Metals Fund - Class C
o Franklin Gold and Precious Metals Fund - Advisor Class
Shares of each class represent proportionate interests in the fund's assets.
On matters that affect the fund as a whole, each class has the same voting
and other rights and preferences as any other class. On matters that affect
only one class, only shareholders of that class may vote. Each class votes
separately on matters affecting only that class, or expressly required to be
voted on separately by state or federal law.
The fund has noncumulative voting rights. For board member elections, this
gives holders of more than 50% of the shares voting the ability to elect all
of the members of the board. If this happens, holders of the remaining shares
voting will not be able to elect anyone to the board.
The fund does not intend to hold annual shareholder meetings. The 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 also may be called by the board in its discretion.
As of January 24, 2000, the principal shareholders of the fund, beneficial or
of record, were:
SHARE PERCENTAGE
NAME AND ADDRESS CLASS (%)
- -----------------------------------------------------------------
Franklin Templeton Trust Company CUST Class B 8.06
for the Rollover IRA of Steven W.
Allen
2624 Quail Valley
Irving, TX 75060
Franklin Templeton Trust Company Advisor Class 40.38
TTEE for ValuSelect
Franklin Resources, Inc.
Profit Sharing Plan1
P.O. Box 2438
Rancho Cordova, CA 95741-2438
1. Charles B. Johnson and Rupert H. Johnson, Jr., who are officers and
trustees of the fund, serve on the Administrative Committee of the Franklin
Resources, Inc. profit sharing plan which owns shares of the fund. In that
capacity, they participate in the voting of such shares. Charles B. Johnson
and Rupert H. Johnson, Jr., disclaim beneficial ownership of any share of the
fund owned by the profit sharing plan.
From time to time, the number of fund shares held in the "street name"
accounts of various securities dealers for the benefit of their clients or in
centralized securities depositories may exceed 5% of the total shares
outstanding.
As of January 24, 2000, the officers and board members, as a group, owned of
record and beneficially 1.4% of the fund's Advisor Class shares and less than
1% of the outstanding shares of the other classes. The board members may own
shares in other funds in the Franklin Templeton Group of Funds.
BUYING AND SELLING SHARES
- -------------------------------------------------------------------------------
The fund continuously offers its shares through securities dealers who have
an agreement with Franklin Templeton Distributors, Inc. (Distributors). A
securities dealer includes any financial institution that, either directly or
through affiliates, has an agreement with Distributors to handle customer
orders and accounts with the fund. This reference is for convenience only and
does not indicate a legal conclusion of capacity. Banks and financial
institutions that sell shares of the fund may be required by state law to
register as securities dealers.
For investors outside the U.S., the offering of fund shares may be limited in
many jurisdictions. An investor who wishes to buy shares of the 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.
All checks, drafts, wires and other payment mediums used to buy or sell
shares of the fund must be denominated in U.S. dollars. We may, in our sole
discretion, either (a) reject any order to buy or sell shares denominated in
any other currency or (b) honor the transaction or make adjustments to your
account for the transaction as of a date and with a foreign currency exchange
factor determined by the drawee bank. We may deduct any applicable banking
charges imposed by the bank from your account.
When you buy shares, if you submit a check or a draft that is returned unpaid
to the fund we may impose a $10 charge against your account for each returned
item.
If you buy shares through the reinvestment of dividends, the shares will be
purchased at the net asset value determined on the business day following the
dividend record date (sometimes known as the "ex-dividend date"). The
processing date for the reinvestment of dividends may vary and does not
affect the amount or value of the shares acquired.
INITIAL SALES CHARGES The maximum initial sales charge is 5.75% for Class A
and 1% for Class C. There is no initial sales charge for Class B.
The initial sales charge for Class A shares may be reduced for certain large
purchases, as described in the prospectus. We offer several ways for you to
combine your purchases in the Franklin Templeton Funds to take advantage of
the lower sales charges for large purchases. The Franklin Templeton Funds
include the U.S. registered mutual funds in the Franklin Group of Funds(R) and
the Templeton Group of Funds except Franklin Templeton Variable Insurance
Products Trust, Templeton Capital Accumulator Fund, Inc., and Templeton
Variable Products Series Fund.
CUMULATIVE QUANTITY DISCOUNT. For purposes of calculating the sales charge on
Class A shares, you may combine the amount of your current purchase with the
cost or current value, whichever is higher, of your existing shares in the
Franklin Templeton Funds. You also may combine the shares of your spouse,
children under the age of 21 or grandchildren under the age of 21. If you are
the sole owner of a company, you also may 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 (LOI). You may buy Class A shares at a reduced sales charge
by completing the letter of intent section of your 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. By completing the letter of intent section of the
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 LOI. Your
periodic statements will include the reserved shares in the total shares
you own, and we will pay or reinvest dividend and capital gain
distributions on the reserved shares according to the distribution option
you have chosen.
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 LOI.
o Although you may exchange your shares, you may not sell reserved shares
until you complete the LOI or pay the higher sales charge.
After you file your LOI with the fund, you may buy Class A shares at the
sales charge applicable to the amount specified in your LOI. Sales charge
reductions based on purchases in more than one Franklin Templeton Fund will
be effective only after notification to Distributors that the investment
qualifies for a discount. Any Class A purchases you made within 90 days
before you filed your LOI also may qualify for a retroactive reduction in the
sales charge. If you file your LOI with the fund before a change in the
fund's sales charge, you may complete the LOI at the lower of the new sales
charge or the sales charge in effect when the LOI was filed.
Your holdings in the Franklin Templeton Funds acquired more than 90 days
before you filed your LOI will be counted towards the completion of the LOI,
but they will not be entitled to a retroactive reduction in the sales charge.
Any redemptions you make during the 13 month period, except in the case of
certain retirement plans, will be subtracted from the amount of the purchases
for purposes of determining whether the terms of the LOI have been completed.
If the terms of your LOI are met, the reserved shares will be deposited to an
account in your name or delivered to you or as you direct. If the amount of
your total purchases, less redemptions, is more than the amount specified in
your LOI and is an amount that would qualify for a further sales charge
reduction, a retroactive price adjustment will be made by Distributors and
the securities dealer through whom purchases were made. The price adjustment
will be made on purchases made within 90 days before and on those made after
you filed your LOI and will be applied towards the purchase of additional
shares at the offering price applicable to a single purchase or the dollar
amount of the total purchases.
If the amount of your total purchases, less redemptions, is less than the
amount specified in your LOI, the sales charge will be adjusted upward,
depending on the actual amount purchased (less redemptions) during the
period. You will need to send Distributors an amount equal to the difference
in the actual dollar amount of sales charge paid and the amount of sales
charge that would have applied to the total purchases if the total of the
purchases had been made at one time. Upon payment of this amount, the
reserved shares held for your account will be deposited to an account in your
name or delivered to you or as you direct. If within 20 days after written
request the difference in sales charge is not paid, we will redeem an
appropriate number of reserved shares to realize the difference. If you
redeem the total amount in your account before you fulfill your LOI, we will
deduct the additional sales charge due from the sale proceeds and forward the
balance to you.
For LOIs filed on behalf of certain retirement plans, the level and any
reduction in sales charge for these plans will be based on actual plan
participation and the projected investments in the Franklin Templeton Funds
under the LOI. These plans are not subject to the requirement to reserve 5%
of the total intended purchase or to the policy on upward adjustments in
sales charges described above, or to any penalty as a result of the early
termination of a plan, nor are these plans entitled to receive retroactive
adjustments in price for investments made before executing the LOI.
GROUP PURCHASES. 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 fund, and
o Meets other uniform criteria that allow Distributors to achieve cost
savings in distributing shares.
A qualified group generally does not include a 403(b) plan that only allows
salary deferral contributions, although any such plan that purchased the
fund's Class A shares at a reduced sales charge under the group purchase
privilege before February 1, 1998, may continue to do so.
WAIVERS FOR INVESTMENTS FROM CERTAIN PAYMENTS. Class A shares may be
purchased without an initial sales charge or contingent deferred sales charge
(CDSC) by investors who reinvest within 365 days:
o Dividend and capital gain distributions from any Franklin Templeton
Fund. The distributions generally must be reinvested in the same share
class. 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 the fund's
Class A shares. This waiver category also applies to Class B and C shares.
o Dividend or capital gain distributions from a real estate investment
trust (REIT) sponsored or advised by Franklin Properties, Inc.
o Annuity payments received under either an annuity option or from death
benefit proceeds, if the annuity contract offers as an investment option
the Franklin Templeton Variable Insurance Products Trust or the Templeton
Variable Products Series Fund. You should contact your tax advisor for
information on any tax consequences that may apply.
o 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.
o 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 CDSC when you redeemed your Class A shares from a Templeton
Global Strategy Fund, a new CDSC will apply to your purchase of fund shares
and the CDSC holding period will begin again. We will, however, credit your
fund account with additional shares based on the CDSC you previously paid
and the amount of the redemption proceeds that you reinvest.
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.
o Distributions from an existing retirement plan invested in the Franklin
Templeton Funds
WAIVERS FOR CERTAIN INVESTORS. Class A shares also may be purchased without
an initial sales charge or CDSC by various individuals and institutions due
to anticipated economies in sales efforts and expenses, including:
o 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.
o Any state or local government or any instrumentality, department,
authority or agency thereof that has determined the fund is a legally
permissible investment and that can only buy fund shares without paying
sales charges. 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.
o Broker-dealers, registered investment advisors or certified financial
planners who have entered into an agreement with Distributors for clients
participating in comprehensive fee programs
o Qualified registered investment advisors who buy through a broker-dealer
or service agent who has entered into an agreement with Distributors
o Registered securities dealers and their affiliates, for their investment
accounts only
o Current employees of securities dealers and their affiliates and their
family members, as allowed by the internal policies of their employer
o 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
o Any investor who is currently a Class Z shareholder of Franklin Mutual
Series Fund Inc. (Mutual Series), or who is a former Mutual Series Class Z
shareholder who had an account in any Mutual Series fund on October 31,
1996, or who sold his or her shares of Mutual Series Class Z within the
past 365 days
o Investment companies exchanging shares or selling assets pursuant to a
merger, acquisition or exchange offer
o Accounts managed by the Franklin Templeton Group
o Certain unit investment trusts and their holders reinvesting
distributions from the trusts
o Group annuity separate accounts offered to retirement plans
o Chilean retirement plans that meet the requirements described under
"Retirement plans" below
In addition, Class C shares may be purchased without an initial sales charge
by any investor who buys Class C shares through an omnibus account with
Merrill Lynch Pierce Fenner & Smith, Inc. A CDSC may apply, however, if the
shares are sold within 18 months of purchase.
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 an initial sales
charge. Retirement plans that are not qualified retirement plans (employer
sponsored pension or profit-sharing plans that qualify under section 401 of
the Internal Revenue Code, including 401(k), money purchase pension, profit
sharing and defined benefit plans), SIMPLEs (savings incentive match plans
for employees) or SEPs (employer sponsored simplified employee pension plans
established under section 408(k) of the Internal Revenue Code) must also meet
the group purchase requirements described above to be able to buy Class A
shares without an initial 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 CDSC 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.
SALES IN TAIWAN. Under agreements with certain banks in Taiwan, Republic of
China, the fund's shares are available to these banks' trust accounts without
a sales charge. The banks may charge service fees to their customers who
participate in the trusts. A portion of these service fees may be paid to
Distributors or one of its affiliates to help defray expenses of maintaining
a service office in Taiwan, including expenses related to local literature
fulfillment and communication facilities.
The fund's Class A shares may be offered to investors in Taiwan through
securities advisory firms known locally as Securities Investment Consulting
Enterprises. In conformity with local business practices in Taiwan, Class A
shares may be offered with the following schedule of sales charges:
SIZE OF PURCHASE - U.S. DOLLARS SALES CHARGE
(%)
- -----------------------------------------------------------------
Under $30,000 3.0
$30,000 but less than $50,000 2.5
$50,000 but less than $100,000 2.0
$100,000 but less than $200,000 1.5
$200,000 but less than $400,000 1.0
$400,000 or more 0
DEALER COMPENSATION Securities dealers may at times receive the entire sales
charge. A securities dealer who receives 90% or more of the sales charge may
be deemed an underwriter under the Securities Act of 1933, as amended.
Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages indicated in the dealer compensation table
in the fund's prospectus.
Distributors may pay the following commissions, out of its own resources, to
securities dealers who initiate and are responsible for purchases of Class A
shares of $1 million or more: 1% on sales of $1 million to $2 million, plus
0.80% on sales over $2 million to $3 million, plus 0.50% on sales over $3
million to $50 million, plus 0.25% on sales over $50 million to $100 million,
plus 0.15% on sales over $100 million.
These breakpoints are reset every 12 months for purposes of additional
purchases.
Distributors or one of its affiliates may pay up to 1%, out of its own
resources, to securities dealers who initiate and are responsible for
purchases of Class A shares by certain retirement plans without an initial
sales charge. These payments may be made in the form of contingent advance
payments, which may be recovered from the securities dealer or set off
against other payments due to the dealer if shares are sold within 12 months
of the calendar month of purchase. Other conditions may apply. All terms and
conditions may be imposed by an agreement between Distributors, or one of its
affiliates, and the securities dealer.
In addition to the payments above, Distributors and/or its affiliates may
provide financial support to securities dealers that sell shares of the
Franklin Templeton Group of Funds. This support is based primarily on the
amount of sales of fund shares and/or total assets with the Franklin
Templeton Group of Funds. The amount of support may be affected by: total
sales; net sales; levels of redemptions; the proportion of a securities
dealer's sales and marketing efforts in the Franklin Templeton Group of
Funds; a securities dealer's support of, and participation in, Distributors'
marketing programs; a securities dealer's compensation programs for its
registered representatives; and the extent of a securities dealer's marketing
programs relating to the Franklin Templeton Group of Funds. Financial support
to securities dealers may be made by payments from Distributors' resources,
from Distributors' retention of underwriting concessions and, in the case of
funds that have Rule 12b-1 plans, from payments to Distributors under such
plans. In addition, certain securities dealers may receive brokerage
commissions generated by fund portfolio transactions in accordance with the
rules of the National Association of Securities Dealers, Inc.
Distributors routinely sponsors due diligence meetings for registered
representatives during which they receive updates on various Franklin
Templeton Funds and are afforded the opportunity to speak with portfolio
managers. Invitation to these meetings is not conditioned on selling a
specific number of shares. Those who have shown an interest in the Franklin
Templeton Funds, however, are more likely to be considered. To the extent
permitted by their firm's policies and procedures, registered
representatives' expenses in attending these meetings may be covered by
Distributors.
CONTINGENT DEFERRED SALES CHARGE (CDSC) If you invest $1 million or more in
Class A shares, either as a lump sum or through our cumulative quantity
discount or letter of intent programs, a CDSC may apply on any shares you
sell within 12 months of purchase. For Class C shares, a CDSC may apply if
you sell your shares within 18 months of purchase. The CDSC 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 an initial sales charge also may be
subject to a CDSC 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 CDSC 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.
IF YOU SELL YOUR CLASS B SHARES WITHIN THIS % IS DEDUCTED FROM
THIS MANY YEARS AFTER BUYING THEM YOUR PROCEEDS AS A CDSC
- ----------------------------------------------------------------------
1 Year 4
2 Years 4
3 Years 3
4 Years 3
5 Years 2
6 Years 1
7 Years 0
CDSC WAIVERS. The CDSC for any share class generally will be waived for:
o Account fees
o Sales of Class A shares purchased without an initial 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 of Class A shares by investors who purchased $1 million or
more without an initial sales charge if the securities dealer of record
waived its commission in connection with the purchase
o Redemptions by the fund when an account falls below the minimum required
account size
o Redemptions following the death of the shareholder or beneficial owner
o Redemptions through a systematic withdrawal plan set up before February
1, 1995
o Redemptions through a systematic withdrawal plan set up on or after
February 1, 1995, up to 1% 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 individual retirement accounts (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)
EXCHANGE PRIVILEGE 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. Backup withholding and information reporting may apply.
If a substantial number of shareholders should, within a short period, sell
their fund shares under the exchange privilege, the fund might have to sell
portfolio securities it might otherwise hold and incur the additional costs
related to such transactions. On the other hand, increased use of the
exchange privilege may result in periodic large inflows of money. If this
occurs, it is the fund's general policy to initially invest this money in
short-term, interest-bearing money market instruments, unless it is believed
that attractive investment opportunities consistent with the fund's
investment goals exist immediately. This money will then be withdrawn from
the short-term, interest-bearing money market instruments and invested in
portfolio securities in as orderly a manner as is possible when attractive
investment opportunities arise.
The proceeds from the sale of shares of an investment company generally are
not available until the seventh day following the sale. The funds you are
seeking to exchange into may delay issuing shares pursuant to an exchange
until that seventh day. The sale of fund shares to complete an exchange will
be effected at net asset value at the close of business on the day the
request for exchange is received in proper form.
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. There are no service charges
for establishing or maintaining a systematic withdrawal plan.
Payments under the plan will be made from the redemption of an equivalent
amount of shares in your account, generally on the 25th day of the month in
which a payment is scheduled. If the 25th falls on a weekend or holiday, we
will process the redemption on the next business day. 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 also
may be subject to a CDSC.
Redeeming shares through a systematic withdrawal plan may reduce or exhaust
the shares in your account if payments exceed distributions received from the
fund. This is especially likely to occur if there is a market decline. If a
withdrawal amount exceeds the value of your account, your account will be
closed and the remaining balance in your account will be sent to you. Because
the amount withdrawn under the plan may be more than your actual yield or
income, part of the payment may be a return of your investment.
You may discontinue a systematic withdrawal plan, change the amount and
schedule of withdrawal payments, or suspend one payment by notifying us by
mail or by phone at least seven business days before the end of the month
preceding a scheduled payment. The fund may discontinue a systematic
withdrawal plan by notifying you in writing and will automatically
discontinue a systematic withdrawal plan if all shares in your account are
withdrawn or if
the fund receives notification of the shareholder's death or incapacity.
REDEMPTIONS IN KIND The fund has committed itself to pay in cash (by check)
all requests for redemption by any shareholder of record, limited in amount,
however, during any 90-day period to the lesser of $250,000 or 1% of the
value of the fund's net assets at the beginning of the 90-day period. This
commitment is irrevocable without the prior approval of the U.S. Securities
and Exchange Commission (SEC). In the case of redemption requests in excess
of these amounts, the board reserves the right to make payments in whole or
in part in securities or other assets of the fund, in case of an emergency,
or if the payment of such a redemption in cash would be detrimental to the
existing shareholders of the fund. In these circumstances, the securities
distributed would be valued at the price used to compute the fund's net
assets and you may incur brokerage fees in converting the securities to cash.
The fund does not intend to redeem illiquid securities in kind. If this
happens, however, you may not be able to recover your investment in a timely
manner.
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.
GENERAL INFORMATION If dividend checks are returned to the fund marked
"unable to forward" by the postal service, we will consider this a request by
you to change your dividend option to reinvest all distributions. The
proceeds will be reinvested in additional shares at net asset value until we
receive new instructions.
Distribution or redemption checks sent to you do not earn interest or any
other income during the time the checks remain uncashed. Neither the fund nor
its affiliates will be liable for any loss caused by your failure to cash
such checks. The fund is not responsible for tracking down uncashed checks,
unless a check is returned as undeliverable.
In most cases, if mail is returned as undeliverable we are required to take
certain steps to try to find you free of charge. If these attempts are
unsuccessful, however, we may deduct the costs of any additional efforts to
find you from your account. These costs may include a percentage of the
account when a search company charges a percentage fee in exchange for its
location services.
Sending redemption proceeds by wire or electronic funds transfer (ACH) is a
special service that we make available whenever possible. By offering this
service to you, the fund is not bound to meet any redemption request in less
than the seven day period prescribed by law. Neither the fund nor its agents
shall be liable to you or any other person if, for any reason, a redemption
request by wire or ACH is not processed as described in the prospectus.
Franklin Templeton Investor Services, Inc. (Investor Services) may pay
certain financial institutions that maintain omnibus accounts with the fund
on behalf of numerous beneficial owners for recordkeeping operations
performed with respect to such owners. For each beneficial owner in the
omnibus account, the fund may reimburse Investor Services an amount not to
exceed the per account fee that the fund normally pays Investor Services.
These financial institutions also may charge a fee for their services
directly to their clients.
If you buy or sell shares through your securities dealer, we use the net
asset value next calculated after your securities dealer receives your
request, which is promptly transmitted to the fund. If you sell shares
through your securities dealer, it is your dealer's responsibility to
transmit the order to the fund in a timely fashion. 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. Any loss to you resulting
from your dealer's failure to transmit your redemption order to the fund in a
timely fashion must be settled between you and your securities dealer.
Certain shareholder servicing agents may be authorized to accept your
transaction request.
For institutional accounts, there may be additional methods of buying or
selling fund shares than those described in this SAI or in the prospectus.
In the event of disputes involving multiple claims of ownership or authority
to control your account, the fund has the right (but has no obligation) to:
(a) freeze the account and require the written agreement of all persons
deemed by the fund to have a potential property interest in the account,
before executing instructions regarding the account; (b) interplead disputed
funds or accounts with a court of competent jurisdiction; or (c) surrender
ownership of all or a portion of the account to the IRS in response to a
notice of levy.
PRICING SHARES
- -------------------------------------------------------------------------------
When you buy shares, you pay the offering price. The offering price is the
net asset value (NAV) per share plus any applicable sales charge, calculated
to two decimal places using standard rounding criteria. When you sell shares,
you receive the NAV minus any applicable CDSC.
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.
The fund calculates the NAV per share of each class each business day at the
close of trading on the New York Stock Exchange (normally 1:00 p.m. Pacific
time). The fund does not calculate the NAV on days the New York Stock
Exchange (NYSE) is closed for trading, which include New Year's Day, Martin
Luther King Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day.
When determining its NAV, the fund values cash and receivables at their
realizable amounts, and records interest as accrued and dividends on the
ex-dividend date. If market quotations are readily available for portfolio
securities listed on a securities exchange or on the NASDAQ National Market
System, the fund values those securities at the last quoted sale price of the
day or, if there is no reported sale, within the range of the most recent
quoted bid and ask prices. The fund values over-the-counter portfolio
securities within the range of the most recent quoted bid and ask prices. If
portfolio securities trade both in the over-the-counter market and on a stock
exchange, the fund values them according to the broadest and most
representative market as determined by the manager.
The fund determines the value of a foreign security as of the close of
trading on the foreign exchange on which the security is traded or as of the
close of trading on the NYSE, if that is earlier. The value is then converted
into its U.S. dollar equivalent at the foreign exchange rate in effect at
noon, New York time, on the day the value of the foreign security is
determined. If no sale is reported at that time, the foreign security is
valued within the range of the most recent quoted bid and ask prices.
Occasionally events that affect the values of foreign securities and foreign
exchange rates may occur between the times at which they are determined and
the close of the exchange and will, therefore, not be reflected in the
computation of the NAV. If events materially affecting the values of these
foreign securities occur during this period, the securities will be valued in
accordance with procedures established by the board.
Generally, trading in corporate bonds, U.S. government securities and money
market instruments is substantially completed each day at various times
before the close of the NYSE. The value of these securities used in computing
the NAV is determined as of such times. Occasionally, events affecting the
values of these securities may occur between the times at which they are
determined and the close of the NYSE that will not be reflected in the
computation of the NAV. If events materially affecting the values of these
securities occur during this period, the securities will be valued at their
fair value as determined in good faith by the board.
Other securities for which market quotations are readily available are valued
at the current market price, which may be obtained from a pricing service,
based on a variety of factors including recent trades, institutional size
trading in similar types of securities (considering yield, risk and maturity)
and/or developments related to specific issues. Securities and other assets
for which market prices are not readily available are valued at fair value as
determined following procedures approved by the board. With the approval of
the board, the fund may use a pricing service, bank or securities dealer to
perform any of the above described functions.
THE UNDERWRITER
- -------------------------------------------------------------------------------
Franklin Templeton Distributors, Inc. (Distributors) acts as the principal
underwriter in the continuous public offering of the fund's shares.
Distributors is located at 777 Mariners Island Blvd., San Mateo, CA 94404.
Distributors pays the expenses of the distribution of fund shares, including
advertising expenses and the costs of printing sales material and
prospectuses used to offer shares to the public. The fund pays the expenses
of preparing and printing amendments to its registration statements and
prospectuses (other than those necessitated by the activities of
Distributors) and of sending prospectuses to existing shareholders.
The table below shows the aggregate underwriting commissions Distributors
received in connection with the offering of the fund's shares, the net
underwriting discounts and commissions Distributors retained after allowances
to dealers, and the amounts Distributors received in connection with
redemptions or repurchases of shares for the last three fiscal years ended
July 31:
AMOUNT
RECEIVED IN
CONNECTION
WITH
TOTAL AMOUNT REDEMPTIONS
COMMISSIONS RETAINED BY AND
RECEIVED DISTRIBUTORS REPURCHASES
($) ($) ($)
- ----------------------------------------------------------------------
1999 744,659 90,397 39,241
1998 1,307,674 130,573 24,246
1997 1,365,973 137,857 24,272
Distributors may be entitled to reimbursement under the Rule 12b-1 plans, as
discussed below. Except as noted, Distributors received no other compensation
from the fund for acting as underwriter.
DISTRIBUTION AND SERVICE (12B-1) FEES Each class has a separate distribution
or "Rule 12b-1" plan. Under each plan, the 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.
The distribution and service (12b-1) fees charged to each class are based
only on the fees attributable to that particular class.
THE CLASS A PLAN. Payments by the fund under the Class A plan may not exceed
0.25% per year of Class A's average daily net assets, payable quarterly. All
distribution expenses over this amount will be borne by those who have
incurred them.
In implementing the Class A plan, the board has determined that the annual
fees payable under the plan will be equal to the sum of: (i) the amount
obtained by multiplying 0.25% by the average daily net assets represented by
the fund's Class A shares that were acquired by investors on or after May 1,
1994, the effective date of the plan (new assets), and (ii) the amount
obtained by multiplying 0.15% by the average daily net assets represented by
the fund's Class A shares that were acquired before May 1, 1994 (old assets).
These fees will be paid to the current securities dealer of record on the
account. In addition, until such time as the maximum payment of 0.25% is
reached on a yearly basis, up to an additional 0.05% will be paid to
Distributors under the plan. The payments made to Distributors will be used
by Distributors to defray other marketing expenses that have been incurred in
accordance with the plan, such as advertising.
The fee is a Class A expense. This means that all Class A shareholders,
regardless of when they purchased their shares, will bear Rule 12b-1 expenses
at the same rate. The initial rate will be at least 0.20% (0.15% plus 0.05%)
of the average daily net assets of Class A and, as Class A shares are sold on
or after May 1, 1994, will increase over time. Thus, as the proportion of
Class A shares purchased on or after May 1, 1994, increases in relation to
outstanding Class A shares, the expenses attributable to payments under the
plan also will increase (but will not exceed 0.25% of average daily net
assets). While this is the currently anticipated calculation for fees payable
under the Class A plan, the plan permits the board to allow the fund to pay a
full 0.25% on all assets at any time. The approval of the board would be
required to change the calculation of the payments to be made under the Class
A plan.
The Class A plan does not permit unreimbursed expenses incurred in a
particular year to be carried over to or reimbursed in later years.
THE CLASS B AND C PLANS. Under the Class B and C plans, the fund pays
Distributors up to 0.75% per year of the class's 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. The fund also
may pay a servicing fee of up to 0.25% per year of the class's 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 each of the Class B and C plans also are used to pay
Distributors for advancing the commission costs to securities dealers with
respect to the initial sale of Class B and C 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.
THE CLASS A, B AND C PLANS. In addition to the payments that Distributors or
others are entitled to under each plan, each plan also provides that to the
extent the fund, the manager or Distributors or other parties on behalf of
the fund, the manager or Distributors make payments that are deemed to be for
the financing of any activity primarily intended to result in the sale of
fund shares within the context of Rule 12b-1 under the Investment Company Act
of 1940, as amended, then such payments shall be deemed to have been made
pursuant to the plan. The terms and provisions of each plan relating to
required reports, term, and approval are consistent with Rule 12b-1.
In no event shall the aggregate asset-based sales charges, which include
payments made under each plan, plus any other payments deemed to be made
pursuant to a plan, exceed the amount permitted to be paid under the rules of
the National Association of Securities Dealers, Inc.
To the extent fees are for distribution or marketing functions, as
distinguished from administrative servicing or agency transactions, certain
banks will not be entitled to participate in the plans as a result of
applicable federal law prohibiting certain banks from engaging in the
distribution of mutual fund shares. These banking institutions, however, are
permitted to receive fees under the plans for administrative servicing or for
agency transactions. If you are a customer of a bank that is prohibited from
providing these services, you would be permitted to remain a shareholder of
the fund, and alternate means for continuing the servicing would be sought.
In this event, changes in the services provided might occur and you might no
longer be able to avail yourself of any automatic investment or other
services then being provided by the bank. It is not expected that you would
suffer any adverse financial consequences as a result of any of these changes.
Each plan has been approved in accordance with the provisions of Rule 12b-1.
The plans are renewable annually by a vote of the board, including a majority
vote of the board members who are not interested persons of the fund and who
have no direct or indirect financial interest in the operation of the plans,
cast in person at a meeting called for that purpose. It is also required that
the selection and nomination of such board members be done by the
noninterested members of the fund's board. The plans and any related
agreement may be terminated at any time, without penalty, by vote of a
majority of the noninterested board members on not more than 60 days' written
notice, by Distributors on not more than 60 days' written notice, by any act
that constitutes an assignment of the management agreement with the manager
or by vote of a majority of the outstanding shares of the class. Distributors
or any dealer or other firm also may terminate their respective distribution
or service agreement at any time upon written notice.
