As filed with the Securities and Exchange Commission on December 26, 1995.
File Nos.
33-31326
811-5878
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. 9 (X)
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 10 (X)
FRANKLIN VALUE INVESTORS TRUST
(Formerly Franklin Balance Sheet Investment 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 (415) 312- 2000
Harmon E. Burns, 777 Mariners Island Blvd., San Mateo, CA 94404
(Name and Address of Agent for Service of Process)
Approximate Date of Proposed Public Offering:
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on December 12, 1995 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
[X] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on(date) pursuant to paragraph (a)(ii) of rule 485
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Declaration Pursuant to Rule 24f-2. The issuer has registered an indefinite
number or amount of securities under the Securities Act of 1933 pursuant to
Rule 24(f)(2) under the Investment Company Act of 1940. The Rule 24f-2
Notice for the issuers most recent fiscal year was filed on December 29, 1994.
FRANKLIN VALUE INVESTORS TRUST
CROSS REFERENCE SHEET
FORM N- 1A
Part A: Information Required in Prospectus
Franklin Value Fund (New Series)
N-1A Location in
Item No. Item Registration Statement
1. Cover Page Cover Page
2. Synopsis "Expense Table"
3. Condensed Financial "How Does the Fund Measure
Information Performance?"
4. General Description of "What Is the Franklin Value
Registrant Fund?"; "How Does the Fund
Invest Its Assets?"; "General
Information"
5. Management of the Fund "Who Manages the Fund?"
5A. Managements Discussion of N/A
Fund Performance
6. Capital Stock and Other "What Distributions Might I
Securities Receive From the Fund?"; "How
Taxation Affects You and the
Fund"; "General Information";
"Registering Your Account"
7. Purchase of Securities Being "How Do I Buy Shares?"; "How Are
Offered Fund Shares Valued?"; "What
Programs and Privileges Are
Available to Me as a
Shareholder?"
8. Redemption or Repurchase "How Do I Sell Shares?"; "What
if My Investment Outlook
Changes? - Exchange Privilege";
"How Does the Fund Measure
Performance?"; "How do I Get
More Information About My
Investment?"; "General
Information"; "Telephone
Transactions"
9. Pending Legal Proceedings Not Applicable
FRANKLIN VALUE INVESTORS TRUST
CROSS REFERENCE SHEET
FORM N- 1A
Part B: Information Required in
Statement of Additional Information
Franklin Value Fund (New Series)
10. Cover Page Cover Page
11. Table of Contents Contents
12. General Information and "General Information"
History
13. Investment Objectives and "How Does the Fund Invest Its
Policies Assets?" "Investment Restrictions"
14. Management of the Registrant "Officers and Trustees";
"Investment Advisory and Other
Services"
15. Control Persons and "Officers and Trustees";
Principal Holders of "Investment Advisory and Other
Securities Services"
16. Investment Advisory and "Investment Advisory and Other
Other Services Services"
17. Brokerage Allocation and "How Does the Fund Purchase
Other Practices Securities For Its Portfolio?"
18. Capital Stock and Other "How Do I Buy and Sell Shares?";
Securities "How are Fund Shares Valued?"
19. Purchase, Redemption and "How Do I Buy and Sell Shares?";
Pricing of Securities Being "Financial Statements"
Offered
20. Tax Status "Additional Information Regarding
Taxation"
21. Underwriters "The Fund's Underwriter"
22. Calculation of Performance "General Information"
Data
23. Financial Statements Not Applicable
FRANKLIN VALUE FUND
FRANKLIN VALUE INVESTORS TRUST
PROSPECTUS MARCH 10, 1996
777 MARINERS ISLAND BLVD., P.O. BOX 7777
SAN MATEO, CA 94403-7777 1-800/DIAL BEN
Franklin Value Fund (the "Fund") is a non-diversified, open-end series of
Franklin Value Investors Trust (the "Trust"), a management investment company.
The Fund's investment objective is to seek long-term total return. The Fund
seeks to achieve its objective by investing an unlimited amount of its total
assets in the securities of companies that the Fund's investment manager
believes are undervalued. The Fund may invest in domestic and foreign securities
as described under "How Does the Fund Invest Its Assets?"