The plans and any related agreements may not be amended to increase
materially the amount to be spent for distribution expenses without approval
by a majority of the outstanding shares of the class, and all material
amendments to the plans or any related agreements shall be approved by a vote
of the noninterested board members, cast in person at a meeting called for
the purpose of voting on any such amendment.
Distributors is required to report in writing to the board at least quarterly
on the amounts and purpose of any payment made under the plans and any
related agreements, as well as to furnish the board with such other
information as may reasonably be requested in order to enable the board to
make an informed determination of whether the plans should be continued.
For the fiscal year ended July 31, 1999, Distributors' eligible expenditures
for advertising, printing, payments to underwriters and broker-dealers and
other expenses pursuant to the plans and the amounts the fund paid
Distributors under the plans were:
DISTRIBUTORS' AMOUNT
ELIGIBLE PAID BY THE
EXPENSES ($) FUND ($)
- ---------------------------------------------------------------
Class A 516,096 470,886
Class B 54,030 3,005
Class C 266,956 239,832
PERFORMANCE
- -------------------------------------------------------------------------------
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 the fund be accompanied
by certain standardized performance information computed as required by the
SEC. Average annual total return quotations used by the fund are based on the
standardized methods of computing performance mandated by the SEC.
Performance figures reflect Rule 12b-1 fees from the date of the plan's
implementation. An explanation of these and other methods used by the fund 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.
AVERAGE ANNUAL TOTAL RETURN Average annual total return is determined by
finding the average annual rates of return over the periods indicated below
that would equate an initial hypothetical $1,000 investment to its ending
redeemable value. The calculation assumes the maximum initial sales charge is
deducted from the initial $1,000 purchase, and income dividends and capital
gain distributions are reinvested at net asset value. The quotation assumes
the account was completely redeemed at the end of each period and the
deduction of all applicable charges and fees. If a change is made to the
sales charge structure, historical performance information will be restated
to reflect the maximum initial sales charge currently in effect.
When considering the average annual total return quotations for Class A and C
shares, you should keep in mind that the maximum initial sales charge
reflected in each quotation is a one time fee charged on all direct
purchases, which will have its greatest impact during the early stages of
your investment. This charge will affect actual performance less the longer
you retain your investment in the fund. The average annual total returns for
the indicated periods ended July 31, 1999, were:
1 YEAR (%) 5 YEARS (%) 10 YEARS (%)
- --------------------------------------------------------------------
Class A 5.05 -9.44 -1.56
SINCE
INCEPTION
1 YEAR (%) (5/1/95) (%)
- --------------------------------------------------------------------
Class C 8.68 -10.95
The following SEC formula was used to calculate these figures:
n
P(1+T) = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of each period at the end of each period
CUMULATIVE TOTAL RETURN Like average annual total return, cumulative total
return assumes the maximum initial sales charge is deducted from the initial
$1,000 purchase, income dividends and capital gain distributions are
reinvested at net asset value, the account was completely redeemed at the end
of each period and the deduction of all applicable charges and fees.
Cumulative total return, however, is based on the actual return for a
specified period rather than on the average return over the periods indicated
above. The cumulative total returns for the indicated periods ended July 31,
1999, were:
1 YEAR (%) 5 YEARS (%) 10 YEARS (%)
--------------------------------------------------------------------
Class A 5.05 -39.10 -14.51
SINCE
INCEPTION
1 YEAR (%) (1/1/99) (%)
--------------------------------------------------------------------
Class B N/A 2.99
SINCE
INCEPTION
1 YEAR (%) (1/1/99) (%)
--------------------------------------------------------------------
Class C 8.68 -38.92
VOLATILITY Occasionally statistics may be used to show the fund's volatility
or risk. Measures of volatility or risk are generally used to compare the
fund's net asset value or performance to a market index. One measure of
volatility is beta. Beta is the volatility of a fund relative to the total
market, as represented by an index considered representative of the types of
securities in which the fund invests. A beta of more than 1.00 indicates
volatility greater than the market and a beta of less than 1.00 indicates
volatility less than the market. Another measure of volatility or risk is
standard deviation. Standard deviation is used to measure variability of net
asset value or total return around an average over a specified period of
time. The idea is that greater volatility means greater risk undertaken in
achieving performance.
OTHER PERFORMANCE QUOTATIONS The fund also may quote the performance of
shares without a sales charge. Sales literature and advertising may quote a
cumulative total return, average annual total return and other measures of
performance with the substitution of net asset value for the public offering
price.
Sales literature referring to the use of the fund as a potential investment
for IRAs, business retirement plans, and other tax-advantaged retirement
plans may quote a total return based upon compounding of dividends on which
it is presumed no federal income tax applies.
The fund may include in its advertising or sales material information
relating to investment goals and performance results of funds belonging to
the Franklin Templeton Group of Funds. Franklin Resources, Inc. is the parent
company of the advisors and underwriter of the Franklin Templeton Group of
Funds.
COMPARISONS To help you better evaluate how an investment in the fund may
satisfy your investment goal, advertisements and other materials about the
fund may discuss certain measures of fund performance as reported by various
financial publications. Materials also may compare performance (as calculated
above) to performance as reported by other investments, indices, and
averages. These comparisons may include, but are not limited to, the
following examples:
o Dow Jones(R) Composite Average and its component averages - a
price-weighted average of 65 stocks that trade on the New York Stock
Exchange. The average is a combination of the Dow Jones Industrial Average
(30 blue-chip stocks that are generally leaders in their industry), the Dow
Jones Transportation Average (20 transportation stocks), and the Dow Jones
Utilities Average (15 utility stocks involved in the production of
electrical energy).
o Standard & Poor's(R) 500 Stock Index or its component indices - a
capitalization-weighted index designed to measure performance of the broad
domestic economy through changes in the aggregate market value of 500
stocks representing all major industries.
o The New York Stock Exchange composite or component indices - an
unmanaged index of all industrial, utilities, transportation, and finance
stocks listed on the NYSE.
o Wilshire 5000 Equity Index - represents the return on the market value
of all common equity securities for which daily pricing is available.
Comparisons of performance assume reinvestment of dividends.
o Lipper - Mutual Fund Performance Analysis and Lipper - Equity Fund
Performance Analysis - measure total return and average current yield for
the mutual fund industry and rank individual mutual fund performance over
specified time periods, assuming reinvestment of all distributions,
exclusive of any applicable sales charges.
o CDA Mutual Fund Report, published by CDA Investment Technologies, Inc. -
analyzes price, current yield, risk, total return, and average rate of
return (average annual compounded growth rate) over specified time periods
for the mutual fund industry.
o Mutual Fund Source Book, published by Morningstar, Inc. - analyzes
price, yield, risk, and total return for mutual funds.
o Financial publications: The Wall Street Journal, and Business Week,
Changing Times, Financial World, Forbes, Fortune, and Money magazines -
provide performance statistics over specified time periods.
o Consumer Price Index (or Cost of Living Index), published by the U.S.
Bureau of Labor Statistics - a statistical measure of change, over time, in
the price of goods and services in major expenditure groups.
o Stocks, Bonds, Bills, and Inflation, published by Ibbotson Associates -
historical measure of yield, price, and total return for common and small
company stock, long-term government bonds, Treasury bills, and inflation.
o Savings and Loan Historical Interest Rates - as published in the U.S.
Savings & Loan League Fact Book.
o Historical data supplied by the research departments of CS First Boston
Corporation, the J.P. Morgan companies, Salomon Brothers, Merrill Lynch,
Lehman Brothers and Bloomberg L.P.
o Morningstar - information published by Morningstar, Inc., including
Morningstar proprietary mutual fund ratings. The ratings reflect
Morningstar's assessment of the historical risk-adjusted performance of a
fund over specified time periods relative to other funds within its
category.
o The Financial Times (FT) Gold Mines Index - a price index intended to
illustrate the trend or "mood" of this market sector, not measure long-term
performance.
From time to time, advertisements or information for the fund may include a
discussion of certain attributes or benefits to be derived from an investment
in the fund. The advertisements or information may include symbols,
headlines, or other material that highlights or summarizes the information
discussed in more detail in the communication.
Advertisements or information also may compare the fund's performance to the
return on certificates of deposit (CDs) or other investments. You should be
aware, however, that an investment in the fund involves the risk of
fluctuation of principal value, a risk generally not present in an investment
in a CD issued by a bank. For example, as the general level of interest rates
rise, the value of the fund's fixed-income investments, if any, as well as
the value of its shares that are based upon the value of such portfolio
investments, can be expected to fall. Conversely, when interest rates
decrease, the value of the fund's shares can be expected to increase. CDs are
frequently insured by an agency of the U.S. government. An investment in the
fund is not insured by any federal, state or private entity.
In assessing comparisons of performance, you should keep in mind that the
composition of the investments in the reported indices and averages is not
identical to the fund's portfolio, the indices and averages are generally
unmanaged, and the items included in the calculations of the averages may not
be identical to the formula used by the fund to calculate its figures. In
addition, there can be no assurance that the fund will continue its
performance as compared to these other averages.
MISCELLANEOUS INFORMATION
- -------------------------------------------------------------------------------
The fund may help you achieve various investment goals such as accumulating
money for retirement, saving for a down payment on a home, college costs and
other long-term goals. The Franklin College Costs Planner may help you in
determining how much money must be invested on a monthly basis in order to
have a projected amount available in the future to fund a child's college
education. (Projected college cost estimates are based upon current costs
published by the College Board.) The Franklin Retirement Planning Guide leads
you through the steps to start a retirement savings program. Of course, an
investment in the fund cannot guarantee that these goals will be met.
The fund is a member of the Franklin Templeton Group of Funds, one of the
largest mutual fund organizations in the U.S., and may be considered in a
program for diversification of assets. Founded in 1947, Franklin is one of
the oldest mutual fund organizations and now services approximately 3 million
shareholder accounts. In 1992, Franklin, a leader in managing fixed-income
mutual funds and an innovator in creating domestic equity funds, joined
forces with Templeton, a pioneer in international investing. The Mutual
Series team, known for its value-driven approach to domestic equity
investing, became part of the organization four years later. Together, the
Franklin Templeton Group has over $224 billion in assets under management for
more than 5 million U.S. based mutual fund shareholder and other accounts.
The Franklin Templeton Group of Funds offers 103 U.S. based open-end
investment companies to the public. The fund may identify itself by its
NASDAQ symbol or CUSIP number.
Currently, there are more mutual funds than there are stocks listed on the
New York Stock Exchange. While many of them have similar investment goals, no
two are exactly alike. Shares of the fund are generally sold through
securities dealers, whose investment representatives are experienced
professionals who can offer advice on the type of investments suitable to
your unique goals and needs, as well as the risks associated with such
investments.
DESCRIPTION OF RATINGS
- -------------------------------------------------------------------------------
CORPORATE BOND RATINGS
MOODY'S INVESTORS SERVICE, INC. (MOODY'S)
Aaa: Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or exceptionally
stable margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa: Bonds rated Aa are judged to be high quality by all standards. Together
with the Aaa group, they comprise what are generally known as high-grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large, fluctuation of protective elements may be of greater
amplitude, or there may be other elements present that make the long-term
risks appear somewhat larger.
A: Bonds rated A possess many favorable investment attributes and are
considered upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
that suggest a susceptibility to impairment sometime in the future.
Baa: Bonds rated Baa are considered medium-grade obligations. They are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may
be lacking or may be characteristically unreliable over any great length of
time. These bonds lack outstanding investment characteristics and, in fact,
have speculative characteristics as well.
Ba: Bonds rated Ba are judged to have predominantly speculative elements and
their future cannot be considered well assured. Often the protection of
interest and principal payments is very moderate and, thereby, not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B: Bonds rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms
of the contract over any long period of time may be small.
Caa: Bonds rated Caa are of poor standing. These issues may be in default or
there may be present elements of danger with respect to principal or interest.
Ca: Bonds rated Ca represent obligations that are speculative to a high
degree. These issues are often in default or have other marked shortcomings.
C: Bonds rated C are the lowest rated class of bonds and can be regarded as
having extremely poor prospects of ever attaining any real investment
standing.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond ratings. The modifier
1 indicates that the security ranks in the higher end of its generic rating
category; modifier 2 indicates a mid-range ranking; and modifier 3 indicates
that the issue ranks in the lower end of its generic rating category.
STANDARD & POOR'S RATINGS GROUP (S&P(R))
AAA: This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.
AA: Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong and, in the majority of instances,
differ from AAA issues only in a small degree.
A: Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions.
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay principal and interest for bonds in this
category than for bonds in the A category.
BB, B, CCC, CC: Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of the obligations.
BB indicates the lowest degree of speculation and CC the highest degree of
speculation. While these bonds will likely have some quality and protective
characteristics, they are outweighed by large uncertainties or major risk
exposures to adverse conditions.
C: Bonds rated C are typically subordinated debt to senior debt that is
assigned an actual or implied CCC- rating. The C rating also may reflect the
filing of a bankruptcy petition under circumstances where debt service
payments are continuing. The C1 rating is reserved for income bonds on which
no interest is being paid.
D: Debt rated D is in default and payment of interest and/
or repayment of principal is in arrears.
Plus (+) or minus (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
COMMERCIAL PAPER RATINGS
MOODY'S
Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually their promissory obligations not having an original maturity
in excess of nine months. Moody's employs the following designations, all
judged to be investment grade, to indicate the relative repayment capacity of
rated issuers:
P-1 (Prime-1): Superior capacity for repayment.
P-2 (Prime-2): Strong capacity for repayment.
S&P
S&P's ratings are a current assessment of the likelihood of timely payment of
debt having an original maturity of no more than 365 days. Ratings are graded
into four categories, ranging from "A" for the highest quality obligations to
"D" for the lowest. Issues within the "A" category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety, as follows:
A-1: This designation indicates the degree of safety regarding timely payment
is very strong. A "plus" (+) designation indicates an even stronger
likelihood of timely payment.
A-2: Capacity for timely payment on issues with this designation is strong.
The relative degree of safety, however, is not as overwhelming as for issues
designated A-1.
A-3: Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects
of changes in circumstances than obligations carrying the higher designations.
FRANKLIN GOLD AND PRECIOUS METALS FUND
ADVISOR CLASS
STATEMENT OF ADDITIONAL INFORMATION
DECEMBER 1, 1999, AS AMENDED APRIL 10, 2000
[Insert Franklin Templeton Ben Head]
P.O. BOX 997151, SACRAMENTO, CA 95899-9983 1-800/DIAL BEN(R)
- -------------------------------------------------------------------------------
This Statement of Additional Information (SAI) is not a prospectus. It
contains information in addition to the information in the fund's prospectus.
The fund's prospectus, dated December 1, 1999, as amended April 10, 2000,
which we may amend from time to time, contains the basic information you
should know before investing in the fund. You should read this SAI together
with the fund's prospectus.
The audited financial statements and auditor's report in the fund's Annual
Report to Shareholders, for the fiscal year ended July 31, 1999, are
incorporated by reference (are legally a part of this SAI).
For a free copy of the current prospectus or annual report, contact your
investment representative or call 1-800/DIAL BEN (1-800/342-5236).
CONTENTS
Goals and Strategies .................. 2
Risks ................................. 7
Officers and Trustees ................. 11
Management and Other Services ......... 13
Portfolio Transactions ................ 14
Distributions and Taxes ............... 15
Organization, Voting Rights
and Principal Holders ................ 16
Buying and Selling Shares ............. 17
Pricing Shares ........................ 20
The Underwriter ....................... 20
Performance ........................... 20
Miscellaneous Information ............. 22
Description of Ratings ................ 23
- -------------------------------------------------------------------------------
MUTUAL FUNDS, ANNUITIES, AND OTHER INVESTMENT PRODUCTS:
o ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE U.S. GOVERNMENT;
o ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY
BANK;
o ARE SUBJECT TO INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
- -------------------------------------------------------------------------------
GOALS AND STRATEGIES
- -------------------------------------------------------------------------------
The fund's principal investment goal is capital appreciation. Its secondary
goal is to provide current income through the receipt of dividends or
interest from its investments. These goals are fundamental, which means they
may not be changed without shareholder approval.
The fund tries to achieve its goal of capital appreciation by investing in
equity securities with the potential to increase in value, so that its own
shares will in turn increase in value. The fund may also consider the payment
of dividends in trying to achieve its secondary goal of current income.
The fund concentrates its investments in securities of issuers engaged in
mining, processing, or dealing in gold or other precious metals, such as
silver, platinum, and palladium. This means that the fund invests at least
25% of its total assets in these securities, except for temporary periods
when unusual and adverse economic conditions exist in those industries. This
policy is fundamental, which means that it may not be changed without
shareholder approval.
The fund will normally invest in common stocks and securities convertible
into common stocks, such as convertible preferred stock, convertible
debentures, and convertible rights and warrants, all of which may be traded
on a securities exchange or over the counter. The fund may also buy preferred
stocks and debt securities, such as notes, bonds, debentures, or commercial
paper (short-term debt securities of large corporations).
EQUITY SECURITIES Equity securities generally entitle the holder to
participate in a company's general operating results. 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. Equity securities generally take the
form of common stock or preferred stock, as well as securities convertible
into common stocks. Preferred stockholders typically receive greater
dividends but may receive less appreciation than common stockholders and may
have greater voting rights as well. Equity securities may also include
convertible securities, warrants, or rights. Warrants or rights give the
holder the right to buy a common stock at a given time for a specified price.
DEBT SECURITIES A debt security typically has a fixed payment schedule that
obligates the issuer 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 dividend to holders of its equity securities. Bonds,
notes, debentures, and commercial paper differ in the length of the issuer's
payment schedule, with bonds carrying the longest repayment schedule and
commercial paper the shortest.
The market value of debt securities generally varies in response to changes
in interest rates and the financial condition of each issuer. During periods
of declining interest rates, the value of debt securities generally
increases. Conversely, during periods of rising interest rates, the value of
such securities generally declines. These changes in market value will be
reflected in the fund's net asset value per share.
Independent rating organizations rate debt and convertible securities based
upon their assessment of the financial soundness of the issuer. Generally, a
lower rating indicates higher risk. The fund may invest in fixed-income and
convertible securities rated below investment grade by Moody's Investors
Service, Inc. (Moody's) or Standard & Poor's Corporation(R) (S&P), or that are
unrated but considered by the manager to be of comparable quality. Below
investment grade securities are generally those rated Ba or lower by Moody's
or BB or lower by S&P. Please see the Appendix for a description of ratings.
CASH MANAGEMENT TECHNIQUES The fund may place some of its cash reserves in
securities of the U.S. government and its agencies, various bank debt
instruments, or repurchase agreements collateralized by U.S. government
securities.
REPURCHASE AGREEMENTS The fund generally will have a portion of its assets in
cash or cash equivalents for a variety of reasons, including waiting for a
special investment opportunity or taking a defensive position. To earn income
on this portion of its assets, the fund may enter into repurchase agreements.
Under a repurchase agreement, the fund agrees to buy securities guaranteed as
to payment of principal and interest by the U.S. government or its agencies
from a qualified bank or broker-dealer and then to sell the securities back
to the bank or broker-dealer after a short period of time (generally, less
than seven days) at a higher price. The bank or broker-dealer must transfer
to the fund's custodian securities with an initial market value of at least
102% of the dollar amount invested by the fund in each repurchase agreement.
The manager will monitor the value of such securities daily to determine that
the value equals or exceeds the repurchase price.
Repurchase agreements may involve risks in the event of default or insolvency
of the bank or broker-dealer, including possible delays or restrictions upon
the fund's ability to sell the underlying securities. The fund will enter
into repurchase agreements only with parties who meet certain
creditworthiness standards, i.e., banks or broker-dealers that the manager
has determined present no serious risk of becoming involved in bankruptcy
proceedings within the time frame contemplated by the repurchase transaction.
FOREIGN SECURITIES Because the fund concentrates its investments in gold and
precious metal-related issuers, the fund invests a substantial portion of its
assets in foreign securities. Foreign securities are securities issued by
companies domiciled and operating outside the U.S. or securities issued by
foreign governments. Although the fund is not obligated to do so, the fund
presently expects that under normal conditions, it will invest more than 50%
of the value of its assets in foreign securities. At any particular time a
substantial portion of the fund's assets may be invested in companies
domiciled or operating in one or a very few foreign countries. The fund may,
however, invest some or all of its assets in U.S. securities when the fund's
manager concludes that investments in U.S. companies are more likely to
accomplish the fund's goals.
The fund ordinarily buys foreign securities that are traded in the U.S., as
well as American, European, and Global Depositary Receipts. The fund may buy
foreign securities for which there is an established public trading market
directly in foreign markets. This means that there is a sufficient number of
shares traded regularly relative to the number of shares the fund would buy.
DEPOSITARY RECEIPTS American Depositary Receipts (ADRs) are typically issued
by a U.S. bank or trust company and evidence ownership of underlying
securities issued by a foreign corporation. European Depositary Receipts
(EDRs) and Global Depositary Receipts (GDRs) are typically issued by foreign
banks or trust companies, although they may be issued by U.S. banks or trust
companies, and evidence ownership of underlying securities issued by either a
foreign or a U.S. corporation. Generally, depositary receipts in registered
form are designed for use in the U.S. securities market, and depositary
receipts in bearer form are designed for use in securities markets outside
the U.S. Depositary receipts may not necessarily be denominated in the same
currency as the underlying securities into which they may be converted.
Depositary receipts may be issued pursuant to sponsored or unsponsored
programs. In sponsored programs, an issuer has made arrangements to have its
securities traded in the form of depositary receipts. In unsponsored
programs, the issuer may not be directly involved in the creation of the
program. Although regulatory requirements with respect to sponsored and
unsponsored programs are generally similar, in some cases it may be easier to
obtain financial information from an issuer that has participated in the
creation of a sponsored program. Accordingly, there may be less information
available regarding issuers of securities underlying unsponsored programs,
and there may not be a correlation between such information and the market
value of the depositary receipts.
Depositary receipts also involve the risks of other investments in foreign
securities, as discussed below. For purposes of the fund's investment
policies, the fund will consider its investments in depositary receipts to be
investments in the underlying securities.
CONVERTIBLE SECURITIES The fund may invest in convertible securities. A
convertible security is generally a debt obligation or preferred stock that
may be converted within a specified period of time into a certain amount of
common stock of the same or a different issuer. A convertible security
provides a fixed-income stream and, through its conversion feature, the
potential for capital appreciation resulting from a market price advance in
its underlying common stock. The fund uses the same criteria to rate
convertible debt securities that it uses to rate other debt securities.
A convertible security tends to increase in market value when interest rates
decline and decrease in value when interest rates rise. The value of a
convertible security also tends to increase as the market value of the
underlying stock rises, and it tends to decrease as the market value of the
underlying stock declines. Because both interest rate and market movements
can influence its value, a convertible security is not as sensitive to
interest rates as a similar fixed-income security, nor is it as sensitive to
changes in share price as its underlying stock.
A convertible security is usually issued either by an operating company or by
an investment bank. A convertible security issued by an operating company is
generally senior to common stock, but subordinate to other types of
fixed-income securities issued by that company. When a convertible security
issued by an operating company is "converted," the operating company often
issues new stock to the holder of the convertible security. However,
if the parity price of the convertible security is less than the call price,
the operating company may pay out cash instead of common stock. A convertible
security issued by an investment bank is an obligation of and is convertible
through the issuing investment bank. The issuer of a convertible security may
be important in determining the security's true value, because the holder of
a convertible security will have recourse only to the issuer. In addition,
the issuer may redeem a convertible security after a specified date and under
circumstances established at the time the security is issued.
A convertible preferred stock is treated like a preferred stock for the
fund's financial reporting, credit rating, and investment limitation
purposes. A preferred stock is subordinated to the issuer's debt obligations
in the event of insolvency. An issuer's failure to make a dividend payment is
generally not an event of default entitling a preferred shareholder to take
action. A preferred stock generally has no maturity date, so that its market
value is dependent on the issuer's business prospects for an indefinite
period of time. In addition, distributions from preferred stock are
dividends, rather than interest payments, and are usually treated as such for
corporate tax purposes.
GOLD BULLION As a means of seeking its principal goal of capital appreciation
and when the fund considers it to be appropriate as a possible hedge against
inflation, the fund may invest a portion of its assets in gold bullion and
may hold a portion of its cash in foreign currency in the form of gold coins.
The fund has not used these techniques recently but may use them if it
determines that they could help the fund achieve its goals. There is, of
course, no assurance that these investments will provide capital appreciation
or a hedge against inflation.
LOANS OF PORTFOLIO SECURITIES To generate additional income, the fund may
lend certain of its portfolio securities to qualified banks and
broker-dealers. These loans may not exceed 10% of the value of the fund's
total assets, measured at the time of the most recent loan. For each loan,
the borrower must maintain with the fund's custodian collateral (consisting
of any combination of cash, securities issued by the U.S. government and its
agencies and instrumentalities, or irrevocable letters of credit) with a
value at least equal to the current market value of the loaned securities.
The fund retains all or a portion of the interest received on investment of
the cash collateral or receives a fee from the borrower. The fund also
continues to receive any distributions paid on the loaned securities. The
fund may terminate a loan at any time and obtain the return of the securities
loaned within the normal settlement period for the security involved.
Where voting rights with respect to the loaned securities pass with the
lending of the securities, the manager intends to call the loaned securities
to vote proxies, or to use other practicable and legally enforceable means to
obtain voting rights, when the manager has knowledge that, in its opinion, a
material event affecting the loaned securities will occur or the manager
otherwise believes it necessary to vote. As with other extensions of credit,
there are risks of delay in recovery or even loss of rights in collateral in
the event of default or insolvency of the borrower. The fund will loan its
securities only to parties who meet creditworthiness standards approved by
the fund's board of trustees, i.e., banks or broker-dealers that the manager
has determined present no serious risk of becoming involved in bankruptcy
proceedings within the time frame contemplated by the loan.
DERIVATIVE SECURITIES Although the fund has no present intention of investing
in the following, it has the authority to enter into options, futures,
options on financial futures, and forward foreign currency exchange
contracts, which are generally considered "derivative securities."
The fund may take advantage of opportunities in derivative investments that
are not presently contemplated for use by the fund or that are not currently
available but that may be developed, to the extent these opportunities are
both consistent with the fund's investment goals and legally permissible for
the fund. Before making such an investment, the fund will supplement its
prospectus, if appropriate.
OPTIONS The fund may buy or write (sell) put and call options that trade on
securities exchanges or in the over-the-counter (OTC) market. The fund may
also buy or write put and call options on currencies and may buy call and put
options on stock indices. The fund may write an option only if the option is
"covered." The fund does not currently intend to engage in options
transactions, although the fund reserves the right to do so.
An option on a security or currency is a contract that gives the purchaser of
the option the right to buy (a call option) or to sell (a put option) the
security or currency from or to the writer of the option at a set price
during the term
of the option.
The fund receives a premium when it writes a call option. A decline in the
price or value of the security or currency during the option period would
offset the amount of the premium. If a call option the fund has written is
exercised, the fund incurs a profit or loss from the sale of the underlying
security or currency.
The fund may generally terminate its obligation under an option by entering
into a closing transaction. When the fund has written an option, the fund
will realize a profit from a closing transaction if the price of the
transaction is less than the premium and will realize a loss if the price
is more than the premium.
The operation of put options, including their related risks and rewards, is
substantially identical to that of call options. The fund will commit no more
than 5% of its assets to premiums when buying put options.
If a put option the fund holds is not sold when it has remaining value, and
if the market price of the underlying security or currency remains equal to
or greater than the exercise price, the fund will lose its entire investment
in the put option. In order for the purchase of a put option to be
profitable, the market price of the underlying security or currency must
decline sufficiently below the exercise price to cover the premium and
transaction costs, unless the put option is sold in a closing sale
transaction.
OTC options are available for a greater variety of securities, and in a wider
range of expiration dates and exercise prices, than exchange-traded options.
OTC options, however, are arranged directly with dealers and not, as is the
case with exchange-traded options, with a clearing corporation. Thus, there
is a risk of non-performance by
the dealer.
Call and put options on stock indices are similar to options on securities.
An option on a stock index gives the holder the right to receive cash if the
closing level of the underlying index is greater than (or less than, in the
case of a put option) the exercise price of the option. The amount of cash is
equal to the difference between the closing level and the exercise price,
expressed in dollars multiplied by a specified number. Gain or loss depends
on price movements in the stock market generally (or in a particular industry
or segment of the market).
FUTURES CONTRACTS The fund may enter into futures contracts based upon
financial indices (financial futures). Although some financial futures
contracts call for making or taking delivery or acquisition of securities, in
most cases these obligations are closed out before the settlement date by
buying or selling an identical financial futures contract. Other financial
futures contracts call for cash settlements. A stock index futures contract
obligates the seller to deliver (and the buyer to take) an amount of cash
equal to a specific dollar amount times the change in the value of a specific
stock index during the term of the contract.
The fund will not enter into futures contracts or related options for
speculation, but only as a hedge against changes in the value of its
securities, or securities that it intends to buy, resulting from market
conditions and, to the extent consistent with this policy, to accommodate
cash flows. The sum of the fund's initial deposits on its existing financial
futures and premiums paid on options on financial futures contracts may not
exceed 5% of the market value of the fund's total assets.
The fund may buy and sell call and put options on stock index futures to
hedge against risks of market-side price movements. Options on stock index
futures are similar to options on securities. An option on a stock index
future gives the holder the right to receive in cash the amount by which the
market price of the futures contract, at exercise, exceeds, in the case of a
call, or is less than, in the case of a put, the exercise price of the option
on the futures contract.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS A forward foreign currency
exchange contract (forward contract) is an obligation to purchase or sell a
specific currency for an agreed price at a future date that is individually
negotiated and privately traded by currency traders and their customers.
ILLIQUID INVESTMENTS Illiquid securities are generally securities that cannot
be sold within seven days in the normal course of business at approximately
the amount at which the fund has valued them.
The fund does not consider securities that it acquires outside the U.S. and
that are publicly traded in the U.S. or on a foreign securities exchange or
in a foreign securities market to be illiquid investments, if (a) the fund
reasonably believes it can readily dispose of the securities for cash in the
U.S. or foreign market, or (b) current market quotations are readily
available.
TEMPORARY INVESTMENTS When the fund's manager believes that the securities
trading markets or the economy are experiencing excessive volatility or a
prolonged general decline, or other adverse conditions exist, it may invest
the fund's portfolio in a temporary defensive manner. Under such
circumstances, the fund may buy preferred stocks and rated or unrated debt
securities, such as notes, bonds, debentures, or commercial paper. The fund
may also place some of its cash reserves in securities of the U.S. government
and its agencies, various bank debt instruments, or repurchase agreements
collateralized by U.S. government securities.
TIMING OF THE FUND'S SECURITIES TRANSACTIONS Normally, the fund will buy
securities for investment with a view to long-term appreciation. The fund may
on occasion, however, buy securities with the expectation of realizing gains
over the short-term. Because the investment outlook of the types of
securities that the fund may buy may change as a result of unexpected
developments in national or international securities markets, or in economic,
monetary or political relationships, the fund will not treat its portfolio
turnover as a limiting factor. The fund may make changes in particular
portfolio holdings whenever the fund considers that a security no longer has
optimum growth potential or has reached its anticipated level of performance,
or that another security appears to have a relatively greater potential for
capital appreciation and will make such changes without regard to the length
of time the fund has held a security. The fund may consider the differences
between the tax treatment of long-term gains and short-term gains, however,
in determining the timing of portfolio transactions.
INVESTMENT RESTRICTIONS The fund has adopted the following restrictions as
fundamental policies. This means they may only be changed if the change is
approved by (i) more than 50% of the fund's outstanding shares or (ii) 67% or
more of the fund's shares present at a shareholder meeting if more than 50%
of the fund's outstanding shares are represented at the meeting in person or
by proxy, whichever is less.
The fund may not:
1. Borrow money, except that the fund may borrow money from banks or
affiliated investment companies to the extent permitted by the 1940 Act, or
any exemptions therefrom which may be granted by the SEC, or for temporary or
emergency purposes and then in an amount not exceeding 331/3% of the value of
the fund's total assets (including the amount borrowed);
2. Make loans to other persons except (a) through the lending of its
portfolio securities, (b) through the purchase of debt securities, loan
participations and/or engaging in direct corporate loans in accordance with
its investment objectives and policies, and (c) to the extent the entry into
a repurchase agreement is deemed to be a loan. The fund may also make loans
to affiliated investment companies to the extent permitted by the 1940 Act or
any exemptions therefrom which may be granted by the SEC;
3. Act as an underwriter except to the extent the fund may be deemed to be an
underwriter when disposing of securities it owns or when selling its own
shares;
4. Purchase or sell real estate and commodities, except that the fund may
purchase or sell securities of real estate investment trusts, may purchase or
sell currencies, may enter into futures contracts on securities, currencies,
and other indices or any other financial instruments, and may purchase and
sell options on such futures contracts, and may also invest in gold bullion
and foreign currency in the form of gold coins.
The fund presently has the following additional restrictions, which are not
fundamental and may be changed without shareholder approval.
The fund may not:
1. Pledge, mortgage, or hypothecate its assets as security for loans, nor
engage in joint or joint and several trading accounts in securities, except
that an order to buy or sell may be combined with orders from other persons
to obtain lower brokerage commissions, and except that the fund may
participate in a joint repurchase agreement with other funds in the Franklin
Templeton Group of Funds;
2. Invest in real estate limited partnerships or in interests, other than
publicly traded equity securities, in oil, gas,
or other mineral leases, exploration, or development. Investments in
marketable securities issued by real estate investment trusts are not subject
to this restriction;
3. Invest more than 5% of its net assets in warrants, other than those
acquired by the fund as a part of a unit, valued at the lower of cost or
market, including not more than 2% that are not listed on the New York or
American Stock Exchange;
4. Invest in commodities or commodity contracts, except that the fund may
invest up to 10% of its total assets in gold bullion and gold coins, up to 5%
of its total assets in options and futures, and more than 5% of its total
assets in options and futures for hedging purposes only or when these
investments are covered by cash or securities; or
The fund may also be subject to investment limitations imposed by foreign
jurisdictions in which the fund sells its shares.
If a bankruptcy or other extraordinary event occurs concerning a particular
security the fund owns, the fund may receive stock, real estate, or other
investments that the fund would not, or could not, buy. If this happens, the
fund intends to sell such investments as soon as practicable while maximizing
the return to shareholders.
Generally, the policies and restrictions discussed in this SAI and in the
prospectus apply when the 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.
If a percentage restriction or limitation is met at the time of investment, a
later increase or decrease in the percentage due to a change in the value or
liquidity of portfolio securities will not be considered a violation of the
restriction or limitation.
RISKS
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GOLD AND PRECIOUS METALS Like all investments, there
are risks associated with an investment in the fund and its policies of
investing in securities of companies engaged in mining, processing, or
dealing in gold or other precious metals.
The price of gold has recently been subject to substantial upward and
downward movements over short periods of time. It may be affected by
unpredictable international monetary and political policies, such as currency
devaluations or reevaluations, economic conditions within an individual
country, trade imbalances or trade or currency restrictions between
countries, and world inflation rates and interest rates. The price of gold,
in turn, is likely to affect the market prices of securities of companies
mining, processing, or dealing in gold and, accordingly, the value of the
fund's investments in these securities.
The following provides more detail about factors that may affect the price of
gold and other precious metals:
1. POTENTIAL EFFECT OF CONCENTRATION OF SOURCE OF SUPPLY AND CONTROL OF
sales. One of the largest national producers of gold bullion and platinum is
the Republic of South Africa. Changes in political and economic conditions
affecting South Africa may have a direct impact on its sales of gold. Under
South African law, the only authorized sales agent for gold produced in South
Africa is the Reserve Bank of South Africa, which, through its retention
policies, controls the time and place of any sale of South African bullion.
The South African Ministry of Mines determines gold mining policy. South
Africa depends predominantly on gold sales for the foreign exchange necessary
to finance its imports, and its sales policy is necessarily subject to
national and international economic and political developments.
2. TAX AND CURRENCY LAWS. Changes in the tax or currency laws of the U.S. and
foreign countries may inhibit the fund's ability to pursue, or may increase
the cost of pursuing, its investment policies.
3. UNPREDICTABLE MONETARY POLICIES, ECONOMIC AND POLITICAL CONDITIONS. The
fund's assets may be less liquid or the change in the value of its assets may
be more volatile (and less related to general price movements in the U.S.
markets) than investments in the securities of U.S. companies, particularly
because the price of gold and other precious metals may be affected by
unpredictable international monetary policies, economic and political
considerations, governmental controls, and conditions of scarcity, surplus,
or speculation. In addition, the use of gold or Special Drawing Rights (which
are also used by members of the International Monetary Fund for international
settlements) to settle net deficits and surpluses in trade and capital
movements between nations subjects the supply and demand, and therefore the
price, of gold to a variety of economic factors that normally would not
affect other types of commodities.
4. NEW AND DEVELOPING MARKETS FOR PRIVATE GOLD OWNERSHIP. Between 1933 and
December 31, 1974, a market did not exist in the U.S. in which gold bullion
could be purchased by individuals for investment purposes. Since it became
legal to invest in gold, markets have developed in the U.S. Any large
purchases or sales of gold bullion could have an effect on the price of gold
bullion. Recently, several central banks have sold gold bullion from their
reserves. Sales by central banks and/or rumors of these sales have had a
negative effect on gold prices.
The successful management of the fund's portfolio may be more dependent upon
the skills and expertise of the fund's manager than is the case for most
mutual funds because of the need to evaluate the factors identified above.
Moreover, in some countries, disclosures concerning an issuer's financial
condition and results and other matters may be subject to less stringent
regulatory provisions, or may be presented on a less uniform basis than is
the case for issuers subject to U.S. securities laws. Issuers and securities
exchanges in some countries may be subject to less stringent governmental
regulations than is the case for U.S. companies.
Most gold companies engage in some form of hedging
in order to create more stable and predictable cash flows. This hedging
includes, but is not limited to forwards, options, futures contracts, and in
some cases more advanced derivative structures covering gold, other metals or
currency. Although the fund's managers attempt to determine the impact of
these financial instruments, extreme events in the gold bullion market may
result in these positions becoming financial liabilities. The fund continues
to analyze hedging risks on a company by company basis.
FOREIGN SECURITIES The value of foreign (and U.S.) securities is affected by
general economic conditions and individual company and industry earnings
prospects. While foreign securities may offer significant opportunities for
gain, they also involve additional risks that can increase the potential for
losses in the fund. These risks can be significantly greater for investments
in emerging markets. Investments in depositary receipts also involve some or
all of the risks described below.
There is the possibility of cessation of trading on national exchanges,
expropriation, nationalization of assets, confiscatory or punitive taxation,
withholding and other foreign taxes on income or other amounts, foreign
exchange controls (which may include suspension of the ability to transfer
currency from a given country), restrictions on removal of assets, political
or social instability, or diplomatic developments that could affect
investments in securities of issuers in foreign nations.
There may be less publicly available information about foreign companies
comparable to the reports and ratings published about companies in the U.S.
Foreign companies are not generally subject to uniform accounting or
financial reporting standards, and auditing practices and requirements may
not be comparable to those applicable to U.S. companies. The fund, therefore,
may encounter difficulty in obtaining market quotations for purposes of
valuing its portfolio and calculating its net asset value.
Certain countries' financial markets and services are less developed than
those in the U.S. or other major economies. In many foreign countries there
is less government supervision and regulation of stock exchanges, brokers,
and listed companies than in the U.S. Foreign markets have substantially less
volume than the New York Stock Exchange and securities of some foreign
companies are less liquid and more volatile than securities of comparable
U.S. companies. Commission rates in foreign countries, which are generally
fixed rather than subject to negotiation as in the U.S., are likely to be
higher. Settlement practices may be cumbersome and result in delays that may
affect portfolio liquidity. The fund may have greater difficulty voting
proxies, exercising shareholder rights, pursuing legal remedies, and
obtaining judgments with respect to foreign investments in foreign courts
than with respect to domestic issuers in U.S. courts.
The fund's investments in foreign securities may increase the risks with
respect to the liquidity of the fund's portfolio. This could inhibit the
fund's ability to meet a large number of shareholder redemption requests in
the event of economic or political turmoil in a country in which the fund has
a substantial portion of its assets invested or deterioration in relations
between the U.S. and the foreign country.
Investments in companies domiciled in developing countries may be subject to
potentially higher risks than investments in developed countries. These risks
include (i) less economic stability; (ii) political and social uncertainty
(for example, regional conflicts and risk of war); (iii) pervasiveness of
corruption and crime; (iv) the small current size of the markets for such
securities and the currently low or nonexistent volume of trading, which
result in a lack of liquidity and in greater price volatility; (v) delays in
settling portfolio transactions; (vi) risk of loss arising out of the system
of share registration and custody; (vii) certain national policies that may
restrict the fund's investment opportunities, including restrictions on
investment in issuers or industries deemed sensitive to national interests;
(viii) foreign taxation; (ix) the absence of developed legal structures
governing private or foreign investment or allowing for judicial redress for
injury to private property; (x) the absence of a capital market structure or
market-oriented economy; and (xi) the possibility that recent favorable
economic developments may be slowed or reversed by unanticipated political or
social events.
In addition, many countries in which the fund may invest have experienced
substantial, and in some periods extremely high, rates of inflation for many
years. Inflation and rapid fluctuations in inflation rates have had and may
continue to have negative effects on the economies and securities markets of
certain countries. Moreover, the economies of some developing countries may
differ favorably or unfavorably from the U.S. economy in such respects as
growth of gross domestic product, rate of inflation, currency depreciation,
capital reinvestment, resource self-sufficiency, and balance of payments
position.
The fund's management endeavors to buy and sell foreign currencies on as
favorable a basis as practicable. Some price spread in currency exchange (to
cover service charges) may be incurred, particularly when the fund changes
investments from one country to another or when proceeds of the sale of
shares in U.S. dollars are used for the purchase of securities in foreign
countries. Some countries may adopt policies that would prevent the fund from
transferring cash out of the country or withhold portions of interest and
dividends at the source.
The fund may be affected either unfavorably or favorably by fluctuations in
the relative rates of exchange between the currencies of different nations,
by exchange control regulations, and by indigenous economic and political
developments. Some countries in which the fund may invest may also have fixed
or managed currencies that are not free-floating against the U.S. dollar.
Certain currencies may not be internationally traded.
Certain currencies have experienced a steady devaluation relative to the U.S.
dollar. Any devaluations in the currencies in which the fund's portfolio
securities are denominated may have a detrimental impact on the fund. The
fund's manager endeavors to avoid unfavorable consequences and to take
advantage of favorable developments in particular nations where, from time to
time, it places the fund's investments.
Any investments by the fund in foreign securities where delivery takes place
outside the U.S. will be made in compliance with applicable U.S. and foreign
currency restrictions and other tax laws and laws limiting the amount and
types of foreign investments. Although current regulations do not, in the
opinion of the fund's manager, limit seriously the fund's investment
activities, if they were changed in the future they might restrict the
ability of the fund to make its investments or tend to impair the liquidity
of the fund's investments. Changes in governmental administrations, economic
or monetary policies in the U.S. or abroad, or circumstances in dealings
between nations could result in investment losses for the fund and could
adversely affect the fund's operations.
The fund's Board of Trustees (board) considers at least annually the
likelihood of the imposition by any foreign government of exchange control
restrictions that would affect the liquidity of the fund's assets maintained
with custodians in foreign countries, as well as the degree of risk from
political acts of foreign governments to which such assets may be exposed.
The board also considers the degree of risk involved through the holding of
portfolio securities in domestic and foreign securities depositories.
However, in the absence of willful misfeasance, bad faith, or gross
negligence on the part of the fund's manager, any losses resulting from the
holding of the fund's portfolio securities in foreign countries and/or with
securities depositories will be at the risk of the shareholders. No assurance
can be given that the board's appraisal of the risks will always be correct
or that such exchange control restrictions or political acts of foreign
governments might not occur.
EURO On January 1, 1999, the European Monetary Union (EMU) introduced a new
single currency, the euro, which will replace the national currency for
participating member countries. The transition and the elimination of
currency risk among EMU countries may change the economic environment and
behavior of investors, particularly in European markets. While the
implementation of the euro could have a negative effect on the fund, the
fund's manager and its affiliated services providers are taking steps they
believe are reasonably designed to address the euro issue.
INTEREST RATE To the extent the fund invests in debt securities, changes in
interest rates in any country where the fund is invested will affect the
value of the fund's portfolio and, consequently, its share price. Rising
interest rates, which often occur during times of inflation or a growing
economy, are likely to cause the face value of a debt security to decrease,
having a negative effect on the value of the fund's shares. Of course,
interest rates have increased and decreased, sometimes very dramatically, in
the past. These changes are likely to occur again in the future at
unpredictable times.
LOWER-RATED SECURITIES To the extent the fund invests in lower-rated
fixed-income securities, commonly known as junk bonds, it will be subject to
a higher degree of risk than an investment in a fund that invests exclusively
in higher-quality securities. The market value of these securities tends to
reflect individual developments affecting the issuer to a greater degree than
the market value of higher-rated securities, which react primarily to
fluctuations in the general level of interest rates. Prices of high-yield
securities are often closely linked with the issuer's stock price and
typically will rise and fall in response to business developments, general
stock market activity, or other factors that affect stock prices. Lower-rated
securities also tend to be more sensitive to economic conditions than
higher-rated securities.
Issuers of high yield, fixed-income securities are often highly leveraged and
may not have more traditional methods of financing available to them.
Therefore, the risk associated with buying the securities of these issuers is
generally greater than the risk associated with higher-rated securities. For
example, during an economic downturn or a sustained period of rising interest
rates, issuers of lower-rated securities may experience financial stress and
may not have sufficient cash flow to make interest payments. The issuer's
ability to make timely interest and principal payments may also be adversely
affected by specific developments affecting the issuer, including the
issuer's inability to meet specific projected business forecasts or the
unavailability of additional financing.
The risk of loss due to default may also be considerably greater with
lower-rated securities because they are generally unsecured and are often
subordinated to other creditors of the issuer. If the issuer of a security in
the fund's portfolio defaults, the fund may have unrealized losses on the
security, which may lower the fund's net asset value. Defaulted securities
tend to lose much of their value before they default. Thus, the fund's net
asset value may be adversely affected before an issuer defaults. In addition,
the fund may incur additional expenses if it must try to recover principal or
interest payments on a defaulted security.
Lower-rated, fixed-income securities may not be as liquid as higher-rated
securities. Reduced liquidity in the secondary market may have an adverse
impact on the market price of a security and on the fund's ability to sell a
security. Reduced liquidity may also make it more difficult to obtain market
quotations based on actual trades for purposes of valuing the fund's
portfolio.
The fund may buy high yield, fixed-income securities that are sold without
registration under the federal securities laws and therefore carry
restrictions on resale. If the fund is required to sell restricted securities
before the securities have been registered, it may be deemed an underwriter
of the securities under the Securities Act of 1933, which entails special
responsibilities and liabilities. The fund may also incur special costs in
disposing of restricted securities, although the fund will generally not
incur any costs when the issuer is responsible for registering the securities.
The fund may buy high yield, fixed-income securities during an initial
underwriting. These securities involve special risks because they are new
issues. The fund's manager will carefully review their credit and other
characteristics. The fund has no arrangement with its underwriter or any
other person concerning the acquisition of these securities.
Economic conditions, such as a recession, may adversely affect the value of
outstanding securities, as well as the ability of issuers of high yield
securities to make timely principal and interest payments. For example,
highly publicized defaults on some high yield securities and concerns about a
sluggish economy could depress the prices of many of these securities. While
market prices may be temporarily depressed due to these factors, the ultimate
price of any security generally reflects the true operating results of the
issuer. Factors adversely impacting the market value of high yield securities
may lower the fund's net asset value.
The fund relies on the manager's judgment, analysis and experience in
evaluating the creditworthiness of an issuer. In this evaluation, the manager
takes into consideration, among other things, the issuer's financial
resources, its sensitivity to economic conditions and trends, its operating
history, the quality of the issuer's management, and regulatory matters.
OPTIONS, FUTURES, AND OPTIONS ON FUTURES The fund's ability to hedge
effectively all or a portion of its securities through transactions in
options, futures, and options on futures depends on the degree to which price
movements in the underlying security, currency, or index correlate with price
movements in the relevant portion of the fund's securities. The correlation
will not be perfect. Consequently, the fund bears the risk that the prices of
the securities being hedged will not move in the same amount as the hedging
instrument. It is also possible that there may be a negative correlation
between the index, currency, or other securities underlying the hedging
instrument and the hedged securities that would result in a loss on both the
securities and the hedging instrument. Accordingly, successful use by the
fund of options, futures, and options on futures will be subject to the
manager's ability to predict correctly movements in the direction of the
securities or currency markets generally or of a particular segment. This
requires different skills and techniques than predicting changes in the price
of individual securities.
Positions in options, futures, and options on futures may be closed out only
on an exchange that provides a secondary market. There can be no assurance
that a liquid secondary market will exist for any particular option or
futures contract at any specific time. Thus, it may not be possible to close
an option or futures position. The inability to close an option or futures
position also could have an adverse impact on the fund's ability to hedge its
securities effectively. The fund will enter into an option or futures
position only if there appears to be a liquid secondary market for the option
or futures contract.
The ordinary spreads between prices in the cash and futures markets, due to
differences in the nature of those markets, are subject to distortions. Due
to the possibility of distortion, a correct forecast of general market trends
by the manager may still not result in a successful transaction.
Futures contracts entail other risks as well. Although the fund believes that
the use of these contracts will benefit the fund, if the manager's judgment
about the general direction of the market is incorrect, the fund's overall
performance would be poorer than if it had not entered into any futures
contract. For example, if the fund has hedged against the possibility of an
increase in interest rates that would adversely affect the price of bonds
held in its portfolio, and interest rates decrease instead, the fund will
lose part or all of the benefit of the increased value of its bonds that it
has hedged because it will have offsetting losses in its futures positions.
In addition, if the fund has insufficient cash, it may have to sell
securities from its portfolio to meet daily variation margin requirements.
These sales may or may not be at increased prices that reflect the rising
market. The fund may have to sell securities at a time when it may be
disadvantageous to do so.
FORWARD CONTRACTS Forward contracts will reduce the potential gain from a
positive change in the relationship between the U.S. dollar and foreign
currencies. Unanticipated changes in currency prices may result in poorer
overall performance for the fund than if it had not entered into these
contracts. The use of forward foreign currency contracts will not eliminate
fluctuations in the underlying U.S. dollar equivalent value of, or rates of
return on, the fund's foreign currency denominated portfolio securities.
The matching of the increase in value of a forward contract and the decline
in the U.S. dollar equivalent value of the foreign currency denominated asset
that is the subject of the hedge generally will not be precise. In addition,
the fund may not always be able to enter into forward foreign currency
contracts at attractive prices, and this will limit the fund's ability to use
these contracts to hedge or cross-hedge its assets. Also, with regard to the
fund's use of cross-hedges, there can be no assurance that historical
correlations between the movement of certain foreign currencies relative to
the U.S. dollar will continue. Thus, at any time, poor correlation may exist
between movements in the exchange rates of the foreign currencies in which
the fund's assets that are the subject of the cross-hedges are denominated.
REPURCHASE AGREEMENTS The use of repurchase agreements involves certain
risks. For example, if the other party to the agreement defaults on its
obligation to repurchase the underlying security at a time when the value of
the security has declined, the fund may incur a loss upon disposition of the
security. If the other party to the agreement becomes insolvent and subject
to liquidation or reorganization under the bankruptcy code or other laws, a
court may determine that the underlying security is collateral for a loan by
the fund not within the control of the fund, and therefore the realization by
the fund on the collateral may be automatically stayed. Finally, it is
possible that the fund may not be able to substantiate its interest in the
underlying security and may be deemed an unsecured creditor of the other
party to the agreement. While the manager acknowledges these risks, it is
expected that if repurchase agreements are otherwise deemed useful to the
fund, these risks can be controlled through careful monitoring procedures.
OFFICERS AND TRUSTEES
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The fund has a board of trustees. The board is responsible for the overall
management of the fund, including general supervision and review of the
fund's investment activities. The board, in turn, elects the officers of the
fund who are responsible for administering the fund's day-to-day operations.
The board also monitors the fund to ensure no material conflicts exist among
share classes. While none is expected, the board will act appropriately
to resolve any material conflict that may arise.
The name, age and address of the officers and board members, as well as their
affiliations, positions held with the fund, and principal occupations during
the past five years are shown below.
Frank H. Abbott, III (79)
1045 Sansome Street, San Francisco, CA 94111
TRUSTEE
President and Director, Abbott Corporation (an investment company); director
or trustee, as the case may be, of 27 of the investment companies in the
Franklin Templeton Group of Funds; and FORMERLY, Director, MotherLode Gold
Mines Consolidated (gold mining) (until 1996) and Vacu-Dry Co. (food
processing) (until 1996).
Harris J. Ashton (67)
191 Clapboard Ridge Road, Greenwich, CT 06830
TRUSTEE
Director, RBC Holdings, Inc. (bank holding company) and Bar-S Foods (meat
packing company); director or trustee, as the case may be, of 47 of the
investment companies in the Franklin Templeton Group of Funds; and FORMERLY,
President, Chief Executive Officer and Chairman of the Board, General Host
Corporation (nursery and craft centers) (until 1998).
*Harmon E. Burns (55)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT AND TRUSTEE
Vice Chairman, Member - Office of the Chairman and Director, Franklin
Resources, Inc.; Executive Vice President and Director, Franklin Templeton
Distributors, Inc. and Franklin Templeton Services, Inc.; Executive Vice
President, Franklin Advisers, Inc.; Director, Franklin Investment Advisory
Services, Inc. and Franklin/Templeton Investor Services, Inc.; and officer
and/or director or trustee, as the case may be, of most of the other
subsidiaries of Franklin Resources, Inc. and of 51 of the investment
companies in the Franklin Templeton Group of Funds.
S. Joseph Fortunato (67)
Park Avenue at Morris County, P.O. Box 1945
Morristown, NJ 07962-1945
TRUSTEE
Member of the law firm of Pitney, Hardin, Kipp & Szuch; and director or
trustee, as the case may be, of 49 of the investment companies in the
Franklin Templeton Group of Funds.
*Charles B. Johnson (67)
777 Mariners Island Blvd., San Mateo, CA 94404
CHAIRMAN OF THE BOARD AND TRUSTEE
Chairman of the Board, Chief Executive Officer, Member - Office of the
Chairman and Director, Franklin Resources, Inc.; Chairman of the Board and
Director, Franklin Advisers, Inc. and Franklin Investment Advisory Services,
Inc.; Vice President, Franklin Templeton Distributors, Inc.; Director,
Franklin/Templeton Investor Services, Inc. and Franklin Templeton Services,
Inc.; officer and/or director or trustee, as the case may be, of most of the
other subsidiaries of Franklin Resources, Inc. and of 48 of the investment
companies in the Franklin Templeton Group of Funds.
*Rupert H. Johnson, Jr. (59)
777 Mariners Island Blvd., San Mateo, CA 94404
PRESIDENT AND TRUSTEE
Vice Chairman, Member - Office of the Chairman and Director, Franklin
Resources, Inc.; Executive Vice President and Director, Franklin Templeton
Distributors, Inc.; Director, Franklin Advisers, Inc. and Franklin Investment
Advisory Services, Inc.; Senior Vice President, Franklin Advisory Services,
LLC; Director, Franklin/Templeton Investor Services, Inc.; and officer and/or
director or trustee, as the case may be, of most of the other subsidiaries of
Franklin Resources, Inc. and of 51 of the investment companies in the
Franklin Templeton Group of Funds.
Frank W.T. LaHaye (71)
20833 Stevens Creek Blvd., Suite 102, Cupertino, CA 95014
TRUSTEE
Chairman, Peregrine Venture Management Company (venture capital); Director,
The California Center for Land Reclamation (redevelopment); director or
trustee, as the case may be, of 27 of the investment companies in the
Franklin Templeton Group of Funds; and FORMERLY, General Partner, Miller &
LaHaye and Peregrine Associates, the general partners of Peregrine Venture
funds.
Gordon S. Macklin (71)
8212 Burning Tree Road, Bethesda, MD 20817
TRUSTEE
Director, Martek Biosciences Corporation, MCI WorldCom, Inc. (information
services), MedImmune, Inc. (biotechnology), Overstock.com (internet
services), White Mountains Insurance Group, Ltd. (holding company) and
Spacehab, Inc. (aerospace services); director or trustee, as the case may be,
of 47 of the investment companies in the Franklin Templeton Group of Funds;
and FORMERLY, Chairman, White River Corporation (financial services) and
Hambrecht & Quist Group (investment banking), and President, National
Association of Securities Dealers, Inc.
*R. Martin Wiskemann (73)
777 Mariners Island Blvd., San Mateo, CA 94404
PRESIDENT AND TRUSTEE
Senior Vice President, Portfolio Manager and Director, Franklin Advisers,
Inc.; Senior Vice President, Franklin Management, Inc.; and officer and/or
director or trustee, as the case may be, of 15 of the investment companies in
the Franklin Templeton Group of Funds; and FORMERLY, Vice President and
Director, ILA Financial Services, Inc. (until 1998).
Martin L. Flanagan (39)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
President, Member - Office of the President, Franklin Resources, Inc.; Senior
Vice President, Chief Financial Officer and Director, Franklin/Templeton
Investor Services, Inc.; Senior Vice President and Chief Financial Officer,
Franklin Mutual Advisers, LLC; Executive Vice President, Chief Financial
Officer and Director, Templeton Worldwide, Inc.; Executive Vice President,
Chief Operating Officer and Director, Templeton Investment Counsel, Inc.;
Executive Vice President and Chief Financial Officer, Franklin Advisers,
Inc.; Chief Financial Officer, Franklin Advisory Services, LLC and Franklin
Investment Advisory Services, Inc.; President and Director, Franklin
Templeton Services, Inc.; officer and/or director of some of the other
subsidiaries of Franklin Resources, Inc.; and officer and/or director or
trustee, as the case may be, of 51 of the investment companies in the
Franklin Templeton Group of Funds.
Deborah R. Gatzek (51)
1840 Gateway Drive, San Mateo, CA 94404
SECRETARY
Partner, Stradley, Ronon, Stevens & Young, LLP; officer of 33 of the
investment companies in the Franklin Templeton Group of Funds; and FORMERLY,
Senior Vice President and General Counsel, Franklin Resources, Inc., Senior
Vice President, Franklin Templeton Services, Inc. and Franklin Templeton
Distributors, Inc., Executive Vice President, Franklin Advisers, Inc., Vice
President, Franklin Advisory Services, LLC and Franklin Mutual Advisers, LLC,
and Vice President, Chief Legal Officer and Chief Operating Officer, Franklin
Investment Advisory Services, Inc. (until January 2000).
David Goss (52)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
President, Chief Executive Officer and Director, Franklin Select Realty
Trust, Property Resources, Inc., Property Resources Equity Trust and Franklin
Real Estate Management, Inc.; President and Chief Executive Officer, Franklin
Properties, Inc.; officer of 27 of the investment companies in the Franklin
Templeton Group of Funds; and FORMERLY, President, Chief Executive Officer
and Director, Franklin Real Estate Income Fund and Franklin Advantage Real
Estate Income Fund (until 1996).