This Prospectus is intended to set forth in a clear and concise manner
information about the Fund that you should know before investing. After reading
the Prospectus, you should retain it for future reference; it contains
information about the purchase and sale of shares and other items which a
prospective investor will find useful to have.
A Statement of Additional Information (the "SAI") concerning the Fund, dated
March 6, 1996, as may be amended from time to time, provides a further
discussion of certain areas in this Prospectus and other matters which may be of
interest to you. It has been filed with the Securities and Exchange Commission
("SEC") and is incorporated herein by reference. A copy is available without
charge from the Fund or the Fund's principal underwriter, Franklin/Templeton
Distributors, Inc. ("Distributors"), at the address or telephone number shown
above.
SHARES OF THE FUND ARE NOT DEPOSITS OF OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK; FURTHER, SUCH SHARES ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY. SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS
OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THIS PROSPECTUS IS NOT AN OFFERING OF THE SECURITIES HEREIN DESCRIBED IN ANY
STATE IN WHICH THE OFFERING IS NOT AUTHORIZED. NO SALES REPRESENTATIVE, DEALER,
OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS. FURTHER
INFORMATION MAY BE OBTAINED FROM THE UNDERWRITER.
CONTENTS PAGE
Expense Table
What Is the Franklin Value Investors Trust?
How Does the Fund Invest Its Assets?
What Are the Fund's Potential Risks?
Who Manages the Fund?
What Distributions Might I Receive from the Fund?
How Taxation Affects You and the Fund
How Do I Buy Shares?
What Programs and Privileges Are Available to Me as a Shareholder?
What If My Investment Outlook Changes? - Exchange Privilege
How Do I Sell Shares?
Telephone Transactions
How Are Fund Shares Valued?
How Do I Get More Information About My Investment?
How Does the Fund Measure Performance?
General Information
Registering Your Account
Important Notice Regarding
Taxpayer IRS Certification
Appendix
EXPENSE TABLE
The purpose of this table is to assist you in understanding the various costs
and expenses that you will bear directly or indirectly in connection with an
investment in the Fund. These figures are based on contractual management and
Rule 12b-1 fees and estimates of the other operating expenses of the Fund for
the current fiscal year.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a
percentage of offering price)
<S> <C> <C>
4.50%
Deferred Sales Charge None+
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees 0.67%*
Rule 12b-1 Fees 0.35%**
Other Expenses:
Registration Fees 0.10%
Reports to Shareholders 0.07%
Other Expenses 0.16%
-----
Total Other Expenses 0.33%
Total Fund Operating Expenses 1.35%*
</TABLE>
+ Investments of $1 million or more are not subject to a front-end sales charge;
however, a contingent deferred sales charge of 1% is generally imposed on
certain redemptions within a "contingency period" of 12 months of the calendar
month of such investments. See "How Do I Sell Shares? - Contingent Deferred
Sales Charge."
* The investment manager has agreed in advance to waive a portion of its
management fee so that the Fund's aggregate operating assets do not exceed 1.35%
of the Fund's average net assets for the current fiscal year. Absent this
reduction, management fees and total operating expenses would have represented
0.75% and 1.43% of the Fund's average net assets. After October 31, 1996, the
investment manager may terminate this arrangement at any time.
** Consistent with National Association of Securities Dealers, Inc.'s rules, it
is possible that the combination of front-end sales charges and Rule 12b-1 fees
could cause long-term shareholders to pay more than the economic equivalent of
the maximum front-end sales charges permitted under those same rules. You should
be aware that the above table is not intended to reflect in precise detail the
fees and expenses associated with an investment in the Fund. Rather, the table
has been provided only to assist investors in gaining a more complete
understanding of fees, charges and expenses. For a more detailed discussion of
these matters, you should refer to the appropriate sections of this Prospectus.
EXAMPLE
As required by SEC regulations, the following example illustrates the expenses,
including the maximum front-end sales charge, that apply to a $1,000 investment
in the Fund over various time periods assuming (1) a 5% annual rate of return
and (2) redemption at the end of each time period.
ONE YEAR THREE YEARS
$58* $86
*Assumes that a contingent deferred sales charge will not apply.