Barbara J. Green (52)
500 East Broward Blvd., Fort Lauderdale, FL 33394-3091
VICE PRESIDENT
Vice President and Deputy General Counsel, Franklin Resources, Inc.; Senior
Vice President, Templeton Worldwide, Inc. and Templeton Global Investors,
Inc.; officer of 46 of the investment companies in the Franklin Templeton
Group of Funds; and FORMERLY, Deputy Director, Division of Investment
Management, Executive Assistant and Senior Advisor to the Chairman, Counselor
to the Chairman, Special Counsel and Attorney Fellow, U.S. Securities and
Exchange Commission (1986-1995), Attorney, Rogers & Wells, and Judicial
Clerk, U.S. District Court (District of Massachusetts).
Edward V. McVey (62)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
Senior Vice President and National Sales Manager, Franklin Templeton
Distributors, Inc.; and officer of 28 of the investment companies in the
Franklin Templeton Group of Funds.
Kimberley Monasterio (36)
777 Mariners Island Blvd., San Mateo, CA 94404
TREASURER AND PRINCIPAL ACCOUNTING OFFICER
Vice President, Franklin Templeton Services, Inc.; and officer of 30 of the
investment companies in the Franklin Templeton Group of Funds.
Murray L. Simpson (62)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
Executive Vice President and General Counsel, Franklin Resources, Inc.;
officer of 27 of the investment companies in the Franklin Templeton Group of
Funds; and FORMERLY, Chief Executive Officer and Managing Director, Templeton
Franklin Investment Services (Asia) Limited (until January 2000) and
Director, Templeton Asset Management Ltd. (until 1999).
*This board member is considered an "interested person" under federal
securities laws.
Note: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers.
The fund pays noninterested board members $150 per month plus $150 per
meeting attended. Board members who serve on the audit committee of the fund
and other funds in the Franklin Templeton Group of Funds receive a flat fee
of $2,000 per committee meeting attended, a portion of which is allocated to
the fund. Members of a committee are not compensated for any committee
meeting held on the day of a board meeting. Noninterested board members also
may serve as directors or trustees of other funds in the Franklin Templeton
Group of Funds and may receive fees from these funds for their services. The
fees payable to noninterested board members by the fund are subject to
reductions resulting from fee caps limiting the amount of fees payable to
board members who serve on other boards within the Franklin Templeton Group
of Funds. The following table provides the total fees paid to noninterested
board members by the fund and by other funds in the Franklin Templeton Group
of Funds.
NUMBER OF
BOARDS IN
TOTAL FEES THE FRANKLIN
RECEIVED FROM TEMPLETON
TOTAL FEES THE FRANKLIN GROUP
RECEIVED TEMPLETON OF FUNDS
FROM THE GROUP OF ON WHICH
NAME FUND 1 ($) FUNDS 2 ($) EACH SERVES 3
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Frank H. Abbott, III 2,345 156,060 27
Harris J. Ashton 2,745 363,165 47
S. Joseph Fortunato 2,560 363,238 49
Frank W.T. LaHaye 2,495 156,060 27
Gordon S. Macklin 2,745 363,165 47
1. For the fiscal year ended July 31, 1999.
2. For the calendar year ended December 31, 1999.
3. We base the number of boards on the number of registered investment
companies in the Franklin Templeton Group of Funds. This number does not
include the total number of series or funds within each investment company
for which the board members are responsible. The Franklin Templeton Group of
Funds currently includes 53 registered investment companies, with
approximately 155 U.S. based funds or series.
Noninterested board members are reimbursed for expenses incurred in
connection with attending board meetings, paid pro rata by each fund in the
Franklin Templeton Group of Funds for which they serve as director or
trustee. No officer or board member received any other compensation,
including pension or retirement benefits, directly or indirectly from the
fund or other funds in the Franklin Templeton Group of Funds. Certain
officers or board members who are shareholders of Franklin Resources, Inc.
may be deemed to receive indirect remuneration by virtue of their
participation, if any, in the fees paid to its subsidiaries.
Board members historically have followed a policy of having substantial
investments in one or more of the funds in the Franklin Templeton Group of
Funds, as is consistent with their individual financial goals. In February
1998, this policy was formalized through adoption of a requirement that each
board member invest one-third of fees received for serving as a director or
trustee of a Templeton fund in shares of one or more Templeton funds and
one-third of fees received for serving as a director or trustee of a Franklin
fund in shares of one or more Franklin funds until the value of such
investments equals or exceeds five times the annual fees paid such board
member. Investments in the name of family members or entities controlled by a
board member constitute fund holdings of such board member for purposes of
this policy, and a three year phase-in period applies to such investment
requirements for newly elected board members. In implementing such policy, a
board member's fund holdings existing on February 27, 1998, are valued as of
such date with subsequent investments valued at cost.
MANAGEMENT AND OTHER SERVICES
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MANAGER AND SERVICES PROVIDED The fund's manager is Franklin Advisers, Inc.
The manager is a wholly owned subsidiary of Franklin Resources, Inc.
(Resources), a publicly owned company engaged in the financial services
industry through its subsidiaries. Charles B. Johnson and Rupert H. Johnson,
Jr. are the principal shareholders of Resources.
The manager provides investment research and portfolio management services,
and selects the securities for the fund to buy, hold or sell. The manager
also selects the brokers who execute the fund's portfolio transactions. The
manager provides periodic reports to the board, which reviews and supervises
the manager's investment activities. To protect the fund, the manager and its
officers, directors and employees are covered by fidelity insurance.
The manager and its affiliates manage numerous other investment companies and
accounts. The manager may give advice and take action with respect to any of
the other funds it manages, or for its own account, that may differ from
action taken by the manager on behalf of the fund. Similarly, with respect to
the fund, the manager is not obligated to recommend, buy or sell, or to
refrain from recommending, buying or selling any security that the manager
and access persons, as defined by applicable federal securities laws, may buy
or sell for its or their own account or for the accounts of any other fund.
The manager is not obligated to refrain from investing in securities held by
the fund or other funds it manages.
The fund, its manager and principal underwriter have each adopted a code of
ethics, as required by federal securities laws. Under the code of ethics,
employees who are designated as access persons may engage in personal
securities transactions, including transactions involving securities that are
being considered for the fund or that are currently held by the fund, subject
to certain general restrictions and procedures. The personal securities
transactions of access persons of the fund, its manager and principal
underwriter will be governed by the code of ethics.
MANAGEMENT FEES The fund pays the manager a fee equal to a monthly rate of:
o 5/96 of 1% of the value of net assets up to and including $100 million;
o 1/24 of 1% of the value of net assets over $100 million and not over
$250 million; and
o 9/240 of 1% of the value of net assets in excess of $250 million.
The fee is computed at the close of business on the last business day of each
month according to the terms of the management agreement. Each class of the
fund's shares pays its proportionate share of the fee.
For the last three fiscal years ended July 31, the fund paid the following
management fees:
MANAGEMENT
FEES PAID ($)
1999 1,255,216
1998 1,416,311
1997 1,822,259
ADMINISTRATOR AND SERVICES PROVIDED Franklin Templeton Services, Inc. (FT
Services) has an agreement with the manager to provide certain administrative
services and facilities for the fund. FT Services is wholly owned by
Resources and is an affiliate of the fund's manager and principal underwriter.
The administrative services FT Services provides include preparing and
maintaining books, records, and tax and financial reports, and monitoring
compliance with regulatory requirements.
ADMINISTRATION FEES The manager pays FT Services a monthly fee equal to an
annual rate of:
o 0.15% of the fund's average daily net assets up to $200 million;
o 0.135% of average daily net assets over $200 million up to $700 million;
o 0.10% of average daily net assets over $700 million up to $1.2 billion;
and
o 0.075% of average daily net assets over $1.2 billion.
During the last three fiscal years ended July 31, the manager paid FT
Services the following administration fees:
ADMINISTRATION
FEES PAID ($)
1999 337,706
1998 382,884
19971 413,362
1. For the period from October 1, 1996, through July 31, 1997.
SHAREHOLDER SERVICING AND TRANSFER AGENT Franklin/Templeton Investor
Services, Inc. (Investor Services) is the fund's shareholder servicing agent
and acts as the fund's transfer agent and dividend-paying agent. Investor
Services is located at 777 Mariners Island Blvd., San Mateo, CA 94404. Please
send all correspondence to Investor Services to P.O. Box 997151, Sacramento,
CA 95899-9983.
For its services, Investor Services receives a fixed fee per account. The
fund also will reimburse Investor Services for certain out-of-pocket
expenses, which may include payments by Investor Services to entities,
including affiliated entities, that provide sub-shareholder services,
recordkeeping and/or transfer agency services to beneficial owners of the
fund. The amount of reimbursements for these services per benefit plan
participant fund account per year will not exceed the per account fee payable
by the fund to Investor Services in connection with maintaining shareholder
accounts.
CUSTODIAN Bank of New York, Mutual Funds Division, 90 Washington Street, New
York, NY 10286, acts as custodian of the fund's securities and other assets.
AUDITOR PricewaterhouseCoopers LLP, 333 Market Street, San Francisco, CA
94105, is the fund's independent auditor. The auditor gives an opinion on the
financial statements included in the fund's Annual Report to Shareholders and
reviews the fund's registration statement filed with the U.S. Securities and
Exchange Commission (SEC).
PORTFOLIO TRANSACTIONS
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The manager selects brokers and dealers to execute the fund's portfolio
transactions in accordance with criteria set forth in the management
agreement and any directions that the board may give.
When placing a portfolio transaction, the manager seeks to obtain prompt
execution of orders at the most favorable net price. For portfolio
transactions on a securities exchange, the amount of commission paid is
negotiated between the manager and the broker executing the transaction. The
determination and evaluation of the reasonableness of the brokerage
commissions paid are based to a large degree on the professional opinions of
the persons responsible for placement and review of the transactions. These
opinions are based on the experience of these individuals in the securities
industry and information available to them about the level of commissions
being paid by other institutional investors of comparable size. The manager
will ordinarily place orders to buy and sell over-the-counter securities on a
principal rather than agency basis with a principal market maker unless, in
the opinion of the manager, a better price and execution can otherwise be
obtained. Purchases of portfolio securities from underwriters will include a
commission or concession paid by the issuer to the underwriter, and purchases
from dealers will include a spread between the bid and ask price.
The manager may pay certain brokers commissions that are higher than those
another broker may charge, if the manager determines in good faith that the
amount paid is reasonable in relation to the value of the brokerage and
research services it receives. This may be viewed in terms of either the
particular transaction or the manager's overall responsibilities to client
accounts over which it exercises investment discretion. The services that
brokers may provide to the manager include, among others, supplying
information about particular companies, markets, countries, or local,
regional, national or transnational economies, statistical data, quotations
and other securities pricing information, and other information that provides
lawful and appropriate assistance to the manager in carrying out its
investment advisory responsibilities. These services may not always directly
benefit the fund. They must, however, be of value to the manager in carrying
out its overall responsibilities to its clients.
It is not possible to place a dollar value on the special executions or on
the research services the manager receives from dealers effecting
transactions in portfolio securities. The allocation of transactions to
obtain additional research services allows the manager to supplement its own
research and analysis activities and to receive the views and information of
individuals and research staffs of other securities firms. As long as it is
lawful and appropriate to do so, the manager and its affiliates may use this
research and data in their investment advisory capacities with other clients.
If the fund's officers are satisfied that the best execution is obtained, the
sale of fund shares, as well as shares of other funds in the Franklin
Templeton Group of Funds, also may be considered a factor in the selection of
broker-dealers to execute the fund's portfolio transactions.
Because Franklin Templeton Distributors, Inc. (Distributors) is a member of
the National Association of Securities Dealers, Inc., it may sometimes
receive certain fees when the fund tenders portfolio securities pursuant to a
tender-offer solicitation. To recapture brokerage for the benefit of the
fund, any portfolio securities tendered by the fund will be tendered through
Distributors if it is legally permissible to do so. In turn, the next
management fee payable to the manager will be reduced by the amount of any
fees received by Distributors in cash, less any costs and expenses incurred
in connection with the tender.
If purchases or sales of securities of the fund and one or more other
investment companies or clients supervised by the manager are considered at
or about the same time, transactions in these securities will be allocated
among the several investment companies and clients in a manner deemed
equitable to all by the manager, taking into account the respective sizes of
the funds and the amount of securities to be purchased or sold. In some cases
this procedure could have a detrimental effect on the price or volume of the
security so far as the fund is concerned. In other cases it is possible that
the ability to participate in volume transactions may improve execution and
reduce transaction costs to the fund.
During the last three fiscal years ended July 31, the fund paid the following
brokerage commissions:
BROKERAGE
COMMISSIONS ($)
1999 102,700
1997 279,557
1998 113,547
For the fiscal year ended July 31, 1999, the fund did not pay brokerage
commissions to brokers who provided research services.
As of July 31, 1999, the fund did not own securities of its regular
broker-dealers.
DISTRIBUTIONS AND TAXES
- -------------------------------------------------------------------------------
DISTRIBUTIONS OF NET INVESTMENT INCOME The fund receives income generally in
the form of dividends and interest on its investments. This income, less
expenses incurred in the operation of the fund, constitutes the fund's net
investment income from which dividends may be paid to you. Any distributions
by the fund from such income will be taxable to you as ordinary income,
whether you take them in cash or in additional shares.
DISTRIBUTIONS OF CAPITAL GAINS The fund may derive capital gains and losses
in connection with sales or other dispositions of its portfolio securities.
Distributions from net short-term capital gains will be taxable to you as
ordinary income. Distributions from net long-term capital gains will be
taxable to you as long-term capital gain, regardless of how long you have
held your shares in the fund. Any net capital gains realized by the fund
generally will be distributed once each year, and may be distributed more
frequently, if necessary, in order to reduce or eliminate excise or income
taxes on the fund.
EFFECT OF FOREIGN INVESTMENTS ON DISTRIBUTIONS Most foreign exchange gains
realized on the sale of debt securities are treated as ordinary income by the
fund. Similarly, foreign exchange losses realized by the fund on the sale of
debt securities are generally treated as ordinary losses by the fund. These
gains when distributed will be taxable to you as ordinary dividends, and any
losses will reduce the fund's ordinary income otherwise available for
distribution to you. This treatment could increase or decrease the fund's
ordinary income distributions to you, and may cause some or all of the fund's
previously distributed income to be classified as a return of capital.
The fund may be subject to foreign withholding taxes on income from certain
of its foreign securities. If more than 50% of the fund's total assets at the
end of the fiscal year are invested in securities of foreign corporations,
the fund may elect to pass-through to you your pro rata share of foreign
taxes paid by the fund. If this election is made, the year-end statement you
receive from the fund will show more taxable income than was actually
distributed to you. However, you will be entitled to either deduct your share
of such taxes in computing your taxable income or (subject to limitations)
claim a foreign tax credit for such taxes against your U.S. federal income
tax. The fund will provide you with the information necessary to complete
your individual income tax return if it makes this election.
INFORMATION ON THE TAX CHARACTER OF DISTRIBUTIONS The fund will inform you of
the amount of your ordinary income dividends and capital gains distributions
at the time they are paid, and will advise you of their tax status for
federal income tax purposes shortly after the close of each calendar year. If
you have not held fund shares for a full year, the fund may designate and
distribute to you, as ordinary income or capital gain, a percentage of income
that is not equal to the actual amount of such income earned during the
period of your investment in the fund.
ELECTION TO BE TAXED AS A REGULATED INVESTMENT COMPANY The fund has elected
to be treated as a regulated investment company under Subchapter M of the
Internal Revenue Code, has qualified as such for its most recent fiscal year,
and intends to so qualify during the current fiscal year. As a regulated
investment company, the fund generally pays no federal income tax on the
income and gains
it distributes to you. The board reserves the right not to maintain the
qualification of the fund as a regulated investment company if it determines
such course of action to be beneficial to shareholders. In such case, the
fund will be subject to federal, and possibly state, corporate taxes on its
taxable income and gains, and distributions to you will be taxed as ordinary
dividend income to the extent of the fund's earnings and profits.
EXCISE TAX DISTRIBUTION REQUIREMENTS To avoid federal excise taxes, the
Internal Revenue Code requires the fund to distribute to you by December 31
of each year, at a minimum, the following amounts: 98% of its taxable
ordinary income earned during the calendar year; 98% of its capital gain net
income earned during the twelve month period ending October 31; and 100% of
any undistributed amounts from the prior year. The fund intends to declare
and pay these distributions in December (or to pay them in January, in which
case you must treat them as received in December), but can give no assurances
that its distributions will be sufficient to eliminate all taxes.
REDEMPTION OF FUND SHARES Redemptions (including redemptions in kind) and
exchanges of fund shares are taxable transactions for federal and state
income tax purposes. If you redeem your fund shares, or exchange your fund
shares for shares of a different Franklin Templeton Fund, the IRS will
require that you report any gain or loss on your redemption or exchange. If
you hold your shares as a capital asset, the gain or loss that you realize
will be capital gain or loss and will be long-term or short-term, generally
depending on how long you hold your shares. Any loss incurred on the
redemption or exchange of shares held for six months or less will be treated
as a long-term capital loss to the extent of any long-term capital gains
distributed to you by the fund on those shares.
All or a portion of any loss that you realize upon the redemption of your
fund shares will be disallowed to the extent that you buy other shares in the
fund (through reinvestment of dividends or otherwise) within 30 days before
or after your share redemption. Any loss disallowed under these rules will be
added to your tax basis in the new shares you buy.
U.S. GOVERNMENT OBLIGATIONS States grant tax-free status to dividends paid to
you from interest earned on direct obligations of the U.S. government,
subject in some states to minimum investment or reporting requirements that
must be met by the fund. Investments in Government National Mortgage
Association or Federal National Mortgage Association securities, bankers'
acceptances, commercial paper and repurchase agreements collateralized by
U.S. government securities do not generally qualify for tax-free treatment.
The rules on exclusion of this income are different for corporations.
DIVIDENDS-RECEIVED DEDUCTION FOR CORPORATIONS If you are a corporate
shareholder, you should note that 20.52% of the dividends paid by the fund
for the most recent fiscal year qualified for the dividends-received
deduction. You may be allowed to deduct these qualified dividends, thereby
reducing the tax that you would otherwise be required to pay on these
dividends. The dividends-received deduction will be available only with
respect to dividends designated by the fund as eligible for such treatment.
All dividends (including the deducted portion) must be included in your
alternative minimum taxable income calculation.
INVESTMENT IN COMPLEX SECURITIES The fund may invest in complex securities.
These investments may be subject to numerous special and complex tax rules.
These rules could affect whether gains and losses recognized by the fund are
treated as ordinary income or capital gain, accelerate the recognition of
income to the fund and/or defer the fund's ability to recognize losses, and,
in limited cases, subject the fund to U.S. federal income tax on income from
certain foreign securities. In turn, these rules may affect the amount,
timing or character of the income distributed to you by the fund.
ORGANIZATION, VOTING RIGHTS AND PRINCIPAL HOLDERS
The fund is a non-diversified, open-end management investment company,
commonly called a mutual fund. The fund was originally organized as a
California corporation on June 20, 1968 and reorganized as a Delaware
business trust on April 10, 2000, and is registered with the SEC.
The fund currently offers four classes of shares, Class A, Class B, Class C
and Advisor Class. Before January 1, 1999, Class A shares were designated
Class I and Class C shares were designated Class II. The fund began offering
Class B shares on January 1, 1999. The fund may offer additional classes of
shares in the future. The full title of each class is:
o Franklin Gold and Precious Metals Fund - Class A
o Franklin Gold and Precious Metals Fund - Class B
o Franklin Gold and Precious Metals Fund - Class C
o Franklin Gold and Precious Metals Fund - Advisor Class
Shares of each class represent proportionate interests in the fund's assets.
On matters that affect the fund as a whole, each class has the same voting
and other rights and preferences as any other class. On matters that affect
only one class, only shareholders of that class may vote. Each class votes
separately on matters affecting only that class, or expressly required to be
voted on separately by state or federal law.
The fund has noncumulative voting rights. For board member elections, this
gives holders of more than 50% of the shares voting the ability to elect all
of the members of the board. If this happens, holders of the remaining shares
voting will not be able to elect anyone to the board.
The fund does not intend to hold annual shareholder meetings. The 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 also may be called by the board in its discretion.
As of January 24, 2000, the principal shareholders of the fund, beneficial or
of record, were:
SHARE PERCENTAGE
NAME AND ADDRESS CLASS (%)
- -----------------------------------------------------------------
Franklin Templeton Trust Company CUST Class B 8.06
for the Rollover IRA of Steven W.
Allen
2624 Quail Valley
Irving, TX 75060
Franklin Templeton Trust Company Advisor Class 40.38
TTEE for ValuSelect
Franklin Resources, Inc.
Profit Sharing Plan1
P.O. Box 2438
Rancho Cordova, CA 95741-2438
1. Charles B. Johnson and Rupert H. Johnson, Jr., who are officers and/or
trustees of the fund, serve on the Administrative Committee of the Franklin
Resources, Inc. profit sharing plan which owns shares of the fund. In that
capacity, they participate in the voting of such shares. Charles B. Johnson
and Rupert H. Johnson, Jr., disclaim beneficial ownership of any share of the
fund owned by the profit sharing plan.
From time to time, the number of fund shares held in the "street name"
accounts of various securities dealers for the benefit of their clients or in
centralized securities depositories may exceed 5% of the total shares
outstanding.
As of January 24, 2000, the officers and board members, as a group, owned of
record and beneficially 1.4% of the fund's Advisor Class shares and less than
1% of the outstanding shares of the other classes. The board members may own
shares in other funds in the Franklin Templeton Group of Funds.
BUYING AND SELLING SHARES
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The fund continuously offers its shares through securities dealers who have
an agreement with Franklin Templeton Distributors, Inc. (Distributors). A
securities dealer includes any financial institution that, either directly or
through affiliates, has an agreement with Distributors to handle customer
orders and accounts with the fund. This reference is for convenience only and
does not indicate a legal conclusion of capacity. Banks and financial
institutions that sell shares of the fund may be required by state law to
register as securities dealers.
For investors outside the U.S., the offering of fund shares may be limited in
many jurisdictions. An investor who wishes to buy shares of the 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.
All checks, drafts, wires and other payment mediums used to buy or sell
shares of the fund must be denominated in U.S. dollars. We may, in our sole
discretion, either (a) reject any order to buy or sell shares denominated in
any other currency or (b) honor the transaction or make adjustments to your
account for the transaction as of a date and with a foreign currency exchange
factor determined by the drawee bank. We may deduct any applicable banking
charges imposed by the bank from your account.
When you buy shares, if you submit a check or a draft that is returned unpaid
to the fund we may impose a $10 charge against your account for each returned
item.
If you buy shares through the reinvestment of dividends, the shares will be
purchased at the net asset value determined on the business day following the
dividend record date (sometimes known as the "ex-dividend date"). The
processing date for the reinvestment of dividends may vary and does not
affect the amount or value of the shares acquired.
GROUP PURCHASES As described in the prospectus, members of a qualified group
may add the group's investments together for minimum investment purposes.
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 fund, and
o Meets other uniform criteria that allow Distributors to achieve cost
savings in distributing shares.
DEALER COMPENSATION Distributors and/or its affiliates may provide financial
support to securities dealers that sell shares of the Franklin Templeton
Group of Funds. This support is based primarily on the amount of sales of
fund shares and/or total assets with the Franklin Templeton Group of Funds.
The amount of support may be affected by: total sales; net sales; levels of
redemptions; the proportion of a securities dealer's sales and marketing
efforts in the Franklin Templeton Group of Funds; a securities dealer's
support of, and participation in, Distributors' marketing programs; a
securities dealer's compensation programs for its registered representatives;
and the extent of a securities dealer's marketing programs relating to
the Franklin Templeton Group of Funds. Financial support to securities
dealers may be made by payments from Distributors' resources, from
Distributors' retention of underwriting concessions and, in the case of funds
that have Rule 12b-1 plans, from payments to Distributors under such plans.
In addition, certain securities dealers may receive brokerage commissions
generated by fund portfolio transactions in accordance with the rules of the
National Association of Securities Dealers, Inc.
Distributors routinely sponsors due diligence meetings for registered
representatives during which they receive updates on various Franklin
Templeton Funds and are afforded the opportunity to speak with portfolio
managers. Invitation to these meetings is not conditioned on selling a
specific number of shares. Those who have shown an interest in the Franklin
Templeton Funds, however, are more likely to be considered. To the extent
permitted by their firm's policies and procedures, registered
representatives' expenses in attending these meetings may be covered by
Distributors.
EXCHANGE PRIVILEGE 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. Backup withholding and information reporting may apply.
If a substantial number of shareholders should, within a short period, sell
their fund shares under the exchange privilege, the fund might have to sell
portfolio securities it might otherwise hold and incur the additional costs
related to such transactions. On the other hand, increased use of the
exchange privilege may result in periodic large inflows of money. If this
occurs, it is the fund's general policy to initially invest this money in
short-term, interest-bearing money market instruments, unless it is believed
that attractive investment opportunities consistent with the fund's
investment goals exist immediately. This money will then be withdrawn from
the short-term, interest-bearing money market instruments and invested in
portfolio securities in as orderly a manner as is possible when attractive
investment opportunities arise.
The proceeds from the sale of shares of an investment company generally are
not available until the seventh day following the sale. The funds you are
seeking to exchange into may delay issuing shares pursuant to an exchange
until that seventh day. The sale of fund shares to complete an exchange will
be effected at net asset value at the close of business on the day the
request for exchange is received in proper form.
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. There are no service charges
for establishing or maintaining a systematic withdrawal plan.
Payments under the plan will be made from the redemption of an equivalent
amount of shares in your account, generally on the 25th day of the month in
which a payment is scheduled. If the 25th falls on a weekend or holiday, we
will process the redemption on the next business day. When you sell your
shares under a systematic withdrawal plan, it is a taxable transaction.
Redeeming shares through a systematic withdrawal plan may reduce or exhaust
the shares in your account if payments exceed distributions received from the
fund. This is especially likely to occur if there is a market decline. If a
withdrawal amount exceeds the value of your account, your account will be
closed and the remaining balance in your account will be sent to you. Because
the amount withdrawn under the plan may be more than your actual yield or
income, part of the payment may be a return of your investment.
You may discontinue a systematic withdrawal plan, change the amount and
schedule of withdrawal payments, or suspend one payment by notifying us by
mail or by phone at least seven business days before the end of the month
preceding a scheduled payment. The fund may discontinue a systematic
withdrawal plan by notifying you in writing and will automatically
discontinue a systematic withdrawal plan if all shares in your account are
withdrawn or if the fund receives notification of the shareholder's death or
incapacity.
REDEMPTIONS IN KIND The fund has committed itself to pay in cash (by check)
all requests for redemption by any shareholder of record, limited in amount,
however, during any 90-day period to the lesser of $250,000 or 1% of the
value of the fund's net assets at the beginning of the 90-day period. This
commitment is irrevocable without the prior approval of the U.S. Securities
and Exchange Commission (SEC). In the case of redemption requests in excess
of these amounts, the board reserves the right to make payments in whole or
in part in securities or other assets of the fund, in case of an emergency,
or if the payment of such a redemption in cash would be detrimental to the
existing shareholders of the fund. In these circumstances, the securities
distributed would be valued at the price used to compute the fund's net
assets and you may incur brokerage fees in converting the securities to cash.
Redemptions in kind are taxable transactions. The fund does not intend to
redeem illiquid securities in kind. If this happens, however, you may not be
able to recover your investment in a timely manner.
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.
GENERAL INFORMATION If dividend checks are returned to the fund marked
"unable to forward" by the postal service, we will consider this a request by
you to change your dividend option to reinvest all distributions. The
proceeds will be reinvested in additional shares at net asset value until we
receive new instructions.
Distribution or redemption checks sent to you do not earn interest or any
other income during the time the checks remain uncashed. Neither the fund nor
its affiliates will
be liable for any loss caused by your failure to cash such checks. The fund
is not responsible for tracking down uncashed checks, unless a check is
returned as undeliverable.
In most cases, if mail is returned as undeliverable we are required to take
certain steps to try to find you free of charge. If these attempts are
unsuccessful, however, we may deduct the costs of any additional efforts to
find you from your account. These costs may include a percentage of the
account when a search company charges a percentage fee in exchange for its
location services.
Sending redemption proceeds by wire or electronic funds transfer (ACH) is a
special service that we make available whenever possible. By offering this
service to you, the fund is not bound to meet any redemption request in less
than the seven day period prescribed by law. Neither the fund nor its agents
shall be liable to you or any other person if, for any reason, a redemption
request by wire or ACH is not processed as described in the prospectus.
Franklin Templeton Investor Services, Inc. (Investor Services) may pay
certain financial institutions that maintain omnibus accounts with the fund
on behalf of numerous beneficial owners for recordkeeping operations
performed with respect to such owners. For each beneficial owner in the
omnibus account, the fund may reimburse Investor Services an amount not to
exceed the per account fee that the fund normally pays Investor Services.
These financial institutions also may charge a fee for their services
directly to their clients.
If you buy or sell shares through your securities dealer, we use the net
asset value next calculated after your securities dealer receives your
request, which is promptly transmitted to the fund. If you sell shares
through your securities dealer, it is your dealer's responsibility to
transmit the order to the fund in a timely fashion. 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. Any loss to you resulting
from your dealer's failure to transmit your redemption order to the fund in a
timely fashion must be settled between you and your securities dealer.
Certain shareholder servicing agents may be authorized to accept your
transaction request.
For institutional accounts, there may be additional methods of buying or
selling fund shares than those described in this SAI or in the prospectus.