THIS EXAMPLE IS BASED ON THE ESTIMATED ANNUAL OPERATING EXPENSES SHOWN ABOVE,
INCLUDING FEES SET BY CONTRACT, AND SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES, WHICH MAY BE MORE OR LESS THAN THOSE SHOWN. The
operating expenses are borne by the Fund and only indirectly by you as a result
of your investment in the Fund. See "Who Manages the Fund?" for a description of
the Fund's expenses. In addition, federal securities regulations require the
example to assume an annual return of 5%, but the Fund's actual return may be
more or less than 5%.
WHAT IS THE FRANKLIN VALUE INVESTORS TRUST?
The Fund is a non-diversified, open-end series of the Trust, a management
investment company, commonly called a "mutual fund." The Trust, formerly known
as the Franklin Balance Sheet Investment Fund, was organized as a Massachusetts
business trust on September 11, 1989, and registered with the SEC under the
Investment Company Act of 1940, as amended (the "1940 Act"). The Trust currently
consists of three series, each of which issues a separate series of the Trust's
shares and maintains a totally separate investment portfolio.
The Board of Trustees of the Trust (the "Board") may determine at a future date,
without submitting the matter to shareholders, to offer shares of the Fund in
one or more "classes" to permit the Fund to take advantage of alternative
methods of selling Fund shares. "Classes" of shares represent proportionate
interests in the same portfolio of investment securities but with different
rights, privileges and attributes, as determined by the trustees. Certain funds
in the Franklin Templeton Funds, as that term is defined under "How Do I Buy
Shares?," currently offer their shares in two classes, designated "Class I" and
"Class II." Because the Fund's sales charge structure and plan of distribution
are similar to those of Class I shares, shares of the Fund may be considered
Class I shares for redemption, exchange and other purposes. The Fund also
reserves the right to convert to a master/feeder structure at a future date.
Please see "General Information - Conversion to Master/Feeder Structure."
You may purchase shares of the Fund (minimum initial investment of $2,500 and
$100 thereafter, except for certain retirement plans) at the current public
offering price, which is equal to the Fund's net asset value (see "How Are Fund
Shares Valued?" in this Prospectus and the SAI) plus a variable sales charge not
exceeding 4.5% of the offering price, depending on the amount invested. See "How
Do I Buy Shares?"
HOW DOES THE FUND INVEST ITS ASSETS?
The investment objective of the Fund is to seek long-term total return. This
objective is a fundamental policy of the Fund and may not be changed without
shareholder approval. The Fund seeks to achieve this objective by investing an
unlimited amount of its total assets in the securities of companies that the
investment manager believes are undervalued. Such securities may include, among
others, common and preferred stocks, warrants, secured and unsecured bonds, and
notes. As with any other investment, there is no assurance that the Fund's
investment objective will be achieved. Income is a secondary consideration of
the Fund.
The Fund invests in companies of various sizes that the investment manager
believes are selling substantially below the underlying value of the assets or
private market value. The investment manager may take into account a variety of
factors in order to determine whether to purchase or hold securities, including:
low price to earnings ratio relative to the market, industry group or earnings
growth; low price relative to book value or cash flow; valuable franchises,
patents, trademarks, trade names, distribution channels or market share for
particular products or services, tax loss carry-forwards, or other intangibles
that may not be reflected in stock prices; ownership of understated or
underutilized tangible assets such as land, timber or minerals; underutilized
cash or investment assets; and unusually high current income. These criteria and
others, alone and in combination, may identify companies that are attractive to
financial or strategic acquirers (i.e. takeover candidates). Purchases may
include companies in cyclical businesses, turnarounds and companies emerging
from bankruptcy. Purchase decisions may also be influenced by insider buying and
company stock buy-backs.
In anticipation of and during temporary defensive periods or when investments of
the type in which the Fund intends to invest are not available at prices that
the investment manager believes are attractive, the Fund may invest up to 100%
of its total assets in: (1) securities of the U.S. government and certain of its
agencies or instrumentalities which mature in one year or less from the date of
purchase, including U.S. Treasury bills, notes and bonds, and securities of the
Government National Mortgage Association, the Federal Housing Administration and
other agency or instrumentality issues or guarantees which are supported by the
full faith and credit of the U.S. government; (2) obligations issued or
guaranteed by other U.S. government agencies or instrumentalities, some of which
are supported by the right of the issuer to borrow from the U.S. government
(e.g., obligations of the Federal Home Loan Banks) and some of which are backed
by the credit of the issuer itself (e.g., obligations of the Student Loan
Marketing Association); (3) bank obligations, including negotiable and
non-negotiable certificates of deposit (subject to the 10% aggregate limit on
the Fund's investment in illiquid securities), letters of credit and bankers'
acceptances, or instruments secured by such obligations, issued by banks and
savings institutions which are subject to regulation by the U.S. government, its
agencies or instrumentalities and which have assets of over one billion dollars,
unless such obligations are guaranteed by a parent bank which has total assets
in excess of five billion dollars; (4) commercial paper considered by the
investment manager to be of high quality, which must be rated within the two
highest rating categories by Standard & Poor's Corporation ("S&P") or Moody's
Investors Service ("Moody's") or, if unrated, issued by a company having an
outstanding debt issue rated at least AA by S&P or Aa by Moody's; and (5)
corporate obligations including, but not limited to, corporate notes, bonds and
debentures considered by the investment manager to be high grade or which are
rated within the two highest rating categories by S&P or Moody's. See the
"Appendix" to this Prospectus for a discussion of ratings.
OTHER TYPES OF SECURITIES IN WHICH THE FUND MAY INVEST
FOREIGN SECURITIES. The Fund may invest in foreign securities without
restriction, provided such investments are consistent with the Fund's investment
objective and policies. In this regard, the Fund may buy sponsored or
unsponsored American Depositary Receipts ("ADRs"), Global Depositary Receipts
("GDRs"), and European Depositary Receipts ("EDRs"). ADRs are certificates
issued by U.S. banks representing the right to receive securities of a foreign
issuer deposited with that bank or a correspondent bank, while GDRs and EDRs are
typically issued by foreign banks or trust companies and evidence ownership of
underlying securities issued by either a foreign or a United States corporation.
The Fund may also purchase the securities of foreign issuers directly in foreign
markets, and may purchase the securities of issuers in developing nations. See
"What Are the Fund's Potential Risks? - Foreign Securities" in this Prospectus
and "How Does the Fund Invest Its Assets? - Depositary Receipts" in the SAI.
OPTIONS. The Fund may write call options on securities which are listed on a
national securities exchange or traded over-the-counter ("OTC")and purchase
listed and OTC call and put options on securities and securities indices. The
Fund may write a call option only if the option is "covered," which means so
long as the Fund is obligated as the writer of a call option, it will either own
(i) the underlying security subject to the call or (ii) a call on the same
security where the exercise price of the call held is equal to or less than the
exercise price of the call written. The Fund will not invest in any stock
options or stock index options, other than for hedging or in covered positions,
if the option premiums paid on its open positions exceed 5% of the value of the
Fund's total assets. The Fund may enter into closing purchase transactions with
respect to its open option positions.
An option on a security is a contract that permits the purchaser of the option,
in return for the premium paid, the right to buy a specified security (call
option) or to sell a specified security (put option) from or to the writer of
the option at a designated price during the term of the option. Options on
securities indices are similar to options on securities except that, rather than
the right to purchase or sell particular securities at a specified price,
options on a securities index give the holder the right to receive, upon
exercise of the option, an amount of cash if the closing level of the underlying
stock index is greater than (for calls, or less than, for puts) the exercise
price of the option. The cash received is equal to the difference between the
closing price of the index and the exercise price of the option, expressed in
dollars, multiplied by a specified number. Thus, unlike options on individual
securities, all settlements are in cash, and gain or loss depends on price
movements in the stock market generally (or in a particular industry or segment
of the market) rather than on price movements in individual securities. For more
information about the Fund's investments in options, please see the options
discussion under "What Are the Fund's Potential Risks?" below and under "How
Does the Fund Invest Its Assets?" in the SAI.
FUTURES. The Fund may enter into contracts for the purchase or sale for future
delivery of securities, securities indices and options on such contracts, but at
the present time the Fund intends to limit such investments to no more than 5%
of the Fund's net assets at the time of purchase. See the discussion of futures
under "How Does the Fund Invest Its Assets?" in the SAI for more information.
Transactions in options, futures and options on futures are generally considered
"derivative securities." The Fund's investment in options, futures and options
on futures will be for portfolio hedging or other appropriate risk management
purposes in an effort to stabilize principal fluctuations to achieve the Fund's
investment objective and not for speculation.