In the event of disputes involving multiple claims of ownership or authority
to control your account, the fund has the right (but has no obligation) to:
(a) freeze the account and require the written agreement of all persons
deemed by the fund to have a potential property interest in the account,
before executing instructions regarding the account; (b) interplead disputed
funds or accounts with a court of competent jurisdiction; or (c) surrender
ownership of all or a portion of the account to the IRS in response to a
notice of levy.
PRICING SHARES
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When you buy and sell shares, you pay the net asset value (NAV) per share.
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.
The fund calculates the NAV per share of each class each business day at the
close of trading on the New York Stock Exchange (normally 1:00 p.m. Pacific
time). The fund does not calculate the NAV on days the New York Stock
Exchange (NYSE) is closed for trading, which include New Year's Day, Martin
Luther King Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day.
When determining its NAV, the fund values cash and receivables at their
realizable amounts, and records interest as accrued and dividends on the
ex-dividend date. If market quotations are readily available for portfolio
securities listed on a securities exchange or on the NASDAQ National Market
System, the fund values those securities at the last quoted sale price of the
day or, if there is no reported sale, within the range of the most recent quoted
bid and ask prices. The fund values over-the-counter portfolio securities within
the range of the most recent quoted bid and ask prices. If portfolio securities
trade both in the over-the-counter market and on a stock exchange, the fund
values them according to the broadest and most representative market as
determined by the manager.
The fund determines the value of a foreign security as of the close of trading
on the foreign exchange on which the security is traded or as of the close of
trading on the NYSE, if that is earlier. The value is then converted into its
U.S. dollar equivalent at the foreign exchange rate in effect at noon, New York
time, on the day the value of the foreign security is determined. If no sale is
reported at that time, the foreign security is valued within the range of the
most recent quoted bid and ask prices. Occasionally events that affect the
values of foreign securities and foreign exchange rates may occur between the
times at which they are determined and the close of the exchange and will,
therefore, not be reflected in the computation of the NAV. If events materially
affecting the values of these foreign securities occur during this period, the
securities will be valued in accordance with procedures established by the
board.
Generally, trading in corporate bonds, U.S. government securities and money
market instruments is substantially completed each day at various times
before the close of the NYSE. The value of these securities used in computing
the NAV is determined as of such times. Occasionally, events affecting the
values of these securities may occur between the times at which they are
determined and the close of the NYSE that will not be reflected in the
computation of the NAV. If events materially affecting the values of these
securities occur during this period, the securities will be valued at their
fair value as determined in good faith by the board.
Other securities for which market quotations are readily available are valued at
the current market price, which may be obtained from a pricing service, based on
a variety of factors including recent trades, institutional size trading in
similar types of securities (considering yield, risk and maturity) and/or
developments related to specific issues. Securities and other assets for which
market prices are not readily available are valued at fair value as determined
following procedures approved by the board. With the approval of the board, the
fund may use a pricing service, bank or securities dealer to perform any of the
above described functions.
THE UNDERWRITER
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Franklin Templeton Distributors, Inc. (Distributors) acts as the principal
underwriter in the continuous public offering of the fund's shares.
Distributors is located at 777 Mariners Island Blvd., San Mateo, CA 94404.
Distributors pays the expenses of the distribution of fund shares, including
advertising expenses and the costs of printing sales material and
prospectuses used to offer shares to the public. The fund pays the expenses
of preparing and printing amendments to its registration statements and
prospectuses (other than those necessitated by the activities of
Distributors) and of sending prospectuses to existing shareholders.
Distributors does not receive compensation from the fund for acting as
underwriter of the fund's Advisor Class shares.
PERFORMANCE
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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 the fund be accompanied
by certain standardized performance information computed as required by the
SEC. Average annual total return quotations used by the fund are based on the
standardized methods of computing performance mandated by the SEC.
For periods before January 1, 1997, Advisor Class standardized performance
quotations are calculated by substituting Class A performance for the
relevant time period, excluding the effect of Class A's maximum initial sales
charge, and including the effect of the distribution and service (Rule 12b-1)
fees applicable to the fund's Class A shares. For periods after January 1,
1997, Advisor Class standardized performance quotations are calculated as
described below.
An explanation of these and other methods used by the fund 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.
AVERAGE ANNUAL TOTAL RETURN Average annual total return is determined by
finding the average annual rates of return over the periods indicated below
that would equate an initial hypothetical $1,000 investment to its ending
redeemable value. The calculation assumes income dividends and capital gain
distributions are reinvested at net asset value. The quotation assumes the
account was completely redeemed at the end of each period and the deduction
of all applicable charges and fees. If a change is made to the sales charge
structure, historical performance information will be restated to reflect the
maximum initial sales charge currently in effect.
The average annual total returns for the indicated periods ended July 31,
1999, were:
1 YEAR (%) 5 YEARS (%) 10 YEARS (%)
- --------------------------------------------------------------------
Advisor Class 12.30 -7.61 -0.57
The following SEC formula was used to calculate these figures:
n
P(1+T) = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of each period at the end of each period
CUMULATIVE TOTAL RETURN Like average annual total return, cumulative total
return assumes income dividends and capital gain distributions are reinvested
at net asset value, the account was completely redeemed at the end of each
period and the deduction of all applicable charges and fees. Cumulative total
return, however, is based on the actual return for a specified period rather
than on the average return over the periods indicated above. The cumulative
total returns for the indicated periods ended July 31, 1999, were:
1 YEAR (%) 5 YEARS (%) 10 YEARS (%)
Advisor Class 12.30 -32.67 -5.53
- -------------------------------------------------------------------
VOLATILITY Occasionally statistics may be used to show the fund's volatility
or risk. Measures of volatility or risk are generally used to compare the
fund's net asset value or performance to a market index. One measure of
volatility is beta. Beta is the volatility of a fund relative to the total
market, as represented by an index considered representative of the types of
securities in which the fund invests. A beta of more than 1.00 indicates
volatility greater than the market and a beta of less than 1.00 indicates
volatility less than the market. Another measure of volatility or risk is
standard deviation. Standard deviation is used to measure variability of net
asset value or total return around an average over a specified period of
time. The idea is that greater volatility means greater risk undertaken in
achieving performance.
OTHER PERFORMANCE QUOTATIONS Sales literature referring to the use of the
fund as a potential investment for IRAs, business retirement plans, and other
tax-advantaged retirement plans may quote a total return based upon
compounding of dividends on which it is presumed no federal income tax
applies.
The fund may include in its advertising or sales material information
relating to investment goals and performance results of funds belonging to
the Franklin Templeton Group of Funds. Franklin Resources, Inc. is the parent
company of the advisors and underwriter of the Franklin Templeton Group of
Funds.
COMPARISONS To help you better evaluate how an investment in the fund may
satisfy your investment goal, advertisements and other materials about the
fund may discuss certain measures of fund performance as reported by various
financial publications. Materials also may compare performance (as calculated
above) to performance as reported by other investments, indices, and
averages. These comparisons may include, but are not limited to, the
following examples:
o Dow Jones(R) Composite Average and its component averages - a
price-weighted average of 65 stocks that trade on the New York Stock
Exchange. The average is a combination of the Dow Jones Industrial Average
(30 blue-chip stocks that are generally leaders in their industry), the Dow
Jones Transportation Average (20 transportation stocks), and the Dow Jones
Utilities Average (15 utility stocks involved in the production of
electrical energy).
o Standard & Poor's(R) 500 Stock Index or its component indices - a
capitalization-weighted index designed to measure performance of the broad
domestic economy through changes in the aggregate market value of 500
stocks representing all major industries.
o The New York Stock Exchange composite or component indices - an
unmanaged index of all industrial, utilities, transportation, and finance
stocks listed on the NYSE.
o Wilshire 5000 Equity Index - represents the return on the market value
of all common equity securities for which daily pricing is available.
Comparisons of performance assume reinvestment of dividends.
o Lipper - Mutual Fund Performance Analysis and Lipper - Equity Fund
Performance Analysis - measure total return and average current yield for
the mutual fund industry and rank individual mutual fund performance over
specified time periods, assuming reinvestment of all distributions,
exclusive of any applicable sales charges.
o CDA Mutual Fund Report, published by CDA Investment Technologies, Inc. -
analyzes price, current yield, risk, total return, and average rate of
return (average annual compounded growth rate) over specified time periods
for the mutual fund industry.
o Mutual Fund Source Book, published by Morningstar, Inc. - analyzes
price, yield, risk, and total return for mutual funds.
o Financial publications: The Wall Street Journal, and Business Week,
Changing Times, Financial World, Forbes, Fortune, and Money magazines -
provide performance statistics over specified time periods.
o Consumer Price Index (or Cost of Living Index), published by the U.S.
Bureau of Labor Statistics - a statistical measure of change, over time, in
the price of goods and services in major expenditure groups.
o Stocks, Bonds, Bills, and Inflation, published by Ibbotson Associates -
historical measure of yield, price, and total return for common and small
company stock, long-term government bonds, Treasury bills, and inflation.
o Savings and Loan Historical Interest Rates - as published in the U.S.
Savings & Loan League Fact Book.
o Historical data supplied by the research departments of CS First Boston
Corporation, the J.P. Morgan companies, Salomon Brothers, Merrill Lynch,
Lehman Brothers and Bloomberg L.P.
o Morningstar - information published by Morningstar, Inc., including
Morningstar proprietary mutual fund ratings. The ratings reflect
Morningstar's assessment of the historical risk-adjusted performance of a
fund over specified time periods relative to other funds within its
category.
o The Financial Times (FT) Gold Mines Index - a price index intended to
illustrate the trend or "mood" of this market sector, not measure long-term
performance.
From time to time, advertisements or information for the fund may include a
discussion of certain attributes or benefits to be derived from an investment
in the fund. The advertisements or information may include symbols,
headlines, or other material that highlights or summarizes the information
discussed in more detail in the communication.
Advertisements or information also may compare the fund's performance to the
return on certificates of deposit (CDs) or other investments. You should be
aware, however, that an investment in the fund involves the risk of
fluctuation of principal value, a risk generally not present in an investment
in a CD issued by a bank. For example, as the general level of interest rates
rise, the value of the fund's fixed-income investments, if any, as well as
the value of its shares that are based upon the value of such portfolio
investments, can be expected to fall. Conversely, when interest rates
decrease, the value of the fund's shares can be expected to increase. CDs are
frequently insured by an agency of the U.S. government. An investment in the
fund is not insured by any federal, state or private entity.
In assessing comparisons of performance, you should keep in mind that the
composition of the investments in the reported indices and averages is not
identical to the fund's portfolio, the indices and averages are generally
unmanaged, and the items included in the calculations of the averages may not
be identical to the formula used by the fund to calculate its figures. In
addition, there can be no assurance that the fund will continue its
performance as compared to these other averages.
MISCELLANEOUS INFORMATION
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The fund may help you achieve various investment goals such as accumulating
money for retirement, saving for a down payment on a home, college costs and
other long-term goals. The Franklin College Costs Planner may help you in
determining how much money must be invested on a monthly basis in order to
have a projected amount available in the future to fund a child's college
education. (Projected college cost estimates are based upon current costs
published by the College Board.) The Franklin Retirement Planning Guide leads
you through the steps to start a retirement savings program. Of course, an
investment in the fund cannot guarantee that these goals will
be met.
The fund is a member of the Franklin Templeton Group of Funds, one of the
largest mutual fund organizations in the U.S., and may be considered in a
program for diversification of assets. Founded in 1947, Franklin is one of
the oldest mutual fund organizations and now services approximately 3 million
shareholder accounts. In 1992, Franklin, a leader in managing fixed-income
mutual funds and an innovator in creating domestic equity funds, joined
forces with Templeton, a pioneer in international investing. The Mutual
Series team, known for its value-driven approach to domestic equity
investing, became part of the organization four years later. Together, the
Franklin Templeton Group has over $224 billion in assets under management for
more than 5 million U.S. based mutual fund shareholder and other accounts.
The Franklin Templeton Group of Funds offers 103 U.S. based open-end
investment companies to the public. The fund may identify itself by its
NASDAQ symbol or CUSIP number.
Currently, there are more mutual funds than there are stocks listed on the
New York Stock Exchange. While many of them have similar investment goals, no
two are exactly alike. Shares of the fund are generally sold through
securities dealers, whose investment representatives are experienced
professionals who can offer advice on the type of investments suitable to
your unique goals and needs, as well as the risks associated with such
investments.
DESCRIPTION OF RATINGS
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CORPORATE BOND RATINGS
MOODY'S INVESTORS SERVICE, INC. (MOODY'S)
Aaa: Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or exceptionally
stable margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa: Bonds rated Aa are judged to be high quality by all standards. Together
with the Aaa group, they comprise what are generally known as high-grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large, fluctuation of protective elements may be of greater
amplitude, or there may be other elements present that make the long-term
risks appear somewhat larger.
A: Bonds rated A possess many favorable investment attributes and are
considered upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
that suggest a susceptibility to impairment sometime in the future.
Baa: Bonds rated Baa are considered medium-grade obligations. They are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may
be lacking or may be characteristically unreliable over any great length of
time. These bonds lack outstanding investment characteristics and, in fact,
have speculative characteristics as well.
Ba: Bonds rated Ba are judged to have predominantly speculative elements and
their future cannot be considered well assured. Often the protection of
interest and principal payments is very moderate and, thereby, not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B: Bonds rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms
of the contract over any long period of time may be small.
Caa: Bonds rated Caa are of poor standing. These issues may be in default or
there may be present elements of danger with respect to principal or interest.
Ca: Bonds rated Ca represent obligations that are speculative to a high
degree. These issues are often in default or have other marked shortcomings.
C: Bonds rated C are the lowest rated class of bonds and can be regarded as
having extremely poor prospects of ever attaining any real investment
standing.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond ratings. The modifier
1 indicates that the security ranks in the higher end of its generic rating
category; modifier 2 indicates a mid-range ranking; and modifier 3 indicates
that the issue ranks in the lower end of its generic rating category.
STANDARD & POOR'S RATINGS GROUP (S&P(R))
AAA: This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.
AA: Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong and, in the majority of instances,
differ from AAA issues only in a small degree.
A: Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions.
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay principal and interest for bonds in this
category than for bonds in the A category.
BB, B, CCC, CC: Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of the obligations.
BB indicates the lowest degree of speculation and CC the highest degree of
speculation. While these bonds will likely have some quality and protective
characteristics, they are outweighed by large uncertainties or major risk
exposures to adverse conditions.
C: Bonds rated C are typically subordinated debt to senior debt that is
assigned an actual or implied CCC- rating. The C rating also may reflect the
filing of a bankruptcy petition under circumstances where debt service
payments are continuing. The C1 rating is reserved for income bonds on which
no interest is being paid.
D: Debt rated D is in default and payment of interest and/or repayment of
principal is in arrears.
Plus (+) or minus (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
COMMERCIAL PAPER RATINGS
MOODY'S
Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually their promissory obligations not having an original maturity
in excess of nine months. Moody's employs the following designations, all
judged to be investment grade, to indicate the relative repayment capacity of
rated issuers:
P-1 (Prime-1): Superior capacity for repayment.
P-2 (Prime-2): Strong capacity for repayment.
S&P
S&P's ratings are a current assessment of the likelihood of timely payment of
debt having an original maturity of no more than 365 days. Ratings are graded
into four categories, ranging from "A" for the highest quality obligations to
"D" for the lowest. Issues within the "A" category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety, as follows:
A-1: This designation indicates the degree of safety regarding timely payment
is very strong. A "plus" (+) designation indicates an even stronger
likelihood of timely payment.
A-2: Capacity for timely payment on issues with this designation is strong.
The relative degree of safety, however, is not as overwhelming as for issues
designated A-1.
A-3: Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects
of changes
in circumstances than obligations carrying the higher designations.
FRANKLIN GOLD AND PRECIOUS METALS FUND
File Nos. 2-30761
811-1700
FORM N-1A
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS
The following exhibits are incorporated by reference to the previously
filed document indicated below, except as noted:
(a) Agreement and Declaration of Trust
(i) Certificate of Trust of Franklin Gold and Precious Metals Fund
dated November 16, 1999
(ii) Agreement and Declaration of Trust of Franklin Gold and Precious
Metals Fund dated November 16, 1999
(b) By-laws
(i) By-Laws of Franklin Gold and Precious Metals Fund
(c) Instruments Defining Rights of Security Holders
Not Applicable
(d) Investment Advisory Contracts
(i) Management Agreement between Registrant and Franklin Advisers,
Inc., dated December 1, 1986
Filing: Post-Effective Amendment No. 43 to Registration
Statement on Form N-1A
File No. 2-30761
Filing Date: April 21, 1995
(e) Underwriting Contracts
(i) Amended and Restated Distribution Agreement between Registrant
and Franklin/Templeton Distributors, Inc., dated April 23, 1995
Filing: Post-Effective Amendment No. 22 to Registration Statement
on Form N-1A
File No. 2-94222
Filing Date: March 14, 1996
(ii) Forms of Dealer Agreements between Registrant and
Franklin/Templeton Distributors, Inc. and Securities Dealers
Filing: Post-Effective Amendment No. 49 to Registration Statement
on Form N-1A
File No. 2-30761
Filing Date: December 23, 1998
(iii) Amendment of Amended and Restated Distribution Agreement dated
January 12, 1999
Filing: Post-Effective Amendment No. 50 to Registration Statement
on Form N-1A
File No. 2-30761
Filing Date: November 29, 1999
(f) Bonus or Profit Sharing Contracts
Not applicable
(g) Custodian Agreements
(i) Master Custodian Agreement between Registrant and Bank of New
York dated February 16, 1996
Filing: Post-Effective Amendment No. 45 to Registration Statement
on Form N-1A
File No. 2-30761
Filing Date: November 27, 1996
(ii) Terminal Link Agreement between Registrant and Bank of New York
dated February 16, 1996
Filing: Post-Effective Amendment No. 45 to Registration Statement
on Form N-1A
File No. 2-30761
Filing Date: November 27, 1996
(iii) Precious Metals Storage & Custodian Agreement between Registrant
and Wilmington Trust Company dated January 1, 1988
Filing: Post-Effective Amendment No. 43 to Registration Statement
on Form N-1A
File No. 2-30761
Filing Date: April 21, 1995
(iv) Amendment dated May 7, 1997 to the Master Custody Agreement dated
February 16, 1996 between Registrant and Bank of New York
Filing: Post-Effective Amendment No. 47 to Registration Statement
on Form N-1A
File No. 2-30761
Filing Date: November 24, 1997
(v) Amendment dated September 16, 1999 to Exhibit A of the Master
Custody Agreement between the Registrant and Bank of New York
dated February 16, 1996
Filing: Post-Effective Amendment No. 50 to Registration Statement
on Form N-1A
File No. 2-30761
Filing Date: November 29, 1999
(vi) Foreign Custody Manager Agreement between the Registrant and Bank
of New York dated July 30, 1998
Filing: Post-Effective Amendment No. 49 to Registration Statement
on Form N-1A
File No. 2-30761
Filing Date: September 30, 1998
(h) Other Material Contracts
(i) Subcontract for Fund Administrative Services dated October 1,
1996 and Amendment thereto dated April 30, 1998 between Franklin
Advisers, Inc. and Franklin Templeton Services, Inc.
Filing: Post-Effective Amendment No. 49 to Registration Statement
on Form N-1A
File No. 2-30761
Filing Date: December 23, 1998
(i) Legal Opinion
(i) Opinion and consent of counsel dated September 15, 1998
Filing: Post-Effective Amendment No. 49 to Registration Statement
on Form N-1A
File No. 2-30761
Filing Date: September 30, 1998
(j) Other Opinions
(i) Consent of Independent Auditors
(k) Omitted Financial Statements
Not applicable
(l) Initial Capital Agreements
(i) Letter of Understanding dated April 12, 1995
Filing: Post-Effective Amendment No. 43 to Registration Statement
on Form N-1A
File No. 2-30761
Filing Date: April 21, 1995
(m) Rule 12b-1 Plan
(i) Plan of Distribution pursuant to Rule 12b-1 dated May 1, 1994
Filing: Post-Effective Amendment No. 43 to Registration Statement
on Form N-1A
File No. 2-30761
Filing Date: April 21, 1995
(ii) Class II Distribution Plan pursuant to Rule 12b-1 dated March 30,
1995
Filing: Post-Effective Amendment No. 43 to Registration Statement
on Form N-1A
File No. 2-30761
Filing Date: April 21, 1995
(iii) Class B Distribution Plan pursuant to Rule 12b-1 dated October
16, 1998
Filing: Post-Effective Amendment No. 50 to Registration Statement
on Form N-1A
File No. 2-30761
Filing Date: November 29, 1999
(o) Rule 18f-3 Plan
(i) Multiple Class Plan on behalf of Franklin Gold Fund dated March
19, 1998
Filing: Post-Effective Amendment No. 50 to Registration Statement
on Form N-1A
File No. 2-30761
Filing Date: November 29, 1999
(p) Power of Attorney
(i) Power of Attorney dated January 20, 2000
(ii)Certificate of Secretary dated January 28, 2000
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUND
None
ITEM 25. INDEMNIFICATION
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a Court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
Please see the Declaration of Trust, By-Laws, Management Agreement and
Distribution Agreements filed as exhibits or incorporated herein by reference.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER
The officers and directors of the Registrant's manager also serve as officers
and/or directors for (1) the manager's corporate parent, Franklin Resources,
Inc., and/or (2) other investment companies in the Franklin/Templeton Group of
Funds. 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 Fund's investment manager (SEC File 801-26292),
incorporated herein by reference, which sets forth the officers and directors of
the investment manager and information as to any business, profession, vocation
or employment of a substantial nature engaged in by those officers and directors
during the past two years.
ITEM 27. 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 High Income Trust
Franklin Investors Securities Trust
Franklin Managed Trust
Franklin Money Fund
Franklin Municipal Securities Trust
Franklin Mutual Series Fund Inc.
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
Franklin Templeton Variable Insurance Products Trust
(formerly Franklin Valuemark Funds)
Institutional Fiduciary Trust
Templeton Capital Accumulator Fund, Inc.
Templeton Developing Markets Trust
Templeton Funds, Inc.
Templeton Global Investment Trust
Templeton Global Opportunities Trust
Templeton Global Smaller Companies Fund, Inc.
Templeton Growth Fund, Inc.
Templeton Income Trust
Templeton Institutional Funds, Inc.
Templeton Variable Products Series Fund
(b) The information required by this Item 27 with respect to each director and
officer of Distributors is incorporated by reference to Part B of this Form 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 28. LOCATION OF ACCOUNTS AND RECORDS
The accounts, books or other documents required to be maintained by Section 31
(a) of the Investment Company Act of 1940 will be kept by the Fund or its
shareholder services agent, Franklin/Templeton Investor Services, Inc., both of
whose address is 777 Mariners Island Blvd., San Mateo, CA 94404.
ITEM 29. MANAGEMENT SERVICES
There are no management-related service contracts not discussed in Part A or
Part B.
ITEM 30. UNDERTAKINGS
Not Applicable
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Amendment to its
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of San Mateo and the State of
California, on the 8th day of February, 2000.
FRANKLIN GOLD AND PRECIOUS METALS FUND
(Registrant)
By: /S/R. MARTIN WISKEMANN*
R. Martin Wiskemann
President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities
and on the dates indicated.
R. MARTIN WISKEMANN* Principal Executive Officer and
R. Martin Wiskemann Trustee
Dated: February 8, 2000
MARTIN L. FLANAGAN* Principal Financial Officer
Martin L. Flanagan Dated: February 8, 2000
KIMBERLEY H. MONASTERIO* Principal Accounting Officer
Kimberley H. Monasterio Dated: February 8, 2000
FRANK H. ABBOTT III* Trustee
Frank H. Abbott III Dated: February 8, 2000
HARRIS J. ASHTON* Trustee
Harris J. Ashton Dated: February 8, 2000
HARMON E. BURNS* Trustee
Harmon E. Burns Dated: February 8, 2000
S. JOSEPH FORTUNATO* Trustee
S. Joseph Fortunato Dated: February 8, 2000
CHARLES B. JOHNSON* Trustee
Charles B. Johnson Dated: February 8, 2000
RUPERT H. JOHNSON, JR.* Trustee
Rupert H. Johnson, Jr. Dated: February 8, 2000
FRANK W.T. LAHAYE* Trustee
Frank W.T. LaHaye Dated: February 8, 2000
GORDON S. MACKLIN* Trustee
Gordon S. Macklin Dated: February 8, 2000
*By /S/ DAVID P. GOSS
David P. Goss, Attorney-in-Fact
(Pursuant to Powers of Attorney filed herewith)
FRANKLIN GOLD FUND
REGISTRATION STATEMENT
EXHIBITS INDEX
EXHIBIT NO. DESCRIPTION LOCATION
EX-99.(a)(i) Certificate of Trust of Franklin Attached
Gold and Precious Metals Fund
dated November 16, 1999
EX-99.(a)(ii) Agreement and Declaration of Trust Attached
of Franklin Gold and Precious
Metals Fund dated November 16, 1999
EX-99.(b)(i) By-Laws of Franklin Gold and Attached
Precious Metals Fund
EX-99.(d)(i) Management Agreement between *
Registrant and Franklin Advisers,
Inc., dated December 1, 1986
EX-99.(e)(i) Amended and Restated Distribution *
Agreement between Registrant and
Franklin/Templeton Distributors,
Inc., dated April 23, 1995
EX-99.(e)(ii) Forms of Dealer Agreements between *
Registrant and Franklin/Templeton
Distributors, Inc. and Securities
Dealers
EX-99.(e)(iii) Amendment of Amended and Restated *
Distribution Agreement dated
January 12, 1999
EX-99.(g)(i) Master Custodian Agreement between *
Registrant and Bank of New York
dated February 16, 1996
EX-99.(g)(ii) Terminal Link Agreement between *
Registrant and Bank of New York
dated February 16, 1996
EX-99.(g)(iii) Precious Metals Storage & *
Custodian Agreement between
Registrant and Wilmington Trust
Company dated January 1, 1988
EX-99.(g)(iv) Amendment dated May 7, 1997 to the *
Master Custody Agreement dated
February 16, 1996 between
Registrant and Bank of New York
EX-99.(g)(v) Amendment dated September 16, 1999 *
to Exhibit A of the Master Custody
Agreement between the Registrant
and Bank of New York dated
February 16, 1996
EX-99.(g)(vi) Foreign Custody Manager Agreement *
between the Registrant and Bank of
New York dated July 30, 1998
EX-99.(h)(i) Subcontract for Fund *
Administrative Services dated
October 1, 1996 and Amendment
thereto dated April 30, 1998
between Franklin Advisers, Inc.
and Franklin Templeton Services,
Inc.
EX-99.(i)(i) Opinion and consent of counsel *
dated September 15, 1998
EX-99.(j)(i) Consent of Independent Auditors Attached
EX-99.(l)(i) Letter of Understanding dated *
April 12, 1995
EX-99.(m)(i) Plan of Distribution pursuant to *
Rule 12b-1 dated May 1, 1994
EX-99.(m)(ii) Class II Distribution Plan *
Pursuant to Rule 12b-1 dated March
30, 1995
EX-99.(m)(iii) Class B Distribution Plan pursuant *
to Rule 12b-1 dated October 16,
1998
EX-99.(o)(i) Multiple Class Plan on behalf of *
Franklin Gold Fund dated March 19,
1998
EX-99.(p)(i) Power of Attorney dated January Attached
20, 2000
EX-99.(p)(ii) Certificate of Secretary dated, Attached
January 28, 2000
*Incorporated by Reference
CERTIFICATE OF TRUST
OF
FRANKLIN GOLD AND PRECIOUS METALS FUND
a Delaware Business Trust
THIS Certificate of Trust of Franklin Gold and Precious Metals Fund (the
"Trust"), dated this 16th day of November, 1999, is being duly executed and
filed, in order to form a business trust pursuant to the Delaware Business Trust
Act (the "Act"), Del. Code Ann. tit. 12, ss.ss.3801-3819.
1. NAME. The name of the business trust formed hereby is "Franklin Gold and
Precious Metals Fund."
2. REGISTERED OFFICE AND REGISTERED AGENT. The Trust will become, prior to
the issuance of shares of beneficial interest, a registered investment company
under the Investment Company Act of 1940, as amended. Therefore, in accordance
with section 3807(b) of the Act, the Trust has and shall maintain in the State
of Delaware a registered office and a registered agent for service of process.
(A) REGISTERED OFFICE. The registered office of the Trust in Delaware
is The Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware
19801.
(B) REGISTERED AGENT. The registered agent for service of process on
the Trust in Delaware is The Corporation Trust Company, 1209 Orange Street,
Wilmington, Delaware 19801.
3. LIMITATION OF LIABILITY. Pursuant to section 3804(a) of the Act, the
debts, liabilities, obligations and expenses incurred, contracted for or
otherwise existing with respect to a particular series, whether such series is
now authorized and existing pursuant to the governing instrument of the Trust or
is hereafter authorized and existing pursuant to said governing instrument,
shall be enforceable against the assets associated with such series only, and
not against the assets of the Trust generally or any other series thereof, and,
except as otherwise provided in the governing instrument of the Trust, none of
the debts, liabilities, obligations and expenses incurred, contracted for or
otherwise existing with respect to the Trust generally or any other series
thereof shall be enforceable against the assets of such series.
IN WITNESS WHEREOF, the Trustees named below do hereby execute this
Certificate of Trust as of the date first-above written.
/s/Frank H. Abbott, III /s/Rupert H. Johnson, Jr.
/s/Harris J. Ashton /s/Frank W. T. LaHaye
/s/Harmon E. Burns /s/Gordon S. Macklin
/s/S. Joseph Fortunato /s/R. Martin Wiskemann
/s/Charles B. Johnson
AGREEMENT AND DECLARATION OF TRUST
of
FRANKLIN GOLD AND PRECIOUS METALS FUND
a Delaware Business Trust
Principal Place of Business:
777 Mariners Island Blvd.
San Mateo, California, 94404
TABLE OF CONTENTS
PAGE
ARTICLE I.........................................................4
Name and Definitions........................................4
1.01 Name...................................................4
1.02 Definitions............................................4
(a) Trust..............................................4
(b) Trust Property.....................................4
(c) Trustees...........................................4
(d) Shares.............................................4
(e) Shareholder........................................4
(f) Person.............................................5
(g) 1940 Act...........................................5
(h) Commission and Principal Underwriter...............5
(i) Declaration of Trust...............................5
(j) By-Laws............................................5
(k) Interested Person..................................5
(l) Investment Manager or Manager......................5
(m) Series.............................................5
ARTICLE II........................................................5
Purpose of Trust............................................5
ARTICLE III.......................................................5
Shares......................................................5
3.01 Division of Beneficial Interest........................5
3.02 Ownership of Shares....................................6
3.03 Investments in the Trust...............................6
3.04 Status of Shares and Limitation of Personal Liability..6
3.05 Power of Board of Trustees to Change
Provisions Relating to Shares......................... 7
3.06 Establishment and Designation of Shares................7
(a) Assets Held with Respect to a Particular Series....7
(b) Liabilities Held with Respect
to a Particular Series.............................8
(c) Dividends, Distributions, Redemptions,
and Repurchases....................................8
(d) Voting.............................................8
(e) Equality...........................................9
(f) Fractions..........................................9
(g) Exchange Privilege.................................9
(h) Combination of Series..............................9
(i) Elimination of Series..............................9
3.07 Indemnification of Shareholders........................9
ARTICLE IV........................................................9
The Board of Trustees.......................................9
4.01 Number, Election and Tenure............................9
4.02 Effect of Death, Resignation, etc. of a Trustee.......10
4.03 Powers................................................10
4.04 Payment of Expenses by the Trust......................13
4.05 Payment of Expenses by Shareholders...................13
4.06 Ownership of Assets of the Trust......................13
4.07 Service Contracts.....................................13
ARTICLE V........................................................15
Shareholders' Voting Powers and Meetings...................15
5.01 Voting Powers.........................................15
5.02 Voting Power and Meetings.............................15
5.03 Quorum and Required Vote..............................15
5.04 Action by Written Consent.............................16
5.05 Record Dates..........................................16
5.06 Additional Provisions.................................16
ARTICLE VI.......................................................16
Net Asset Value, Distributions, and Redemptions............16
6.01 Determination of Net Asset Value,
Net Income, and Distributions.........................16
6.02 Redemptions and Repurchases...........................16
6.03 Redemptions at the Option of the Trust................17
ARTICLE VII......................................................17
Compensation and Limitation of Liability of Trustees.......17
7.01 Compensation..........................................17
7.02 Indemnification and Limitation of Liability...........17
7.03 Trustee's Good Faith Action,
Expert Advice, No Bond or Surety......................18
7.04 Insurance.............................................18
ARTICLE VIII.....................................................18
Miscellaneous..............................................18
8.01 Liability of Third Persons Dealing with Trustees......18
8.02 Termination of Trust or Series........................18
8.03 Merger and Consolidation..............................19
8.04 Amendments............................................19
8.05 Filing of Copies, References, Headings................19
8.06 Applicable Law........................................19
8.07 Provisions in Conflict with Law or Regulations........20
8.08 Business Trust Only...................................20
8.09 Use of the name "Franklin"............................20
AGREEMENT AND DECLARATION OF TRUST
OF
FRANKLIN GOLD AND PRECIOUS METALS FUND
WHEREAS, THIS AGREEMENT AND DECLARATION OF TRUST is made and entered
into on the date set forth below by the Trustees named hereunder for the
purpose of forming a Delaware business trust in accordance with the
provisions hereinafter set forth,
NOW, THEREFORE, the Trustees hereby direct that a Certificate of Trust
be filed with the office of the Secretary of State of the State of Delaware
and do hereby declare that the Trustees will hold IN TRUST all cash,
securities and other assets which the Trust now possesses or may hereafter
acquire from time to time in any manner and manage and dispose of the same
upon the following terms and conditions for the pro rata benefit of the
holders of Shares in this Trust.
ARTICLE I.
Name and Definitions
1.01 Name. This trust shall be known as "Franklin Gold and Precious
Metals Fund" and the Trustees shall conduct the business of the Trust under
that name or any other name as they may from time to time determine.
1.02 Definitions. Whenever used herein, unless otherwise required by
the context or specifically provided:
(a) The "Trust" refers to the Delaware business trust established
by this Agreement and Declaration of Trust, as amended from time to time;
(b) The "Trust Property" means any and all property, real or
personal, tangible or intangible, which is owned or held by or for the
account of the Trust, including without limitation the rights referenced in
Article VIII, Section 9 hereof;
(c) "Trustees" refers to the persons who have signed this Agreement
and Declaration of Trust, so long as they continue in office in accordance
with the terms hereof, and all other persons who may from time to time be
duly elected or appointed to serve on the Board of Trustees in accordance
with the provisions hereof, and reference herein to a Trustee or the Trustees
shall refer to such person or persons in their capacity as trustees hereunder.
(d) "Shares" means the shares of beneficial interest into which the
beneficial interest in the Trust shall be divided from time to time and
includes fractions of Shares as well as whole Shares;
(e) "Shareholder" means a record owner of outstanding Shares;
(f) "Person" means and includes individuals, corporations,
partnerships, trusts, associations, joint ventures, estates and other
entities, whether or not legal entities, and governments and agencies and
political subdivisions thereof, whether domestic or foreign;
(g) The "1940 Act" refers to the Investment Company Act of 1940 and
the Rules and Regulations thereunder, all as amended from time to time;
(h) The terms "Commission" and "Principal Underwriter" shall have
the respective meanings given them in Section 2(a)(7) and Section (2)(a)(29)
of the 1940 Act;
(i) "Declaration of Trust" shall mean this Agreement and
Declaration of Trust, as amended or restated from time to time;
(j) "By-Laws" shall mean the By-Laws of the Trust as amended from
time to time and incorporated herein by reference;
(k) The term "Interested Person" has the meaning given it in
Section 2(a)(19) of the 1940 Act;
(l) "Investment Manager" or "Manager" means a party furnishing
services to the Trust pursuant to any contract described in Article IV,
Section 7(a) hereof;
(m) "Series" refers to each Series of Shares established and
designated under or in accordance with the provisions of Article III and
shall mean an entity such as that described in Section 18(f)(2) of the 1940
Act, and subject to Rule 18f-2 thereunder.
ARTICLE II.
Purpose of Trust
The purpose of the Trust is to conduct, operate and carry on the
business of a management investment company registered under the 1940 Act
through one or more Series investing primarily in securities.
ARTICLE III.
Shares
3.01 Division of Beneficial Interest. The beneficial interest in the
Trust shall at all times be divided into an unlimited number of Shares, with
a par value of $ 0.01 per Share. The Trustees may authorize the division of
Shares into separate Series and the division of Series into separate classes
of Shares. The different Series shall be established and designated, and the
variations in the relative rights and preferences as between the different
Series shall be fixed and determined, by the Trustees. If only one or no
Series (or classes) shall be established, the Shares shall have the rights
and preferences provided for herein and in Article III, Section 6 hereof to
the extent relevant and not otherwise provided for herein, and all references
to Series (and classes) shall be construed (as the context may require) to
refer to the Trust.
Subject to the provisions of Section 6 of this Article III, each Share
shall have voting rights as provided in Article V hereof, and holders of the
Shares of any Series shall be entitled to receive dividends, when, if and as
declared with respect thereto in the manner provided in Article VI, Section I
hereof. No Shares shall have any priority or preference over any other Share
of the same Series with respect to dividends or distributions upon
termination of the Trust or of such Series made pursuant to Article VIII,
Section 4 hereof. All dividends and distributions shall be made ratably
among all Shareholders of a particular (class of a) Series from the assets
held with respect to such Series according to the number of Shares of such
(class of such) Series held of record by such Shareholder on the record date
for any dividend or distribution or on the date of termination, as the case
may be. Shareholders shall have no preemptive or other right to subscribe to
any additional Shares or other securities issued by the Trust or any Series.
The Trustees may from time to time divide or combine the Shares of any
particular Series into a greater or lesser number of Shares of that Series
without thereby materially changing the proportionate beneficial interest `
of the Shares of that Series in the assets held with respect to that Series
or materially affecting the rights of Shares of any other Series.
3.02 Ownership of Shares. The ownership of Shares shall be recorded on
the books of the Trust or a transfer or similar agent for the Trust, which
books shall be maintained separately for the Shares of each Series (or
class). No certificates certifying the ownership of Shares shall be issued
except as the Board of Trustees may otherwise determine from time to time.
The Trustees may make such rules as they consider appropriate for the
transfer of Shares of each Series (or class) and similar matters. The record
books of the Trust as kept by the Trust or any transfer or similar agent, as
the case may be, shall be conclusive as to who are the Shareholders of each
Series (or class) and as to the number of Shares of each Series (or class)
held from time to time by each.
3.03 Investments in the Trust. Investments may be accepted by the Trust
from such Persons, at such times, on such terms, and for such consideration
as the Trustees from time to time may authorize. Each investment shall be
credited to the individual Shareholder's account in the form of full and
fractional Shares of the Trust, iii such Series (or class) as the purchaser
shall select, at the net asset value per Share next determined for such
Series (or class) after receipt of the investment; provided, however, that
the Trustees may, in their sole discretion, impose a sales charge upon
investments in the Trust.
3.04 Status of Shares and Limitation of Personal Liability. Shares
shall be deemed to be personal property giving only the rights provided in
this instrument. Every Shareholder by virtue of having become a Shareholder
shall be held to have expressly assented and agreed to the terms hereof and
to have become a party hereto. The death of a Shareholder during the
existence of the Trust shall not operate to terminate the Trust, nor entitle
the representative of any deceased Shareholder to an accounting or to take
any action in court or elsewhere against the Trust or the Trustees, but
entitles such representative only to the rights of said deceased Shareholder
under this Trust. ownership of Shares shall not entitle the Shareholder to
any title in or to the whole or any part of the Trust Property or right to
call for a partition or division of the same or for an accounting, nor shall
the ownership of Shares constitute the Shareholders as partners. Neither the
Trust nor the Trustees, nor any officer, employee or agent of the Trust shall
have any power to bind personally any Shareholders, nor, except as
specifically provided herein, to call upon any Shareholder for the payment of
any sum of money or assessment whatsoever other than such as the Shareholder
may at any time personally agree to pay.
3.05 Power of Board of Trustees to Change Provisions Relating to
Shares. Notwithstanding any other provisions of this Declaration of Trust
and without limiting the power of the Board of Trustees to amend the
Declaration of Trust as provided elsewhere herein, the Board of Trustees
shall have the power to amend this Declaration of Trust, at any time and from
time to time, in such manner as the Board of Trustees may determine in their
sole discretion, without the need for Shareholder action, so as to add to,
delete, replace or otherwise modify any provisions relating to the Shares
contained in this Declaration of Trust, provided that before adopting any
such amendment without Shareholder approval the Board of Trustees shall
determine that it is consistent with the fair and equitable treatment of all
Shareholders or that Shareholder approval is not otherwise required by the
1940 Act or other applicable law. if Shares have been issued, Shareholder
approval shall be required to adopt any amendments to this Declaration of
Trust which would adversely affect to a material degree the rights and
preferences of the Shares of any Series (or class) or to increase or decrease
the par value of the Shares of any Series (or class).
Subject to the foregoing Paragraph, the Board of Trustees may amend the
Declaration of Trust to amend any of the provisions set forth in paragraphs
(a) through (i) of Section 6 of this Article III.
3.06 Establishment and Designation of Shares. The establishment and
designation of any Series (or class) of Shares shall be effective upon the
resolution by a majority of the then Trustees, adopting a resolution which
sets forth such establishment and designation and the relative rights and
preferences of such Series (or class). Each such resolution shall be
incorporated herein by reference upon adoption.
Shares of each Series (or class) established pursuant to this Section 6,
unless otherwise provided in the resolution establishing such Series, shall
have the following relative rights and preferences:
(A) ASSETS HELD WITH RESPECT TO A PARTICULAR SERIES. All
consideration received by the Trust for the issue or sale of Shares of a
particular Series, together with all assets in which such consideration is
invested or reinvested, all income, earnings, profits, and proceeds thereof
from whatever source derived, including, without limitation, any proceeds
derived from the sale, exchange or liquidation of such assets, and any funds
or payments derived from any reinvestment of such proceeds in whatever form
the same may be, shall irrevocably be held with respect to that Series for
all purposes, subject only to the rights of creditors, and shall be so
recorded upon the books of account of the Trust. Such consideration, assets,
income, earnings, profits and proceeds thereof, from whatever source derived,
including, without limitation, any proceeds derived from the sale, exchange
or liquidation of such assets, and any funds or payments derived from any
reinvestment of such proceeds, in whatever form the same may be, are herein
referred to as "assets held with respect to" that Series. In the event that
there are any assets, income, earnings, profits and proceeds thereof, funds
or payments which are not readily identifiable as assets held with respect to
any particular Series (collectively "General Assets"), the Trustees shall
allocate such General Assets to, between or among any one or more of the
Series in such manner and on such basis as the Trustees, in their sole
discretion, deem fair and equitable, and any General Asset so allocated to a
particular Series shall be held with respect to that Series. Each such
allocation by the Trustees shall be conclusive and binding upon the
Shareholders of all Series for all purposes.
(b) LIABILITIES HELD WITH RESPECT TO A PARTICULAR SERIES. The
assets of the Trust held with respect to each particular Series shall be
charged against the liabilities of the Trust held with respect to that Series
and all expenses, costs, charges and reserves attributable to that Series,
and any general liabilities of the Trust which are not readily identifiable
as being held with respect to any particular Series shall be allocated and
charged by the Trustees to and among any one or more of the Series in such
manner and on such basis as the Trustees in their sole discretion deem fair
and equitable. The liabilities, expenses, costs, charges, and reserves so
charged to a Series are herein referred to as "liabilities held with respect
to" that Series. Each allocation of liabilities, expenses, costs, charges
and reserves by the Trustees shall be conclusive and binding upon the holders
of all Series for all purposes. All Persons who have extended credit which
has been allocated to a particular Series, or who have a claim or contract
which has been allocated to any particular Series, shall look, and shall be
required by contract to look exclusively, to the assets of that particular
Series for payment of such credit, claim, or contract. In the absence of an
express contractual agreement so limiting the claims of such creditors,
claimants and contract providers, each creditor, claimant and contract
provider will be deemed nevertheless to have impliedly agreed to such
limitation unless an express provision to the contrary has been incorporated
in the written contract or other document establishing the claimant
relationship.
(C) DIVIDENDS, DISTRIBUTIONS, REDEMPTIONS, AND REPURCHASES.
Notwithstanding any other provisions of this Declaration of Trust, including,
without limitation, Article VI, no dividend or distribution including,
without limitation, any distribution paid upon termination of the Trust or of
any series (or class) with respect to, nor any redemption or repurchase of,
the Shares of any Series (or class) shall be effected by the Trust other than
from the assets held with respect to such Series, nor, except as specifically
provided in Section 7 of this Article III, shall any Shareholder of any
particular Series otherwise have any right or claim against the assets held
with respect to any other Series except to the extent that such Shareholder
has such a right or claim hereunder as a Shareholder of such other Series.
The Trustees shall have full discretion, to the extent not inconsistent with
the 1940 Act, to determine which items shall be treated as income and which
items as capital; and each such determination and allocation shall be
conclusive and binding upon the Shareholders.
(D) VOTING. All Shares of the Trust entitled to vote on a matter
shall vote separately by Series (and, if applicable, by class): that is, the
Shareholders of each Series (or class) shall have the right to approve or
disapprove matters affecting the Trust and each respective series (or class)
as if the Series (or classes) were separate companies. There are, however,
two exceptions to voting by separate Series (or classes). First, if the 1940
Act requires all Shares of the Trust to be voted in the aggregate without
differentiation between the separate Series (or classes), then all the
Trust's Shares shall be entitled to vote on a one-vote-per-Share basis.
Second, if any matter affects only the interests of some but not all Series
(or classes), then only the Shareholders of such affected Series (or classes)
shall be entitled to vote on the matter.
(E) EQUALITY. All the Shares of each particular Series shall
represent an equal proportionate undivided interest in the assets held with
respect to that Series (subject to the liabilities held with respect to that
Series and such rights and preferences as may have been established and
designated with respect to classes of Shares within such Series), and each
Share of any particular Series shall be equal to each other Share of that
Series.
(F) FRACTIONS. Any fractional Share of a Series shall carry
proportionately all the rights and obligations of a whole share of that
Series, including rights with respect to voting, receipt of dividends and
distributions, redemption of Shares and termination of the Trust.
(G) EXCHANGE PRIVILEGE. The Trustees shall have the authority to
provide that the holders of Shares of any Series shall have the right to
exchange said Shares for Shares of one or more other Series of Shares in
accordance with such requirements and procedures as may be established by the
Trustees.
(H) COMBINATION OF SERIES. The Trustees shall have the authority,
without the approval of the Shareholders of any Series unless otherwise
required by applicable law, to combine the assets and liabilities held with
respect to any two or more series into assets and liabilities held with
respect to a single series.
(i) ELIMINATION OF SERIES. At any time that there are no Shares
outstanding of any particular Series (or class) previously established and
designated, the Trustees may by resolution of a majority of the then Trustees
abolish that Series (or class) and rescind the establishment and designation
thereof.
3.07 Indemnification of Shareholders. If any Shareholder or former
Shareholder shall be exposed to liability by reason of a claim or demand
relating to his or her being or having been a Shareholder, and not because of
his or her acts or omissions, the Shareholder or former Shareholder (or his
or her heirs, executors, administrators, or other legal representatives or in
the case of a corporation or other entity, its corporate or other general
successor) shall be entitled to be held harmless from and indemnified out of
the assets of the Trust against all loss and expense arising from such claim
or demand.
ARTICLE IV.
The Board of Trustees
4.01 Number, Election and Tenure. The number of Trustees constituting
the Board of Trustees shall be fixed from time to time by a written
instrument signed, or by resolution approved at a duly constituted meeting,
by a majority of the Board of Trustees, provided, however, that the number of
Trustees shall in no event be less than one (1) nor more than fifteen (15).
The Board of Trustees, by action of a majority of the then Trustees at a duly
constituted meeting, may fill vacancies in the Board of Trustees or remove
Trustees with or without cause. Each Trustee shall serve during the
continued lifetime of the Trust until he or she dies, resigns, is declared
bankrupt or incompetent by a court of appropriate jurisdiction, or is
removed, or, if sooner, until the next meeting of Shareholders called for the
purpose of electing Trustees and until the election and qualification of his
or her successor. Any Trustee may resign at any time by written instrument
signed by him and delivered to any officer of the Trust or to a meeting of
the Trustees. Such resignation shall be effective upon receipt unless
specified to be effective at some other time. Except to the extent expressly
provided in a written agreement with the Trust, no Trustee resigning and no
Trustee removed shall have any right to any compensation for any period
following his or her resignation or removal, or any right to damages on
account of such removal. The Shareholders may fix the number of Trustees and
elect Trustees at any meeting of Shareholders called by the Trustees for that
purpose. Any Trustee may be removed at any meeting of Shareholders by a vote
of two-thirds of the outstanding Shares of the Trust. A meeting of
Shareholders for the purpose of electing or removing one or more Trustees may
be called (i) by the Trustees upon their own vote, or (ii) upon the demand of
Shareholders owning 10% or more of the Shares of the Trust in the aggregate.
4.02 Effect of Death, Resignation, etc. of a Trustee. The death,
declination, resignation, retirement, removal, or incapacity of one or more
Trustees, or all of them, shall not operate to annul the Trust or to revoke
any existing agency created pursuant to the terms of this Declaration of
Trust. Whenever a vacancy in the Board of Trustees shall occur, until such
vacancy is filled as provided in Article IV, Section 1, the Trustees in
office, regardless of their number, shall have all the powers granted to the
Trustees and shall discharge all the duties imposed upon the Trustees by this
Declaration of Trust. As conclusive evidence of such vacancy, a written
instrument certifying the existence of such vacancy may be executed by an
officer of the Trust or by a majority of the Board of Trustees. In the event
of the death, declination, resignation, retirement, removal, or incapacity of
all the then Trustees within a short period of time and without the
opportunity for at least one Trustee being able to appoint additional
Trustees to fill vacancies, the Trust's Investment Manager(s) are empowered
to appoint new Trustees subject to the provisions of Section 16(a) of the
1940 Act.
4.03 Powers. Subject to the provisions of this Declaration of Trust,
the business of the Trust shall be managed by the Board of Trustees, and such
Board shall have all powers necessary or convenient to carry out that
responsibility including the power to engage in securities transactions of
all kinds on behalf of the Trust. Trustees in all instances shall act as
principals, and are and shall be free from the control of the Shareholders.
The Trustees shall have full power and authority to do any and all acts and
to make and execute any and all contracts and instruments that they nay
consider necessary or appropriate in connection with the administration of
the Trust. Without limiting the foregoing, the Trustees may: adopt By-Laws
not inconsistent with this Declaration of Trust providing for the regulation
and management of the affairs of the Trust and may amend and repeal them to
the extent that such By-Laws do not reserve that right to the Shareholders;
fill vacancies in or remove from their number, and may elect and remove such
officers and appoint and terminate such agents as they consider appropriate;
appoint from their own number and establish and terminate one or more
committees consisting of two or more Trustees which may exercise the powers
and authority of the Board of Trustees to the extent that the Trustees
determine; employ one or more custodians of the assets of the Trust and may
authorize such custodians to employ subcustodians and to deposit all or any
part of such assets in a system or systems for the central handling of
securities or with a Federal Reserve Bank, retain a transfer agent or a
shareholder servicing agent, or both; provide for the issuance and
distribution of Shares by the Trust directly or through one or more Principal
underwriters or otherwise; redeem, repurchase and transfer Shares pursuant to
applicable law; set record dates for the determination of Shareholders with
respect to various matters; declare and pay dividends and distributions to
Shareholders of each Series from the assets of such Series; establish from
time to time, in accordance with the provisions of Article III, Section 6
hereof, any Series (or class) of Shares, each such Series (or class) to
operate as a separate and distinct investment medium and with separately
defined investment objectives and policies and distinct investment purpose;
and in general delegate such authority as they consider desirable to any
officer of the Trust, to any committee of the Trustees and to any agent or
employee of the Trust or to any such custodian, transfer or shareholder
servicing agent, or Principal Underwriter. Any determination as to what is
in the interests of the Trust made by the Trustees in good faith shall be
conclusive. In construing the provisions of this Declaration of Trust, the
presumption shall be in favor of a grant of power to the Trustees. Unless
otherwise specified or required by law, any action by the Board of Trustees
shall be deemed effective if approved or taken by a majority of the Trustees
then in office. Any action required or permitted to be taken at any meeting
of the Board of Trustees, or any committee thereof, may be taken without a
meeting if all members of the Board of Trustees or committee (as the case may
be) consent thereto in writing, and the writing or writings are filed with
the minutes of the proceedings of the Board of Trustees, or committee.
Without limiting the foregoing, the Trust shall have power and authority:
(a) To invest and reinvest cash, to hold cash uninvested, and to
subscribe for, invest in, reinvest in, purchase or otherwise acquire, own,
hold, pledge, sell, assign, transfer, exchange, distribute, write options on,
lend or otherwise deal in or dispose of contracts for the future acquisition
or delivery of fixed income or other securities, and securities of every
nature and kind, including, without limitation, all types of bonds,
debentures, stocks, preferred stocks, negotiable or non-negotiable
instruments, obligations, evidences of indebtedness, certificates of deposit
or indebtedness, commercial paper, repurchase agreements, bankers'
acceptances, and other securities of any kind, issued, created guaranteed, or
sponsored by any and all Persons, including, without limitation, states,
territories, and possessions of the United States and the District of
Columbia and any political subdivision, agency, or instrumentality thereof,
any foreign government or any political subdivision of the U.S. Government or
any foreign government, or any international instrumentality, or by any bank
or savings institution, or by any corporation or organization organized under
the laws of the United States or of any state, territory, or possession
thereof, or by any corporation or organization organized under any foreign
law, or in "when issued" contracts for any such securities, to change the
investments of the assets of the Trust; and to exercise any and all rights,
powers, and privileges of ownership or interest in respect of any and all
such investments of every kind and description, including, without
limitation, the right to consent and otherwise act with respect thereto, with
power to designate one or more Persons, to exercise any of said rights,
powers, and privileges in respect of any of said instruments;
(b) To sell, exchange, lend, pledge, mortgage, hypothecate, lease,
or write options with respect to or otherwise deal in any property rights
relating to any or all of the assets of the Trust or any Series, subject to
any requirements of the 1940 Act;
(c) To vote or give assent, or exercise any rights of ownership,
with respect to stock or other securities or property; and to execute and
deliver proxies or powers of attorney to such person or persons as the
Trustees shall deem proper, granting to such person or persons such power and
discretion with relation to securities or property as the Trustees shall deem
proper;
(d) To exercise powers and right of subscription or otherwise which
in any manner arise out of ownership of securities;
(e) To hold any security or property in a form not indicating that
it is trust property, whether in bearer, unregistered or other negotiable
form, or in its own name or in the name of a custodian or subcustodian or a
nominee or nominees or otherwise or to authorize the custodian or a
subcustodian or a nominee or nominees to deposit the same in a securities
depository, subject in each case to proper safeguards according to the usual
practice of investment companies or any rules or regulations applicable
thereto;
(f) To consent to, or participate in, any plan for the
reorganization, consolidation or merger of any corporation or issuer of any
security which is held in the Trust; to consent to any contract, lease,
mortgage, purchase or sale of property by such corporation or issuer; and to
pay calls or subscriptions with respect to any security held in the Trust;
(g) To join with other security holders in acting through a
committee, depositary, voting trustee or otherwise, and in that connection to
deposit any security with, or transfer any security to, any such committee,
depositary or trustee, and to delegate to them such power and authority with
relation to any security (whether or not so deposited or transferred) as the
Trustees shall deem proper, and to agree to pay, and to pay, such portion of
the expenses and compensation of such committee, depositary or trustee as the
Trustees shall deem proper;
(h) To compromise, arbitrate or otherwise adjust claims in favor of
or against the Trust or any matter in controversy, including but not limited
to claims for taxes;
(i) To borrow funds or other property in the name of the Trust
exclusively for Trust To enter into joint ventures, general or limited
partnerships and any other combinations or associations; purposes;
(j) To endorse or guarantee the payment of any notes or other
obligations of any Person; to make contracts of guaranty or suretyship, or
otherwise assume liability for payment thereof;
(k) To purchase and pay for entirely out of Trust Property such
insurance as the Trustees may deem necessary or appropriate for the conduct
of the business, including, without limitation, insurance policies insuring
the assets of the Trust or payment of distributions and principal on its
portfolio investments, and insurance policies insuring the Shareholders,
Trustees, officers, employees, agents, investment advisers, principal
underwriters, or independent contractors of the Trust, individually against
all claims and liabilities of every nature arising by reason of holding
Shares, holding, being or having held any such office or position, or by
reason of any action alleged to have been taken or omitted by any such Person
as Trustee, officer, employee, agent, investment adviser, principal
underwriter, or independent contractor, including any action taken or omitted
that may be determined to constitute negligence, whether or not the Trust
would have the power to indemnify such Person against liability; and
(l) To adopt, establish and carry out pension, profitsharing, share
bonus, share purchase, savings, thrift and other retirement, incentive and
benefit plans, trusts and provisions, including the purchasing of life
insurance and annuity contracts as a means of providing such retirement and
other benefits, for any or all of the Trustees, officers, employees and
agents of the Trust.
The Trust shall not be limited to investing in obligations maturing
before the possible termination of the Trust or one or more of its Series.
The Trust shall not in any way be bound or limited by any present or future
law or custom in regard to investment by fiduciaries. The Trust shall not be
required to obtain any court order to deal with any assets of the Trust or
take any other action hereunder.
4.04 Payment of Expenses by the Trust. The Trustees are authorized to
pay or cause to be paid out of the principal or income of the Trust or Series
(or class), or partly out of the principal and partly out of income, and to
charge or allocate the same to, between or among such one or more of the
Series (or class) that may be established or designated pursuant to Article
III, Section 6, as they deem fair, all expenses, fees, charges, taxes and
liabilities incurred or arising in connection with the Trust or Series (or
class), or in connection with the management thereof, including, but not
limited to, the Trustees' compensation and such expenses and charges for the
services of the Trust's officers, employees, investment adviser `or manager,
principal underwriter, auditors, counsel, custodian, transfer agent,
Shareholder servicing agent, and such other agents or independent contractors
and such other expenses and charges as the Trustees may deem necessary or
proper to incur.
4.05 Payment of Expenses by Shareholders. The Trustees shall have the
power, as frequently as they may determine, to cause each Shareholder, or
each Shareholder of any particular Series, to pay directly, in advance or
arrears, for charges of the Trust's custodian or transfer, Shareholder
servicing or similar agent, an amount fixed from time to time by the
Trustees, by setting off such charges due from such Shareholder from declared
but unpaid dividends owed such Shareholder and/or by reducing the number of
shares in the account of such Shareholder by that number of full and/or
fractional Shares which represents the outstanding amount of such charges due
from such Shareholder.