CONVERTIBLE SECURITIES. The Fund may invest in convertible securities, which
are, in general, debt obligations or preferred stocks 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 the opportunity, through its conversion feature, to participate in
the capital appreciation resulting from a market price advance in its underlying
common stock. As with a straight fixed-income security, a convertible security
tends to increase in market value when interest rates decline and decrease in
value when interest rates rise. Like a common stock, the value of a convertible
security 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 its value can be influenced by both interest rate and market movements,
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. When issued by an operating company, a convertible security
tends to be senior to common stock, but subordinate to other types of
fixed-income securities issued by that company. When an operating company-issued
convertible stock is "converted," the operating company often issues new stock
to the holder of the convertible security, but, if the parity price of the
convertible security is less than the call price, the operating company may pay
out cash instead. If the convertible security is issued by an investment bank,
the securities are obligations of and are convertible through the issuing
investment banks.
The issuer of a convertible security may be important in determining the
security's true value. This is because the holder of a convertible security will
have recourse only to the issuer. In addition, a convertible security may be
subject to redemption by the issuer, but only after a specified date and under
circumstances established at the time the security is issued.
While the Fund uses the same criteria to rate a convertible debt security that
it uses to rate more a conventional debt security, 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
all debt obligations in the event of insolvency, and an issuer's failure to make
a dividend payment is generally not an event of default entitling the 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, a preferred stock's dividends are
dividends, rather than interest payments, and are treated as such for corporate
tax purposes.
ENHANCED CONVERTIBLES. The Fund may also invest in convertible preferred stocks
that offer enhanced yield features, such as Preferred Equity Redemption
Cumulative Stock ("PERCS"), which provide an investor such as the Fund with the
opportunity to earn higher dividend income than is available from a company's
common stock. A PERCS is a preferred stock which generally features a mandatory
conversion date, as well as a capital appreciation limit which is usually
expressed in terms of a stated price. Most PERCS expire three years from the
date of issue, at which time they are convertible into common stock of the
issuer (PERCS are generally not convertible into cash at maturity). Under a
typical arrangement, if after three years the issuer's common stock is trading
at a price below that set by the capital appreciation limit, each PERCS would
convert to one share of common stock. If, however, the issuer's common stock is
trading at a price above that set by the capital appreciation limit, the holder
of the PERCS would receive less than one full share of common stock. The amount
of that fractional share of common stock received by the PERCS holder is
determined by dividing the price set by the capital appreciation limit of the
PERCS by the market price of the issuer's common stock. PERCS can be called at
any time prior to maturity, and hence do not provide call protection. However,
if a PERCS is called early, the issuer must pay a call premium over the market
price to the investor. This call premium declines at a preset rate daily, up to
the maturity date of the PERCS.
The Fund may also invest in other enhanced convertible securities. These include
but are not limited to ACES (Automatically Convertible Equity Securities), PEPS
(Participating Equity Preferred Stock), PRIDES (Preferred Redeemable Increased
Dividend Equity Securities), SAILS (Stock Appreciation Income Linked
Securities), TECONS (Term Convertible Notes), QICS (Quarterly Income Cumulative
Securities), and DECS (Dividend Enhanced Convertible Securities). ACES, PEPS,
PRIDES, SAILS, TECONS, QICS, and DECS all have the following features: they are
issued by the company, the common stock of which will be received in the event
the convertible preferred stock is converted; unlike PERCS they do not have a
capital appreciation limit; they seek to provide the investor with high current
income with some prospect of future capital appreciation; they are typically
issued with three to four-year maturities; they typically have some built-in
call protection for the first two to three years; investors have the right to
convert them into shares of common stock at a preset conversion ratio or hold
them until maturity; and upon maturity they will automatically convert to either
cash or a specified number of shares of common stock.
Similarly, there may be enhanced convertible debt obligations issued by the
operating company whose common stock is to be acquired in the event the security
is converted or by a different issuer, such as an investment bank. These
securities may be identified by names such as ELKS (Equity Linked Securities) or
similar names. Typically they share most of the salient characteristics of
enhanced convertible preferred stocks but will be ranked as senior or
subordinated debt in the issuer's corporate structure, according to the terms of
the debt indenture. There may be additional types of convertible securities not
specifically referred to herein which may be similar to those described above in
which the Fund may invest, consistent with its objectives and policies. For more
information, see "What Are the Fund's Potential Risks? - Enhanced Convertibles"
below.