4.06 Ownership of Assets of the Trust. Title to all of the assets of
the Trust shall at all times be considered as vested in the Trust, except
that the Trustees shall have power to cause legal title to any Trust Property
to be held by or in the name of one or more of the Trustees, or in the name
of the Trust, or in the name of any other Person as nominee, on such terms as
the Trustees may determine. The right, title and interest of the Trustees in
the Trust Property shall vest automatically in each Person who may hereafter
become a Trustee. Upon the resignation, removal or death of a Trustee he or
she shall automatically cease to have any right, title or interest in any of
the Trust Property, and the right, title and interest of such Trustee in the
Trust Property shall vest automatically in the remaining Trustees. Such
vesting and cessation of title shall be effective whether or not conveyancing
documents have been executed and delivered.
4.07 Service Contracts.
(a) Subject to such requirements and restrictions as nay be set
forth in the By-Laws, the Trustees may, at any time and from time to time,
contract for exclusive or nonexclusive advisory, management and/or
administrative services for the Trust or for any Series with any corporation,
trust, association or other organization; and any such contract may contain
such other terms as the Trustees may determine, including without limitation,
authority for the Investment Manager or administrator to determine from time
to time without prior consultation with the Trustees what investments shall
be purchased, held, sold or exchanged and what portion, if any, of the assets
of the Trust shall be held uninvested and to make changes in the Trust's
investments, or such other activities as may specifically be delegated to
such party.
(b) The Trustees may also, at any time and from time to time,
contract with any corporation, trust, association or other organization,
appointing it exclusive or nonexclusive distributor or Principal Underwriter
for the Shares of one or more of the Series (or classes) or other securities
to be issued by the Trust. Every such contract shall comply with such
requirements and restrictions as may be set forth in the By-Laws; and any
such contract may contain such other terms as the Trustees may determine.
(c) The Trustees are also empowered, at any time and from time to
time, to contract with any corporations, trusts, associations or other
organizations, appointing it or them the custodian, transfer agent and/or
shareholder servicing agent for the Trust or one or more of its Series.
Every such contract shall comply with such requirements and restrictions as
may be set forth in the By-Laws or stipulated by resolution of the Trustees.
(d) The Trustees are further empowered, at any tine and from time
to time, to contract with any entity to provide such other services to the
Trust or one or more of the Series, as the Trustees determine to be in the
best interests of the Trust and the applicable Series.
(e) The fact that:
(i) any of the Shareholders, Trustees, or officers of the
Trust is a shareholder, director, officer, partner, trustee, employee,
Manager, adviser, Principal Underwriter, distributor, or affiliate or agent
of or for any corporation, trust, association, or other organization, or for
any parent or affiliate of any organization with which an advisory,
management or administration contract, or principal underwriter's or
distributor's contract, or transfer, shareholder servicing or other type of
service contract may have been or may hereafter be made, or that any such
organization, or any parent or affiliate thereof, is a Shareholder or has an
interest in the Trust, or that
(ii) any corporation, trust, association or other organization
with which an advisory, management or administration contract or principal
underwriter's or distributor's contract, or transfer, shareholder servicing
or other type of service contract may have been or may hereafter be made also
has an advisory, management or administration contract, or principal
underwriter's or distributor's contract, or transfer, shareholder servicing
or other service contract with one or more other corporations, trust,
associations, or other organizations, or has other business or interests,
shall not affect the validity of any such contract or disqualify
any Shareholder, Trustee or officer of the Trust from voting upon or
executing the same, or create any liability or accountability to the Trust or
its Shareholders, provided approval of each such contract is made pursuant to
the requirements of the 1940 Act.
ARTICLE V.
Shareholders' Voting Powers and Meetings
5.01 Voting Powers. Subject to the provisions of Article III, Section
6(d), the Shareholders shall have power to vote only (i) for the election or
removal of Trustees as provided in Article IV, Section 1, and (ii) with
respect to such additional matters relating to the Trust as may be required
by this Declaration of Trust, the By-Laws or any registration of the Trust
with the Commission (or any successor agency) or any state, or as the
Trustees may consider necessary or desirable. Each whole Share shall be
entitled to one vote as to any matter on which it is entitled to vote and
each fractional Share shall be entitled to a proportionate fractional vote.
There shall be no cumulative voting in the election of Trustees. Shares may
be voted in person or by proxy. A proxy with respect to Shares held in the
name of two or more persons shall be valid if executed by any one of them
unless at or prior to exercise of the proxy the Trust receives a specific
written notice to the contrary from any one of them. A proxy purporting to
be executed by or on behalf of a Shareholder shall be deemed valid unless
challenged at or prior to its exercise and the burden of proving invalidity
shall rest on the challenger.
5.02 Voting Power and Meetings. Meetings of the Shareholders may be
called by the Trustees for the purpose of electing Trustees as provided in
Article IV, Section 1 and for such other purposes as may be prescribed by
law, by this Declaration of Trust or by the By-Laws. Meetings of the
Shareholders may also be called by the Trustees from time to tine for the
purpose of taking action upon any other matter deemed by the Trustees to be
necessary or desirable. A meeting of Shareholders may be held at any place
designated by the Trustees. Written notice of any meeting of Shareholders
shall be given or caused to be given by the Trustees by mailing such notice
at least seven (7) days before such meeting, postage prepaid, stating the
time and place of the meeting, to each Shareholder at the Shareholder's
address as it appears on the records of the Trust. Whenever notice of a
meeting is required to be given to a Shareholder under this Declaration of
Trust or the By-Laws, a written waiver thereof, executed before or after the
meeting by such Shareholder or his or her attorney thereunto authorized and
filed with the records of the meeting, shall be deemed equivalent to such
notice.
5.03 Quorum and Required Vote. Except when a larger quorum is required
by applicable law, by the By-Laws or by this Declaration of Trust, forty
percent (40%) of the Shares entitled to vote shall constitute a quorum at a
Shareholders' meeting. When any one or more Series (or classes) is to vote
as a single class separate from any other Shares, forty percent (40%) of the
Shares of each such Series (or classes) entitled to vote shall constitute a
quorum at a Shareholder's meeting of that Series. Any meeting of
Shareholders may be adjourned from time to time by a majority of the votes
properly cast upon the question of adjourning a meeting to another date and
tine, whether or not a quorum is present, and the meeting may be held as
adjourned within a reasonable time after the date set for the original
meeting without further notice. Subject to the provisions of Article III,
Section 6(d), when a quorum is present at any meeting, a majority of the
Shares voted shall decide any questions and a plurality shall elect a
Trustee, except when a larger vote is required by any provision of this
Declaration of Trust or the By-Laws or by applicable law.
5.04 Action by Written Consent. Any action taken by Shareholders may be
taken without a meeting if Shareholders holding a majority of the Shares
entitled to vote on the matter (or such larger proportion thereof as shall be
required by any express provision of this Declaration of Trust or by the
By-Laws) and holding a majority (or such larger proportion as aforesaid) of
the Shares of any Series (or class) entitled to vote separately on the matter
consent to the action in writing and such written consents are filed with the
records of the meetings of Shareholders. Such consent shall be treated for
all purposes as a vote taken at a meeting of Shareholders.
5.05 Record Dates. For the purpose of determining the Shareholders of
any Series (or class) who are entitled to vote or act at any meeting or any
adjournment thereof, the Trustees may from time to time fix a time, which
shall be not more than ninety (90) days before the date of any meeting of
Shareholders, as the record date for determining the Shareholders of such
Series (or class) having the right to notice of and to vote at such meeting
and any adjournment thereof, and in such case only Shareholders of record on
such record date shall have such right, notwithstanding any transfer of
shares on the books of the Trust after the record date. For the purpose of
determining the Shareholders of any Series (or class) who are entitled to
receive payment of any dividend or of any other distribution, the Trustees
may from time to time fix a date, which shall be before the date for the
payment of such dividend or such other payment, as the record date for
determining the Shareholders of such Series (or class) having the right to
receive such dividend or distribution. Without fixing a record date the
Trustees may for voting and/or distribution purposes close the register or
transfer books for one or more Series for all or any part of the period
between a record date and a meeting of Shareholders or the payment of a
distribution. Nothing in this Section shall be construed as precluding the
Trustees from setting different record dates for different Series (or
classes).
5.06 Additional Provisions. The By-Laws may include further provisions
for Shareholders' votes and meetings and related matters.
ARTICLE VI.
Net Asset Value, Distributions, and Redemptions
6.01 Determination of Net Asset Value, Net Income, and Distributions.
Subject to Article III, Section 6 hereof, the Trustees, in their absolute
discretion, may prescribe and shall set forth in the By-laws or in a duly
adopted vote of the Trustees such bases and time for determining the per
Share or net asset value of the Shares of any Series or net income
attributable to the Shares of any Series, or the declaration and payment of
dividends and distributions on the Shares of any Series, as they may deem
necessary or desirable.
6.02 Redemptions and Repurchases. The Trust shall purchase such Shares
as are offered by any Shareholder for redemption, upon the presentation of a
proper instrument of transfer together with a request directed to the Trust
or a Person designated by the Trust that the Trust purchase such Shares or in
accordance with such other procedures for redemption as the Trustees may from
time to time authorize; and the Trust will pay therefor the net asset value
thereof, in accordance with the By-Laws and applicable law. Payment for said
Shares shall be made by the Trust to the Shareholder within seven days after
the date on which the request is made in proper form. The obligation set
forth in this Section 2 is subject to the provision that in the event that
any time the New York Stock Exchange (the "Exchange") is closed for other
than weekends or holidays, or if permitted by the Rules of the Commission
during periods when trading on the Exchange is restricted or during any
emergency which makes it impracticable for the Trust to dispose of the
investments of the applicable Series or to determine fairly the value of the
net assets held with respect to such Series or during any other period
permitted by order of the Commission for the protection of investors, such
obligations may be suspended or postponed by the Trustees.
The redemption price may in any case or cases be paid wholly or partly
in kind if the Trustees determine that such payment is advisable in the
interest of the remaining Shareholders of the Series for which the Shares are
being redeemed. Subject to the foregoing, the fair value, selection and
quantity of securities or other property so paid or delivered as all or part
of the redemption price may be determined by or under authority of the
Trustees. In no case shall the Trust be liable for any delay of any
corporation or other Person in transferring securities selected for delivery
as all or part of any payment in kind.
6.03 Redemptions at the Option of the Trust. The Trust shall have the
right at its option and at any tine to redeem Shares of any Shareholder at
the net asset value thereof as described in Section 1 of this Article VI: (i)
if at such time such Shareholder owns Shares of any Series having an
aggregate net asset value of less than an amount determined from time to time
by the Trustees prior to the acquisition of said Shares; or (ii) to the
extent that such Shareholder owns Shares of a particular Series equal to or
in excess of a percentage of the outstanding Shares of that Series determined
from time to time by the Trustees; or (iii) to the extent that such
Shareholder owns Shares equal to or in excess of a percentage, determined
from time to time by the Trustees, of the outstanding Shares of the Trust or
of any Series.
ARTICLE VII.
Compensation and Limitation of Liability of Trustees
7.01 Compensation. The Trustees as such shall be entitled to reasonable
compensation from the Trust, and they may fix the amount of such
compensation. Nothing herein shall in any way prevent the employment of any
Trustee for advisory, management, legal, accounting, investment banking or
other services and payment for the same by the Trust.
7.02 Indemnification and Limitation of Liability. The Trustees shall
not be responsible or liable in any event for any neglect or wrong-doing of
any officer, agent, employee, Manager or Principal Underwriter of the Trust,
nor shall any Trustee be responsible for the act or omission of any other
Trustee, and the Trust out of its assets shall indemnify and hold harmless
each and every Trustee from and against any and all claims and demands
whatsoever arising out of or related to each Trustee's performance of his or
her duties as a Trustee of the Trust; provided that nothing herein contained
shall indemnify, hold harmless or protect any Trustee from or against an y
liability to the Trust or any Shareholder to which he or she would otherwise
be subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or her office.
Every note, bond, contract, instrument, certificate or undertaking and
every other act or thing whatsoever issued, executed or done by or on behalf
of the Trust or the Trustees or any of them in connection with the Trust
shall be conclusively deemed to have been issued, executed or done only in or
with respect to their or his or her capacity as Trustees or Trustee, and such
Trustees or Trustee shall not be personally liable thereon.
7.03 Trustee's Good Faith Action, Expert Advice, No Bond or Surety. The
exercise by the Trustees of their powers and discretions hereunder shall be
binding upon everyone interested. A Trustee shall be liable to the Trust and
to any Shareholder solely for his or her own willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct
of the office of Trustee, and shall not be liable for errors of judgment or
mistakes of fact or law. The Trustees may take advice of counsel or other
experts with respect to the meaning and operation of this Declaration of
Trust, and shall be under no liability for any act or omission in accordance
with such advice nor for failing to follow such advice. The Trustees shall
not be required to give any bond as such, nor any surety if a bond is
required.
7.04 Insurance. The Trustees shall be entitled and empowered to the
fullest extent permitted by law to purchase with Trust assets insurance for
liability and for all expenses reasonably incurred or paid or expected to be
paid by a Trustee or officer in connection with any claim, action, suit or
proceeding in which he or she becomes involved by virtue of his or her
capacity or former capacity with the Trust, whether or not the Trust would
have the power to indemnify him or her against such liability under the
provisions of this Article.
ARTICLE VIII.
Miscellaneous
8.01 Liability of Third Persons Dealing with Trustees. No Person
dealing with the Trustees shall be bound to make any inquiry concerning the
validity of any transaction made or to be made by the Trustees or to see to
the application of any payments made or property transferred to the Trust or
upon its order.
8.02 Termination of Trust or Series. Unless terminated as provided
herein, the Trust shall continue without limitation of time. The Trust may
be terminated at any time by vote of a majority of the Shares of each Series
entitled to vote, voting separately by Series, or by the Trustees by written
notice to the Shareholders. Any Series may be terminated at any time by vote
of a majority of the Shares of that Series or by the Trustees by written
notice to the Shareholders of that Series.
Upon termination of the Trust (or any Series, as the case may be), after
paying or otherwise providing for all charges, taxes, expenses and
liabilities held, severally, with respect to each Series (or the applicable
Series, as the case may be), whether due or accrued or anticipated as may be
determined by the Trustees, the Trust shall, in accordance with such
procedures as the Trustees consider appropriate, reduce the remaining assets
held, severally, with respect to each Series (or the applicable Series, as
the case may be), to distributable form in cash or shares or other
securities, or any combination thereof, and distribute the proceeds held with
respect to each Series (or the applicable Series, as the case nay be), to the
Shareholders of that Series, as a Series, ratably according to the number of
Shares of that Series held by the several Shareholders on the date of
termination.
8.03 Merger and Consolidation. The Trustees may cause (i) the Trust or
one or more of its Series to the extent consistent with applicable law to be
merged into or consolidated with another Trust or company, (ii) the Shares of
the Trust or any Series to be converted into beneficial interests in another
business trust (or series thereof) created pursuant to this Section 3 of
Article VIII, or (iii) the Shares to be exchanged under or pursuant to any
state or federal statute to the extent permitted by law. Such merger or
consolidation, Share conversion or Share exchange must be authorized by vote
of a majority of the outstanding Shares of the Trust, as a whole, or any
affected Series, as may be applicable; provided that in all respects not
governed by statute or applicable law, the Trustees shall have power to
prescribe the procedure necessary or appropriate to accomplish a sale of
assets, merger or consolidation including the power to create one or more
separate business trusts to which all or any part of the assets, liabilities,
profits or losses of the Trust may be transferred and to provide for the
conversion of Shares of the Trust or any Series into beneficial interests in
such separate business trust or trusts (or series thereof).
8.04 Amendments. This Declaration of Trust may be restated and/or
amended at any time by an instrument in writing signed by a majority of the
then Trustees and, if required, by approval of such amendment by Shareholders
in accordance with Article V, Section 3 hereof. Any such restatement and/or
amendment hereto shall be effective immediately upon execution and approval.
The Certificate of Trust of the Trust may be restated and/or amended by a
similar procedure, and any such restatement and/or amendment shall be
effective immediately upon filing with the Office of the Secretary of State
of the State of Delaware or upon such future date as may be stated therein.
8.05 Filing of Copies, References, Headings. The original or a copy of
this instrument and of each restatement and/or amendment hereto shall be kept
at the office of the Trust where it may be inspected by any Shareholder.
Anyone dealing with the Trust may rely on a certificate by an officer of the
Trust as to whether or not any such restatements and/or amendments have been
made and as to any matters in connection with the Trust hereunder; and, with
the same effect as if it were the original, may rely on a copy certified by
an officer of the Trust to be a copy of this instrument or of any such
restatements and/or amendments. In this instrument and in any such
restatements and/or amendment, references to this instrument, and all
expressions like "herein," "hereof" and "hereunder," shall be deemed to refer
to this instrument as amended or affected by any such restatements and/or
amendments. Headings are placed herein for convenience of reference only and
shall not be taken as a part hereof or control or affect the meaning,
construction or effect of this instrument. Whenever the singular number is
used herein, the same shall include the plural; and the neuter, masculine and
feminine genders shall include each other, as applicable. This instrument
may be executed in any number of counterparts each of which shall be deemed
an original.
8.06 Applicable Law. This Agreement and Declaration of Trust is created
under and is to be governed by and construed and administered according to
the laws of the State of Delaware and the Delaware Business Trust Act, as
amended from time to time (the "Act"). The Trust shall be a Delaware
business trust pursuant to such Act, and without limiting the provisions
hereof, the Trust may exercise all powers which are ordinarily exercised by
such a business trust.
8.07 Provisions in Conflict with Law or Regulations.
(a) The provisions of the Declaration of Trust are severable, and
if the Trustees shall determine, with the advice of counsel, that any of such
provisions is in conflict with the 1940 Act, the regulated investment company
provisions of the Internal Revenue Code or with other applicable laws and
regulations, the conflicting provision shall be deemed never to have
constituted a part of the Declaration of Trust; provided, however, that such
determination shall not affect any of the remaining provisions of the
Declaration of Trust or render invalid or improper any action taken or
omitted prior to such determination.
(b) If any provision of the Declaration of Trust shall be held
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall attach only to such provision in such jurisdiction and
shall not in any manner affect such provision in any other jurisdiction or
any other provision of the Declaration of Trust in any jurisdiction.
8.08 Business Trust Only. It is the intention of the Trustees to create
a business trust pursuant to the Delaware Business Trust Act, as amended from
time to time (the "Act"), and thereby to create only the relationship of
trustee and beneficial owners within the meaning of such Act between the
Trustees and each Shareholder. It is not the intention of the Trustees to
create a general partnership, limited partnership, joint stock association,
corporation, bailment, or any form of legal relationship other than a
business trust pursuant to such Act. Nothing in this Declaration of Trust
shall be construed to make the Shareholders, either by themselves or with the
Trustees, partners or members of a joint stock association.
8.09 Use of the name "Franklin". The name "Franklin" and all rights to
the use of the name "Franklin" belongs to Franklin Resources, Inc.
("Franklin"), the sponsor of the Trust. Franklin has consented to the use by
the Trust of the identifying word "Franklin" and has granted to the Trust a
nonexclusive license to use the name "Franklin" as part of the name of the
Trust and the name of any Series of Shares. In the event Franklin or an
affiliate of Franklin is not appointed as Manager and/or Principal
Underwriter or ceases to be the Manager and/or Principal Underwriter of the
Trust or of any Series using such names, the non-exclusive license granted
herein may be revoked by Franklin and the Trust shall cease using the name
"Franklin" as part of its name or the name of any Series of Shares, unless
otherwise consented to by Franklin or any successor to its interests in such
names.
IN WITNESS WHEREOF, the Trustees named below do hereby make and enter into
this Declaration of Trust on the 16th day of November, 1999.
/s/FRANK H. ABBOTT, III /s/RUPERT H. JOHNSON, JR.
Frank H. Abbott, III Rupert H. Johnson, Jr.
1045 Sansome St. 777 Mariners Island Blvd.
San Francisco, California 94111 San Mateo, California 94404
/s/HARRIS J. ASHTON /s/FRANK W.T. LAHAYE
Harris J. Ashton Frank W. T. LaHaye
191 Clapboard Ridge Road 20833 Stevens Creek Blvd. Suite 102
Greenwich, Connecticut 06830 Cupertino, California 95014
/s/HARMON E. BURNS /s/GORDON S. MACKLIN
Harmon E. Burns Gordon S. Macklin
777 Mariners Island Blvd. 8212 Burning Tree Road
San Mateo, California 94404 Bethesda, Maryland 20817
/s/S. JOSEPH FORTUNATO /s/R. MARTIN WISKEMANN
S. Joseph Fortunato R. Martin Wiskemann
Park Avenue at Morris County 777 Mariners Island Blvd.
P.O. Box 1945 San Mateo, California 94404
Morristown, New Jersey 07962-1945
/s/CHARLES B. JOHNSON
Charles B. Johnson
777 Mariners Island Blvd.
San Mateo, California 94404
THE PRINCIPAL PLACE OF BUSINESS OF THE TRUST IS 777 Mariners Island Blvd.
San Mateo, California 94404
BY-LAWS
OF
FRANKLIN GOLD AND PRECIOUS METALS FUND
A Delaware Business Trust
ARTICLE I.
OFFICES
Section 1.01. PRINCIPAL OFFICE. The Board of Trustees shall fix and, from
time to time, may change the location of the principal executive office of
the Trust at any place within or outside the State of Delaware.
Section 1.02. OTHER OFFICES. The Board of Trustees may at any time
establish branch or subordinate offices at any place or places where the
Trust intends to do business.
ARTICLE II.
MEETINGS OF SHAREHOLDERS
Section 2.01. PLACE OF MEETINGS. Meetings of shareholders shall be held at
any place within or outside the State of Delaware designated by the Board of
Trustees. In the absence of any such designation, shareholders' meetings
shall be held at the principal executive office of the Trust.
Section 2.02. CALL OF MEETING. A meeting of the shareholders may be called
at any time by the Board of Trustees or by the Chairman of the Board or by
the president.
Section 2.03. NOTICE OF SHAREHOLDERS' MEETING. All notices of meetings of
shareholders shall be sent or otherwise given in accordance with Section 4 of
this Article II not less than seven (7) nor more than seventy-five (75) days
before the date of the meeting. The notice shall specify (i) the place, date
and hour of the meeting, and (ii) the general nature of the business to be
transacted. The notice of any meeting at which trustees are to be elected
also shall include the name of any nominee or nominees whom at the time of
the notice are intended to be presented for election.
If action is proposed to be taken at any meeting for approval of (i) a
contract or transaction in which a trustee has a direct or indirect financial
interest, (ii) an amendment of the Declaration of Trust, (iii) a
reorganization of the Trust, or (iv) a voluntary dissolution of the Trust,
the notice shall also state the general nature of that proposal.
Section 2.04. MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE. Notice of any
meeting of shareholders shall be given either personally or by first-class
mail or telegraphic or other written communication, charges prepaid,
addressed to the shareholder at the address of that shareholder appearing on
the books of the Trust or its transfer agent or given by the shareholder to
the Trust for the purpose of notice. If no such address appears on the
Trust's books or is given, notice shall be deemed to have been given if sent
to that shareholder by first-class mail or telegraphic or other written
communication to the Trust's principal executive office, or if published at
least once in a newspaper of general circulation in the county where that
office is located. Notice shall be deemed to have been given at the time
when delivered personally or deposited in the mail or sent by telegram or
other means of written communication.
If any notice addressed to a shareholder at the address of that shareholder
appearing on the books of the Trust is returned to the Trust by the United
States Postal Service marked to indicate that the Postal Service is unable to
deliver the notice to the shareholder at that address, all future notices or
reports shall be deemed to have been duly given without further mailing if
these shall be available to the shareholder on written demand of the
shareholder at the principal executive office of the Trust for a period of
one year from the date of the giving of the notice.
An affidavit of the mailing or other means of giving any notice of any
shareholder's meeting shall be executed by the secretary, assistant secretary
or any transfer agent of the Trust giving the notice and shall be filed and
maintained in the minute book of the Trust.
Section 2.05. ADJOURNED MEETING; NOTICE. Any shareholder's meeting, whether
or not a quorum is present, may be adjourned from time to time by the vote of
the majority of the shares represented at that meeting, either in person or
by proxy.
When any meeting of shareholders is adjourned to another time or place,
notice need not be given of the adjourned meeting at which the adjournment is
taken, unless a new record date of the adjourned meeting is fixed or unless
the adjournment is for more than sixty (60) days from the date set for the
original meeting, in which case the Board of Trustees shall set a new record
date. Notice of any such adjourned meeting shall be given to each
shareholder of record entitled to vote at the adjourned meeting in accordance
with the provisions of Sections 3 and 4 of this Article II. At any adjourned
meeting, the Trust may transact any business which might have been transacted
at the original meeting.
Section 2.06. VOTING. The shareholders entitled to vote at any meeting of
shareholders shall be determined in accordance with the provisions of the
Declaration of Trust, as in effect at such time. The shareholders, vote may
be by voice vote or by ballot, provided, however, that any election for
trustees must be by ballot if demanded by any shareholder before the voting
has begun. on any matter other than elections of trustees, any shareholder
may vote part of the shares in favor of the proposal and refrain from voting
the remaining shares or vote them against the proposal, but if the
shareholder fails to specify the number of shares which the shareholder is
voting affirmatively, it will be conclusively presumed that the shareholder's
approving vote is with respect to the total shares that the shareholder is
entitled to vote on such proposal.
Section 2.07. WAIVER OF NOTICE BY CONSENT OF ABSENT SHAREHOLDERS. The
transactions of the meeting of shareholders, however called and noticed and
wherever held, shall be as valid as though had at a meeting duly held after
regular call and notice if a quorum be present either in person or by proxy
and if either before or after the meeting, each person entitled to vote who
was not present in person or by proxy signs a written waiver of notice or a
consent to a holding of the meeting or an approval of the minutes. The
waiver of notice or consent need not specify either the business to be
transacted or the purpose of any meeting of shareholders.
Attendance by a person at a meeting shall also constitute a waiver of notice
of that meeting, except when the person objects at the beginning of the
meeting to the transaction of any business because the meeting is not
lawfully called or convened and except that attendance at a meeting is not a
waiver of any right to object to the consideration of matters not included in
the notice of the meeting if that objection is expressly made at the
beginning of the meeting.
Section 2.08. SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Any
action which may be taken at any meeting of shareholders may be taken without
a meeting and without prior notice if a consent in writing setting forth the
action so taken is signed by the holders of outstanding shares having not
less than the minimum number of votes that would be necessary to authorize or
take that action at a meeting at which all shares entitled to vote on that
action were present and voted. All such consents shall be filed with the
Secretary of the Trust and shall be maintained in the Trust's records. Any
shareholder giving a written consent or the shareholder's proxy holders or a
transferee of the shares or a personal representative of the shareholder or
their respective-proxy-holders may revoke the consent by a writing received
by the Secretary of the Trust before written consents of the number of shares
required to authorize the proposed action have been filed with the Secretary.
If the consents of all shareholders entitled to vote have not been solicited
in writing and if the unanimous written consent of all such shareholders
shall not have been received, the Secretary shall give prompt notice of the
action approved by the shareholders without a meeting. This notice shall be
given in the manner specified in Section 4 of this Article II. In the case
of approval of (i) contracts or transactions in which a trustee has a direct
or indirect financial interest, (ii) indemnification of agents of the Trust,
and (iii) a reorganization of the Trust, the notice shall be given at least
ten (10) days before the consummation of any action authorized by that
approval.
Section 2.09. RECORD DATE FOR SHAREHOLDER NOTICE; VOTING AND GIVING
CONSENTS. For purposes of determining the shareholders entitled to notice of
any meeting or to vote or entitled to give consent to action without a
meeting, the Board of Trustees may fix in advance a record date which shall
not be more than ninety (90) days nor less than seven (7) days before the
date of any such meeting as provided in the Declaration of Trust.
If the Board of Trustees does not so fix a record date:
(a) The record date for determining shareholders entitled to notice of or to
vote at a meeting of shareholders shall be at the close of business on the
business day next preceding the day on which notice is given or if notice is
waived, at the close of business on the business day next preceding the day
on which the meeting is held.
(b) The record date for determining shareholders entitled to give consent to
action in writing without a meeting, (i) when no prior action by the Board of
Trustees has been taken, shall be the day on which the first written consent
is given, or (ii) when prior action of the Board of Trustees has been taken,
shall be at the close of business on the day on which the Board of Trustees
adopt the resolution relating to that action or the seventy-fifth day before
the date of such other action, whichever is later.
Section 2.10. PROXIES. Every person entitled to vote for trustees or on any
other matter shall have the right to do so either in person or by one or more
agents authorized by a written proxy signed by the person and filed with the
Secretary of the Trust. A proxy shall be deemed signed if the shareholder's
name is placed on the proxy (whether by manual signature, typewriting,
telegraphic transmission or otherwise) by the shareholder or the
shareholder's attorney-in-fact. A validly executed proxy which does not state
that it is irrevocable shall continue in full force and effect unless (i)
revoked by the person executing it before the vote pursuant to that proxy by
a writing delivered to the Trust stating that the proxy is revoked or by a
subsequent proxy executed by or attendance at the meeting and voting in
person by the person executing that proxy; or (ii) written notice of the
death or incapacity of the maker of that proxy is received by the Trust
before the vote pursuant to that proxy is counted; provided however, that no
proxy shall be valid after the expiration of eleven (11) months from the date
of the proxy unless otherwise provided in the proxy. The revocability of a
proxy that states on its face that it is irrevocable shall be governed by the
provisions of the General Corporation Law of the State of California.