SYNTHETIC CONVERTIBLES. The Fund may also invest a portion of its assets in
synthetic convertible securities. A synthetic convertible is created by
combining distinct securities which together possess the two principle
characteristics of a true convertible security: fixed income and the right to
acquire the underlying equity security. This combination is achieved by
investing in nonconvertible fixed-income securities and in warrants or stock or
stock index call options which grant the holder the right to purchase a
specified quantity of securities within a specified period of time at a
specified price or, in the case of stock index options, the right to receive
cash. Synthetic convertible securities are not generally considered to be
"equity securities" for purposes of the Fund's investment policy.
Synthetic convertible securities differ from true convertible securities in
several respects. The value of a synthetic convertible is the sum of the values
of its fixed-income component and its convertibility component. Thus, the values
of a synthetic convertible and a true convertible security will respond
differently to market fluctuations. Further, although the investment manager
expects normally to create synthetic convertibles whose two components represent
one issuer, the character of a synthetic convertible allows the Fund to combine
components representing distinct issuers, or to combine a fixed income security
with a call option on a stock index, when the investment manager determine that
such a combination would better promote the Fund's investment objectives. In
addition, the component parts of a synthetic convertible security may be
purchased simultaneously or separately, and the holder of a synthetic
convertible faces the risk that the price of the stock, or the level of the
market index underlying the convertibility component will decline.
STRUCTURED NOTES. Structured notes entitle their holders to receive some portion
of the principal or interest payments which would be due on traditional debt
obligations. A zero coupon bond, which is the right to receive only the
principal portion of a debt security, is a simple form of structured note. A
structured note's performance or value may be linked to a change in return,
interest rate, or value at maturity of the change in an identified or "linked"
equity security, currency, interest rate, index or other financial indicator
("reference index"). The holder's right to receive principal or interest
payments on a structured note may also vary in timing or amount, depending upon
changes in certain rates of interest or other external events.
LOAN PARTICIPATIONS. Through a loan participation, an investor such as the Fund
can purchase from a lender a portion of a larger loan which it has made to a
borrower. By purchasing loan participations, the Fund may be able to acquire an
interests in loans from financially strong borrowers that the Fund could not
otherwise acquire. These instruments are typically interests in floating or
variable rate senior loans to U.S. corporations, partnerships, and other
entities. Generally, loan participations are sold without guarantee or recourse
to the lending institution and are subject to the credit risks of both the
borrower and the lending institution. While loan participations generally trade
at par value, if the borrowers have credit problems, some may sell at discounts.
To the extent the borrower's credit problems are resolved, the loan
participations may then appreciate in value. Such loan participations, however,
carry substantially the same risk as that for defaulted debt obligations and may
cause loss of the entire investment. Most loan participations are illiquid and,
as such, will be included in a fund's percentage limitation for illiquid
securities.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. Mortgage-backed securities,
including collateralized mortgage obligations, represent direct or indirect
participation in, or are collateralized by and payable from, mortgage loans
secured by real property. Asset-backed securities represent participation in, or
are secured by and payable from, assets such as motor vehicle installment sale
contracts, installment loan contracts, leases of various types of real and
personal property, receivables from revolving credit (credit card) agreements
and other categories of receivables. Such securities are generally issued by
trusts and special purpose corporations. Please see "What Are the Fund's
Potential Risks -- Mortgage-Backed and Asset-Backed Securities" below for more
information.
TRADE CLAIMS. The Fund may invest in trade claims, which are purchased from
creditors of companies in financial difficulty who seek to reduce the number of
debt obligations they are owed. At the present time, however, the Fund intends
to limit such investments to no more than 5% of the Fund's net assets at the
time of purchase. See "How Does the Fund Invest Its Assets? - Trade Claims" in
the SAI for more information.
SMALL COMPANIES. The Fund may invest in companies which have relatively small
revenues, limited product lines, and a small share of the market for their
products or services. Small companies may lack depth of management, they may be
unable to internally generate funds necessary for growth or potential
development or to generate such funds through external financing on favorable
terms, and they may be developing or marketing new products or services for
which markets are not yet established and may never become established. Due to
these and other factors, small companies may suffer significant losses, as well
as realize substantial growth. See "What Are the Fund's Potential Risks? - Small
Companies" below for more information.
LOWER-RATED SECURITIES. The Fund may invest up to 35% of its net assets at the
time of purchase in lower-rated, fixed-income and convertible securities (those
rated BB or lower by S&P or Ba or lower by Moody's) and unrated securities of
comparable quality, commonly called "junk bonds," which the investment manager
believes possess intrinsic values in excess of the current market prices of such
securities. Lower-rated securities are considered by S&P, on balance, to be
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation, and they
generally involve more credit risk than securities in the higher rating
categories. Lower rated securities in which the Fund may invest include
securities rated D, the lowest rating category of S&P, or unrated securities of
comparable quality. Debt obligations rated D are in default and the payment of
interest and/or repayment of principal is in arrears. See "What Are the Fund's
Potential Risks? - Lower-Rated Securities" below for more information about
these securities.
The Fund may also invest in zero coupon/deferred-interest securities and
pay-in-kind bonds. See these topics under "What Are the Fund's Potential Risks?"
below for more information.
OTHER INVESTMENT POLICIES OF FUND
LOANS OF PORTFOLIO SECURITIES. Consistent with procedures approved by the Board
and subject to the following conditions, the Fund may lend its portfolio
securities to qualified securities dealers or other institutional investors,
provided that such loans do not exceed 25% of the value of the Fund's total
assets at the time of the most recent loan. The borrower must deposit with the
Fund's custodian collateral with an initial market value of at least 102% of the
initial market value of the securities loaned, including any accrued interest,
with the value of the collateral and loaned securities marked-to-market daily to
maintain collateral coverage of at least 100%. Such collateral shall consist of
cash, securities issued by the U.S. Government, its agencies or
instrumentalities, or irrevocable letters of credit. The lending of securities
is a common practice in the securities industry. The Fund may engage in security
loan arrangements with the primary objective of increasing the Fund's income
either through investing the cash collateral in short-term interest-bearing
obligations or by receiving a loan premium from the borrower. Under the
securities loan agreement, the Fund continues to be entitled to all dividends or
interest on any loaned securities. As with any extension of credit, there are
risks of delay in recovery and loss of rights in the collateral should the
borrower of the security fail financially.
REPURCHASE AGREEMENTS. The Fund may engage in repurchase transactions, in which
the Fund purchases a U.S. government security subject to resale to a bank or
dealer at an agreed-upon price and date. The transaction requires the
collateralization of the seller's obligation by the transfer of securities with
an initial market value, including accrued interest, equal to at least 102% of
the dollar amount invested by the Fund in each agreement, with the value of the
underlying security marked-to-market daily to maintain coverage of at least
100%. A default by the seller might cause the Fund to experience a loss or delay
in the liquidation of the collateral securing the repurchase agreement. The Fund
might also incur disposition costs in liquidating the collateral. The Fund,
however, intends to enter into repurchase agreements only with financial
institutions such as broker-dealers and banks which are deemed creditworthy by
the Fund's investment manager. A repurchase agreement is deemed to be a loan by
the Fund under the 1940 Act. The U.S. government security subject to resale (the
collateral) will be held on behalf of the Fund by a custodian approved by the
Fund's Board and will be held pursuant to a written agreement.
REVERSE REPURCHASE AGREEMENTS. The Fund may also enter into reverse repurchase
agreements. In a reverse repurchase agreement, the Fund sells securities and
agrees to repurchase them at a mutually agreed upon price and date. At the time
the Fund enters into a reverse repurchase agreement, it will establish and
maintain a segregated account with an approved custodian containing liquid high
grade securities having a value not less than the repurchase price (including
accrued interest).Reverse repurchase agreements involve the risk that the market
value of the securities retained in lieu of sale by the Fund may decline below
the price of the securities the Fund has sold but is obligated to repurchase.
Another risk is that, in the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, such buyer or
its trustee or receiver may receive an extension of time to determine whether to
enforce the Fund's obligation to repurchase the securities and the Fund's use of
the proceeds of the reverse repurchase agreement may be effectively restricted
pending such a decision. Reverse repurchase agreements can create leverage, a
speculative factor, and will be considered as borrowings for purposes of the
Fund's limitation on borrowings.