Section 2.11. INSPECTORS OF ELECTION. Before any meeting of shareholders,
the Board of Trustees may appoint any persons other than nominees for office
to act as inspectors of election at the meeting or its adjournment. If no
inspectors of election are so appointed, the chairman of the meeting may and
on the request of any shareholder or a shareholder's proxy shall, appoint
inspectors of election at the meeting. The number of inspectors shall be
either one (1) or three (3). If inspectors are appointed at a meeting on the
request of one or more shareholders or proxies, the holders of a majority of
shares or their proxies present at the meeting shall determine whether one
(1) or three (3) inspectors are to be appointed. If any person appointed as
inspector fails to appear or fails or refuses to act, the chairman of the
meeting may and on the request of any shareholder or a shareholder's proxy,
shall appoint a person to fill the vacancy.
These inspectors shall:
(a) Determine the number of shares outstanding and the voting power of each,
the shares represented at the meeting, the existence of a quorum and the
authenticity, validity and effect of proxies;
(b) Receive votes, ballots or consents;
(c) Hear and determine all challenges and questions in any way arising in
connection with the right to vote;
(d) Count and tabulate all votes or consents;
(e) Determine when the polls shall close;
(f) Determine the result; and
(g) Do any other acts that may be proper to conduct the election or vote
with fairness to all shareholders.
ARTICLE III.
TRUSTEES
Section 3.01. POWERS. Subject to the applicable provisions of the
Declaration of Trust and these By-Laws relating to action required to be
approved by the shareholders or by the outstanding shares, the business and
affairs of the Trust shall be managed and all powers shall be exercised by or
under the direction of the Board of Trustees.
Section 3.02. NUMBER AND QUALIFICATION OF TRUSTEES. The exact number of
trustees shall be set forth in the Agreement and Declaration of Trust, until
changed by a duly adopted amendment to the Declaration of Trust.
Section 3.03. VACANCIES. Vacancies in the Board of Trustees may be filled
by a majority of the remaining trustees, though less than a quorum, or by a
sole remaining trustee, unless the Board of Trustees calls a meeting of
shareholders for the purposes of electing trustees. In the event that at any
time less than a majority of the trustees holding office at that time were so
elected by the holders of the outstanding voting securities of the Trust, the
Board of Trustees shall forthwith cause to be held as promptly as possible,
and in any event within sixty (60) days, a meeting of such holders for the
purpose of electing trustees to fill any existing vacancies in the Board of
Trustees, unless such period is extended by order of the United States
Securities and Exchange Commission.
Notwithstanding the above, whenever and for so long as the Trust is a
participant in or otherwise has in effect a Plan under which the Trust may be
deemed to bear expenses of distributing its shares as that practice is
described in Rule 12b-i under the Investment Company Act of 1940, then the
selection and nomination of the trustees who are not interested persons of
the Trust (as that term is defined in the Investment Company Act of 1940)
shall be, and is, committed to the discretion of such disinterested trustees.
Section 3.04. PLACE OF MEETINGS AND MEETINGS BY TELEPHONE. All meetings of
the Board of Trustees may be held at any place within or outside the State of
Delaware that has been designated from time to time by resolution of the
Board. In the absence of such a designation, regular meetings shall be held
at the principal executive office of the Trust. Any meeting, regular or
special, may be held by conference telephone or similar communication
equipment, so long as all trustees participating in the meeting can hear one
another and all such trustees shall be deemed to be present in person at the
meeting.
Section 3.05. REGULAR MEETINGS. Regular meetings of the Board of Trustees
shall be held without call at such tine as shall from time to time be fixed
by the Board of Trustees. Such regular meetings may be held without notice.
Section 3.06. SPECIAL MEETINGS. Special meetings of the Board of Trustees
for any purpose or purposes may be called at any time by the chairman of the
board or the president or any vice president or the secretary or any two (2)
trustees.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each trustee or sent by first-class mail or
telegram, charges prepaid, addressed to each trustee at that trustee's
address as it is shown on the records of the Trust. In case the notice is
mailed, it shall be deposited in the United States mail at least seven (7)
days before the tine of the holding of the meeting. In case the notice is
delivered personally, by telephone, to the telegraph company, or by express
mail or similar service, it shall be given at least forty-eight (48) hours
before the time of the holding of the meeting. Any oral notice given
personally or by telephone may be communicated either to the trustee or to a
person at the office of the trustee who the person giving the notice has
reason to believe will promptly communicate it to the trustee. The notice
need not specify the purpose of the meeting or the place if the meeting is to
be held at the principal executive office of the Trust.
Section 3.07. QUORUM. A majority of the authorized number of trustees shall
constitute a quorum for the transaction of business, except to adjourn as
provided in Section 10 of this Article III. Every act or decision done or
made by a majority of the trustees present at a meeting duly held at which a
quorum is present shall be regarded as the act of the Board of Trustees,
subject to the provisions of the Declaration of Trust. A meeting at which a
quorum is initially present may continue to transact business notwithstanding
the withdrawal of trustees if any action taken is approved by a least a
majority of the required quorum for that meeting.
Section 3.08. WAIVER OF NOTICE. Notice of any meeting need not be given to
any trustee who either before or after the meeting signs a written waiver of
notice, a consent to holding the meeting, or an approval of the minutes. The
waiver of notice or consent need not specify the purpose of the meeting. All
such waivers, consents, and approvals shall be filed with the records of the
Trust or made a part of the minutes of the meeting. Notice of a meeting
shall also be deemed given to any trustee who attends the meeting without
protesting before or at its commencement the lack of notice to that trustee.
Section 3.09. ADJOURNMENT. A majority of the trustees present, whether or
not constituting a quorum, may adjourn any meeting to another time and place.
Section 3.10. NOTICE OF ADJOURNMENT. Notice of the time and place of
holding an adjourned meeting need not be given unless the meeting is
adjourned for more than forty-eight (48) hours, in which case notice of the
time and place shall be given before the time of the adjourned meeting in the
manner specified in Section 7 of this Article III to the trustees who were
present at the time of the adjournment.
Section 3.11. ACTION WITHOUT A MEETING. Any action required or permitted to
be taken by the Board of Trustees may be taken without a meeting if a
majority of the members of the Board of Trustees shall individually or
collectively consent in writing to that action. Such action by written
consent shall have the same force and effect as a majority vote of the Board
of Trustees. Such written consent or consents shall be filed with the
minutes of the proceedings of the Board of Trustees.
Section 3.12. FEES AND COMPENSATION OF TRUSTEES. Trustees and members of
committees may receive such compensation, if any, for their services and such
reimbursement of expenses as may be fixed or determined by resolution of the
Board of Trustees. This Section 12 shall not be construed to preclude any
trustee from serving the Trust in any other capacity as an officer, agent,
employee, or otherwise and receiving compensation for those services.
Section 3.13. DELEGATION OF POWER TO OTHER TRUSTEES. Any Trustee may, by
power of attorney, delegate his power for a period not exceeding six (6)
months at any one time to any other Trustee or Trustees; provided that in no
case shall fewer than two (2) Trustees personally exercise the powers granted
to the Trustees under this Declaration of Trust except as otherwise expressly
provided herein or by resolution of the Board of Trustees.
ARTICLE IV.
COMMITTEES
Section 4.01. COMMITTEES OF TRUSTEES. The Board of Trustees may by
resolution adopted by a majority of the authorized number of trustees
designate one or more committees, each consisting of two (2) or more
trustees, to serve at the pleasure of the Board. The Board may designate one
or more trustees as alternate members of any committee who may replace any
absent member at any meeting of the committee. Any committee to the extent
provided in the resolution of the Board, shall have the authority of the
Board, except with respect to:
(a) the approval of any action which under applicable law also requires
shareholders' approval or approval of the outstanding shares, or requires
approval by a majority of the entire Board or certain members of said Board;
(b) the filling of vacancies on the Board of Trustees or in any committee;
(c) the fixing of compensation of the trustees for serving on the Board of
Trustees or on any committee;
(d) the amendment or repeal of the Declaration of Trust or of the By-Laws or
the adoption of new By-Laws;
(e) the amendment or repeal of any resolution of the Board of Trustees which
by its express terms is not so amendable or repealable;
(f) a distribution to the shareholders of the Trust, except at a rate or in
a periodic amount or within a designated range determined by the Board of
Trustees; or
(g) the appointment of any other committees of the Board of Trustees or the
members of these committees.
Section 4.02. MEETINGS AND ACTION OF COMMITTEES. Meetings and action of
committees shall be governed by and held and taken in accordance with the
provisions of Article III of these By-Laws, with such changes in the context
thereof as are necessary to substitute the committee and its members for the
Board of Trustees and its members, except that the time of regular meetings
of committees may be determined either by resolution of the Board of Trustees
or by resolution of the committee. Special meetings of committees may also
be called by resolution of the Board of Trustees, and notice of special
meetings of committees shall also be given to all alternate members who shall
have the right to attend all meetings of the committee. The Board of
Trustees may adopt rules for the government of any committee not inconsistent
with the provisions of these By-Laws.
ARTICLE V.
OFFICERS
Section 5.01. OFFICERS. The officers of the Trust shall be a president, a
secretary, and a treasurer. The Trust may also have, at the discretion of
the Board of Trustees, a chairman of the board, one or more vice presidents,
one or more assistant secretaries, one or more assistant treasurers, and such
other officers as may be appointed in accordance with the provisions of
Section 3 of this Article V. Any number of offices may be held by the same
person.
Section 5.02. ELECTION OF OFFICERS. The officers of the Trust, except such
officers as may appointed in accordance with the provisions of Section 3 or
Section 5 of this Article V, shall be chosen by the Board of Trustees, and
each shall serve at the pleasure of the Board of Trustees, subject to the
rights, if any, of an officer under any contract of employment.
Section 5.03. SUBORDINATE OFFICERS. The Board of Trustees may appoint and
may empower the president to appoint such other officers as the business of
the Trust may require, each of whom shall hold office for such period, have
such authority and perform such duties as are provided in these By-Laws or as
the Board of Trustees may from time to time determine.
Section 5.04. REMOVAL AND RESIGNATION OF OFFICERS. Subject to the rights,
if any, of an officer under any contract of employment, any officer may be
removed, either with or without cause, by the Board of Trustees at any
regular or special meeting of the Board of Trustees or except in the case of
an officer upon whom such power of removal may be conferred by the Board of
Trustees.
Any officer may resign at any time by giving written notice to the Trust.
Any resignation shall take effect at the date of the receipt of that notice
or at any later time specified in that notice; and unless otherwise specified
in that notice, the acceptance of the resignation shall not be necessary to
make it effective. Any resignation is without prejudice to the rights, if
any, of the Trust under any contract to which the officer is a party.
Section 5.05. VACANCIES IN OFFICES. A vacancy in any office because of
death, resignation, removal, disqualification or other cause shall be filled
in the manner prescribed in these By-Laws for regular appointment to that
office.
Section 5.06. CHAIRMAN OF THE BOARD. The chairman of the board, if such an
officer is elected, shall if present preside at meetings of the Board of
Trustees and exercise and perform such other powers and duties as may be from
time to time assigned to him by the Board of Trustees or prescribed by the
By-Laws.
Section 5.07. PRESIDENT. Subject to such supervisory powers, if any, as may
be given by the Board of Trustees to the chairman of the board, if there be
such an officer, the president shall be the chief executive officer of the
Trust and shall, subject to the control of the Board of Trustees, have
general supervision, direction and control of the business and the officers
of the Trust. He shall preside at all meetings of the shareholders and in
the absence of the chairman of the board or if there be none, at all meetings
of the Board of Trustees. He shall have the general powers and duties of
management usually vested in the office of president of a corporation and
shall have such other powers and duties as may be prescribed by the Board of
Trustees or these By-Laws.
Section 5.08. VICE PRESIDENTS. In the absence or disability of the
president, the vice presidents, if any, in order of their rank as fixed by
the Board of Trustees or if not ranked, a vice president designated by the
Board of Trustees, shall perform all the duties of the president and when so
acting shall have all powers of and be subject to all the restrictions upon
the president. The vice presidents shall have such other powers and perform
such other duties as from time to time may be prescribed for them
respectively by the Board of Trustees or by these By-Laws and the president
or the chairman of the board.
Section 5.09. SECRETARY. The secretary shall keep or cause to be kept at
the principal executive office of the Trust or such other place as the Board
of Trustees may direct a book of minutes of all meetings and actions of
trustees, committees of trustees and shareholders with the time and place of
holding, whether regular or special, and if special, how authorized, the
notice given, the names of those present at trustees' meetings or committee
meetings, the number of shares present or represented at shareholders'
meetings, and the proceedings.
The secretary shall keep or cause to be kept at the principal executive
office of the Trust or at the office of the Trust's transfer agent or
registrar, as determined by resolution of the Board of Trustees, a share
register or a duplicate share register showing the names of all shareholders
and their addresses, the number and classes of shares held by each, the
number and date of certificates issued for the same and the number and date
of cancellation of every certificate surrendered for cancellation.
The secretary shall give or cause to be given notice of all meetings of the
shareholders and of the Board of Trustees required by these By-Laws or by
applicable law to be given and shall have such other powers and perform such
other duties as may be prescribed by the Board of Trustees or by these
By-Laws.
Section 5.10. TREASURER. The treasurer shall be the chief financial officer
of the Trust and shall keep and maintain or cause to be kept and maintained
adequate and correct books and records of accounts of the properties and
business transactions of the Trust, including accounts of its assets,
liabilities, receipts, disbursements, gains, losses, capital, retained
earnings and shares. The books of account shall at all reasonable times be
open to inspection by-any trustee.
The treasurer shall deposit all monies and other valuables in the name and
to the credit of the Trust with such depositories as may be designated by the
Board of Trustees. He shall disburse the funds of the Trust as may be
ordered by the Board of Trustees, shall render to the president and trustees,
whenever they request it, an account of all of his transactions as chief
financial officer and of the financial condition of the Trust and shall have
other powers and perform such other duties as may be prescribed by the Board
of Trustees or these By-Laws.
ARTICLE VI.
INDEMNIFICATION OF TRUSTEES, OFFICERS,
EMPLOYEES AND OTHER AGENTS
Section 6.01. AGENTS, PROCEEDINGS AND EXPENSES. For the purpose of this
Article, "agent" means any person who is or was a trustee, officer, employee
or other agent of this Trust or is or was serving at the request of this
Trust as a trustee, director, officer, employee or agent of another foreign
or domestic corporation, partnership, joint venture, trust or other
enterprise or was a trustee, director, officer, employee or agent of a
foreign or domestic corporation which was a predecessor of another enterprise
at the request of such predecessor entity; "proceeding" means any threatened,
pending or completed action or proceeding, whether civil, criminal,
administrative or investigative; and "expenses" includes without limitation
attorney's fees and any expenses of establishing a right to indemnification
under this Article.
Section 6.02. ACTIONS OTHER THAN BY TRUST. This Trust shall indemnify any
person who was or is a party or is threatened to be made a party to any
proceeding (other than an action by or in the right of this Trust) by reason
of the fact that such person is or was an agent of this Trust, against
expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred in connection with such proceeding if that person acted
in good faith and in a manner that person reasonably believed to be in the
best interests of this Trust and in the case of a criminal proceeding, had no
reasonable cause to believe the conduct of that person was unlawful. The
termination of any proceeding by judgment, order, settlement, conviction or
upon a plea of nolo contenders or its equivalent shall not of itself create a
presumption that the person did not act in good faith and in a manner which
the person reasonably believed to be in the best interests of this Trust or
that the person had reasonable cause to believe that the person's conduct was
unlawful.
Section 6.03. ACTIONS OTHER THAN BY TRUST. This Trust shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action by or in the right of this Trust to
procure a judgment in its favor by reason of the fact that the person is or
was an agent of this Trust, against expenses actually and reasonably incurred
by that person in connection with the defense or settlement of that action if
that person acted in good faith, in a manner that person believed to be in
the best interests of this Trust and with such care, including reasonable
inquiry, as an ordinarily prudent person in a like position would use under
similar circumstances.
Section 6.04. EXCLUSION OF INDEMNIFICATION. Notwithstanding any provision
to the contrary contained herein, there shall be no right to indemnification
for any liability arising by reason of willful misfeasance, bad faith, gross
negligence, or the reckless disregard of the duties involved in the conduct
of the agent's office with this Trust.
No indemnification shall be made under Sections 2 or 3 of this Article:
(a) In respect of any claim, issue or matter as to which that person shall
have been adjudged to be liable in the performance of that person's duty to
this Trust, unless and only to the extent that the court in which that action
was brought shall determine upon application that in view of all the
circumstances of the case, that person was not liable by reason of the
disabling conduct set forth in the preceding paragraph and is fairly and
reasonably entitled to indemnity for the expenses which the court shall
determine; or
(b) In respect of any claim, issue, or matter as to which that person shall
have been adjudged to be liable on the basis that personal benefit was
improperly received by him, whether or not the benefit resulted from an
action taken in the person's official capacity; or
(c) Of amounts paid in settling or otherwise disposing of a threatened or
pending action, with or without court approval, or of expenses incurred in
defending a threatened or pending action which is settled or otherwise
disposed of without court approval, unless the required approval set forth in
Section 6 of this Article is obtained.
Section 6.05. SUCCESSFUL DEFENSE BY AGENT. To the extent that an agent of
this Trust has been successful on the merits in defense of any proceeding
referred to in Sections 2 or 3 of this Article or in defense of any claim,
issue or matter therein, before the court or other body before whom the
proceeding was brought, the agent shall be indemnified against expenses
actually and reasonably incurred by the agent in connection therewith,
provided that the Board of Trustees, including a majority who are
disinterested, non-party trustees, also determines that based upon a review
of the facts, the agent was not liable by reason of the disabling conduct
referred to in Section 4 of this Article.
Section 6.06. REQUIRED APPROVAL. Except as provided in Section 5 of this
Article, any indemnification under this Article shall be made by this Trust
only if authorized in the specific case on a determination that
indemnification of the agent is proper in the circumstances because the agent
has met the applicable standard of conduct set forth in Sections 2 or 3 of
this Article and is not prohibited from indemnification because of the
disabling conduct set forth in Section 4 of this Article, by:
(a) A majority vote of a quorum consisting of trustees who are not parties
to the proceeding and are not interested persons of the Trust (as defined in
the Investment Company Act of 1940); or
(b) A written opinion by an independent legal counsel.
Section 6.07. ADVANCE OF EXPENSES. Expenses incurred in defending any
proceeding may be advanced by this Trust before the final disposition of the
proceeding on receipt of an undertaking by or on behalf of the agent to repay
the amount of the advance unless it shall be determined ultimately that the
agent is entitled to be indemnified as authorized in this Article, provided
the agent provides a security for his undertaking, or a majority of a quorum
of the disinterested, non-party trustees, or an independent legal counsel in
a written opinion, determine that based on a review of readily available
facts, there is reason to believe that said agent ultimately will be found
entitled to indemnification.
Section 6.08. OTHER CONTRACTUAL RIGHTS. Nothing contained in this Article
shall affect any right to indemnification to which persons other than
trustees and officers of this Trust or any subsidiary hereof may be entitled
by contract or otherwise.
Section 6.09. LIMITATIONS. No indemnification or advance shall be made
under this Article, except as provided in Sections 5 or 6 in any
circumstances where it appears:
(a) That it would be inconsistent with a provision of the Agreement and
Declaration of Trust, a resolution of the shareholders, or an agreement in
effect at the time of accrual of the alleged cause of action asserted in the
proceeding in which the expenses were incurred or other amounts were paid
which prohibits or otherwise limits indemnification; or
(b) That it would be inconsistent with any condition expressly imposed by a
court in approving a settlement.
Section 6.10. INSURANCE. Upon and in the event of a determination by the
Board of Trustees of this Trust to purchase such insurance, this Trust shall
purchase and maintain insurance on behalf of any agent of this Trust against
any liability asserted against or incurred by the agent in such capacity or
arising out of the agent's status as such, but only to the extent that this
Trust would have the power to indemnify the agent against that liability
under the provisions of this Article.
Section 6.11. FIDUCIARIES OF EMPLOYEE BENEFIT PLAN. This Article does not
apply to any proceeding against any trustee, investment manager or other
fiduciary of an employee benefit plan in that person' s capacity as such,
even though that person may also be an agent of this Trust as defined in
Section 1 of this Article. Nothing contained in this Article shall limit any
right to indemnification to which such a trustee, investment manager, or
other fiduciary may be entitled by contract or otherwise which shall be
enforceable to the extent permitted by applicable law other than this Article.
ARTICLE VII.
RECORDS AND REPORTS
Section 7.01. MAINTENANCE AND INSPECTION OF SHARE REGISTER. This Trust
shall keep at its principal executive office or at the office of its transfer
agent or registrar, if either be appointed and as determined by resolution of
the Board of Trustees, a record of its shareholders, giving the names and
addresses of all shareholders and the number and series of shares held by
each shareholder.
Section 7.02. MAINTENANCE AND INSPECTION OF BY-LAWS. The Trust shall keep
at its principal executive office the original or a copy of these By-Laws as
amended to date, which shall be open to inspection by the shareholders at all
reasonable times during office hours.
Section 7.03. MAINTENANCE AND INSPECTION OF OTHER RECORDS. The accounting
books and records and minutes of proceedings of the shareholders and the
Board of Trustees and any committee or committees of the Board of Trustees
shall be kept at such place or places designated by the Board of Trustees or
in the absence of such designation, at the principal executive office of the
Trust. The minutes shall be kept in written form and the accounting books
and records shall be kept either in written form or in any other form capable
of being converted into written form. The minutes and accounting books and
records shall be open to inspection upon the written demand of any
shareholder or holder of a voting trust certificate at any reasonable time
during usual business hours for a purpose reasonably related to the holder's
interests as a shareholder or as the holder of a voting trust certificate.
The inspection may be made in person or by an agent or attorney and shall
include the right to copy and make extracts.
Section 7.04. INSPECTION BY TRUSTEES. Every trustee shall have the absolute
right at any reasonable time to inspect all books, records, and documents of
every kind and the physical properties of the Trust. This inspection by a
trustee may be made in person or by an agent or attorney and the right of
inspection includes the right to copy and make extracts of documents.
Section 7.05. FINANCIAL STATEMENTS. A copy of any financial statements and
any income statement of the Trust for each quarterly period of each fiscal
year and accompanying balance sheet of the Trust as of the end of each such
period that has been prepared by the Trust shall be kept on file in the
principal executive office of the Trust for at least twelve (12) months and
each such statement shall be exhibited at all reasonable times to any
shareholder demanding an examination of any such statement or a copy shall be
mailed to any such shareholder.
The quarterly income statements and balance sheets referred to in this
section shall be accompanied by the report, if any, of any independent
accountants engaged by the Trust or the certificate of an authorized officer
of the Trust that the financial statements were prepared without audit from
the books and records of the Trust.
ARTICLE VIII.
GENERAL MATTERS
Section 8.01. CHECKS, DRAFTS, EVIDENCE OF INDEBTEDNESS. All checks, drafts,
or other orders for payment of money, notes or other evidences of
indebtedness issued in the name of or payable to the Trust shall be signed or
endorsed by such person or persons and in such manner as from time to time
shall be determined by resolution of the Board of Trustees.
Section 8.02. CONTRACTS AND INSTRUMENTS; HOW EXECUTED. The Board of
Trustees, except as otherwise provided in these By-Laws, may authorize any
officer or officers, agent or agents, to enter into any contract or execute
any instrument in the name of and on behalf of the Trust and this authority
may be general or confined to specific instances; and unless so authorized or
ratified by the Board of Trustees or within the agency power of an officer,
no officer, agent, or employee shall have any power or authority to bind the
Trust by any contract or engagement or to pledge its credit or to render it
liable for any purpose or for any amount.
Section 8.03. CERTIFICATES FOR SHARES. A certificate or certificates for
shares of beneficial interest in any series of the Trust may be issued to a
shareholder upon his request when such shares are fully paid. All
certificates shall be signed in the name of the Trust by the chairman of the
board or the president or vice president and by the treasurer or an assistant
treasurer or the secretary or any assistant secretary, certifying the number
of shares and the series of shares owned by the shareholders. Any or all of
the signatures on the certificate may be facsimile. In case any officer,
transfer agent, or registrar who has signed or whose facsimile signature has
been placed on a certificate shall have ceased to be that officer, transfer
agent, or registrar before that certificate is issued, it may be issued by
the Trust with the same effect as if that person were an officer, transfer
agent or registrar at the date of issue. Notwithstanding the foregoing, the
Trust may adopt and use a system of issuance, recordation and transfer of its
shares by electronic or other means.
Section 8.04. LOST CERTIFICATES. Except as provided in this Section 4, no
new certificates for shares shall be issued to replace an old certificate
unless the latter is surrendered to the Trust and cancelled at the same
time. The Board of Trustees may in case any share certificate or certificate
for any other security is lost, stolen, or destroyed, authorize the issuance
of a replacement certificate on such terms and conditions as the Board of
Trustees may require, including a provision for indemnification of the Trust
secured by a bond or other adequate security sufficient to protect the Trust
against any claim that may be made against it, including any expense or
liability on account of the alleged loss, theft, or destruction of the
certificate or the issuance of the replacement certificate.
Section 8.05. REPRESENTATION OF SHARES OF OTHER ENTITIES HELD BY TRUST. The
chairman of the board, the president or any vice president or any other
person authorized by resolution of the Board of Trustees or by any of the
foregoing designated officers, is authorized to vote or represent on behalf
of the Trust any and all shares of any corporation, partnership, trusts, or
other entities, foreign or domestic, standing in the name of the Trust. The
authority granted may be exercised in person or by a proxy duly executed by
such designated person.
Section 8.06. FISCAL YEAR. The fiscal year of the Trust shall be fixed and
refixed or changed from time to time by resolution of the Trustees. The
fiscal year of the Trust shall be the taxable year of each Series of the
Trust.
ARTICLE IX.
AMENDMENTS
Section 9.01. AMENDMENT BY SHAREHOLDERS. These By-Laws may be amended or
repealed by the affirmative vote or written consent of a majority of the
outstanding shares entitled to vote, except as otherwise provided by
applicable law or by the Declaration of Trust or these By-Laws.
Section 9.02. AMENDMENT BY TRUSTEES. Subject to the right of shareholders
as provided in Section 1 of this Article to adopt, amend or repeal By-Laws,
and except as otherwise provided by law or by the Declaration of Trust, these
By-Laws may be adopted, amended, or repealed by the Board of Trustees.
256567
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Post-Effective Amendment No.
51 to the Registration Statement of Franklin Gold and Precious Metals Fund on
Form N-1A, File No. 2-30761, of our report dated September 3, 1999, on our
audit of the financial statements and financial highlights of Franklin Gold
Fund, which report is included in the Annual Report to Shareholders for the
year ended July 31, 1999, filed with the Securities and Exchange Commission
pursuant to section 30(d) of the Investment Company Act of 1940, which is
incorporated by reference in the Registration Statement. We also consent to
the reference to our firm under the captions "Financial Highlights" and
"Auditor."
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
San Francisco, California
February 7, 2000
POWER OF ATTORNEY
The undersigned officers and trustees of FRANKLIN GOLD AND PRECIOUS METALS FUND
(the "Registrant") hereby appoint MARK H. PLAFKER, HARMON E. BURNS, DEBORAH R.
GATZEK, KAREN L. SKIDMORE, LEIANN NUZUM, Murray L. Simpson, Barbara J. Green and
David P. Goss (with full power to each of them to act alone) his
attorney-in-fact and agent, in all capacities, to execute, deliver and file in
the names of the undersigned, any and all instruments that said attorneys and
agents may deem necessary or advisable to enable the Registrant to comply with
or register any security issued by the Registrant under the Securities Act of
1933, as amended, and/or the Investment Company Act of 1940, as amended, and the
rules, regulations and interpretations thereunder, including but not limited to,
any registration statement, including any and all pre- and post-effective
amendments thereto, any other document to be filed with the U.S. Securities and
Exchange Commission and any and all documents required to be filed with respect
thereto with any other regulatory authority. Each of the undersigned grants to
each of said attorneys, full authority to do every act necessary to be done in
order to effectuate the same as fully, to all intents and purposes, as he could
do if personally present, thereby ratifying all that said attorneys-in-fact and
agents may lawfully do or cause to be done by virtue hereof.
This Power of Attorney may be executed in one or more counterparts, each of
which shall be deemed to be an original, and all of which shall be deemed to be
a single document.
The undersigned officers and trustees hereby execute this Power of Attorney as
of the 20th day of January, 2000.
/s/R. Martin Wiskemann, /s/Frank H. Abbott, III,
Principal Executive Officer and Trustee Trustee
/s/Harris J. Ashton, /s/Harmon E. Burns,
Trustee Trustee
/s/S. Joseph Fortunato, /s/Charles B. Johnson,
Trustee Trustee
/s/Rupert H. Johnson, Jr., /s/Frank W.T. LaHaye,
Trustee Trustee
/s/Gordon S. Macklin, /s/Martin L. Flanagan,
Trustee Principal Financial Officer
/s/Kimberley H. Monasterio,
Principal Accounting Officer
CERTIFICATE OF SECRETARY
I, David P. Goss, certify that I am Assistant Secretary of FRANKLIN GOLD AND
PRECIOUS METALS FUND (the "Fund").
As Assistant Secretary of the Fund, I further certify that the following
resolution was adopted by a majority of the Directors of the Fund present at a
meeting held at 777 Mariners Island Boulevard, San Mateo, California 94404, on
January 20, 2000.
RESOLVED, that a Power of Attorney, substantially in the form of the
Power of Attorney presented to this Board, appointing Harmon E. Burns,
Deborah R. Gatzek, Mark H. Plafker, Karen L. Skidmore, Leiann Nuzum,
Murray L. Simpson, Barbara J. Green and David P. Goss as
attorneys-in-fact for the purpose of filing documents with the
Securities and Exchange Commission, be executed by each Trustee and
designated officer.
I declare under penalty of perjury that the matters set forth in this
certificate are true and correct of my own knowledge.
Dated: January 20, 2000 /s/David P. Goss
Assistant Secretary