BORROWING. As a matter of fundamental policy, the Fund does not borrow money or
mortgage or pledge any of its assets, except that it may borrow up to 15% of its
total assets (including the amount borrowed) in order to meet redemption
requests that might otherwise require the untimely disposition of portfolio
securities or for other temporary or emergency purposes and may pledge its
assets in connection therewith. The Fund will not make any additional
investments while any borrowings exceed 5% of its total assets. See "Investment
Restrictions" in the SAI for more information.
SPREAD AND STRADDLE TRANSACTIONS. The Fund may engage in "spread" transactions,
in which the Fund purchases and writes a put or call option on the same
underlying security with the options having different exercise prices and/or
expiration dates. All options written by the Fund will be covered. The Fund may
also engage in so-called "straddles," in which the Fund may purchase or write
combinations of put and call options on the same security. When the Fund engages
in spread and straddle transactions, it seeks to profit from differentials in
the option premiums paid and received and in the market prices of the related
options positions when they are closed out or sold. Because these transactions
require the Fund to buy and/or write more than one option simultaneously, the
Fund's ability to enter into such transactions and to liquidate its positions
when necessary or deemed advisable may be more limited than if the Fund was to
purchase or sell a single option. Similarly, costs incurred by the Fund in
connection with these transactions will in many cases be greater than if the
Fund was to purchase or sell a single option.
SHORT-SELLING. The Fund may make short sales, which are transactions in which
the Fund sells a security it does not own in anticipation of a decline in the
market value of that security. The security sold must be listed on a national
exchange. To complete the transaction, the Fund must borrow the security to make
delivery to the buyer. The Fund is then obligated to replace the security
borrowed by purchasing it at the market price at the time of replacement. Until
the security is replaced, the Fund must pay the lender any dividends or interest
which accrue during the period of the loan. To borrow the security, the Fund may
also be required to pay a premium, which would increase the cost of the security
sold. The proceeds of the short sale will be retained by the broker, to the
extent necessary to meet margin requirements, until the short position is closed
out.
The Fund will incur a loss as a result of the short sale if the price of the
security increases between the date of the short sale and the date on which the
Fund replaces the borrowed security, and the Fund will realize a gain if the
security declines in price between those same dates. The amount of any gain will
be decreased, and the amount of any loss increased, by the amount of any
premium, dividends or interest the Fund is required to pay in connection with
the short sale.
In addition to the short sales discussed above, the Fund may also make short
sales "against the box," which occurs when a security identical to one owned by
the Fund is borrowed and sold short. The Fund at no time will have more than 15%
of the value of its net assets in deposits on short sales against the box.
No securities will be sold short if, after the sale, the total market value of
all the Fund's open short positions, including short sales against the box,
would exceed 25% of the value of the Fund's net assets. In addition, short sales
of the securities of any one issuer may not exceed the lesser of 2% of the
Fund's net assets or 2% of the securities of any class of the issuer.
The Fund will place in a segregated account with its custodian bank an amount of
cash or U.S. government securities equal to the difference between (a) the
market value of the securities sold short at the time they were sold short and
(b) any cash or U.S. government securities required to be deposited as
collateral with the broker in connection with the short sale (not including the
proceeds from the short sale). The segregated account will be marked-to-market
daily and at no time will the amount deposited in the segregated account and
with the broker as collateral be less than the market value of the securities at
the time they were sold short.
ILLIQUID INVESTMENTS. It is the policy of the Fund that illiquid securities
(securities that cannot be disposed of within seven days in the normal course of
business at approximately the amount at which the Fund has valued the
securities) may not constitute, at the time of purchase, more than 10% of the
value of the total net assets of the Fund.
PORTFOLIO TURNOVER. The Fund anticipates that its annual portfolio turnover rate
generally will not exceed 100%, but this rate should not be construed as a
limiting factor in the operation of the Fund's portfolio. High turnover may
result in higher transaction costs and the recognition of capital gains.
ADDITIONAL CONSIDERATIONS. The Fund is subject to a number of additional
investment restrictions, some of which may be changed only with the approval of
shareholders, which limit its activities to some extent. For a list of these
restrictions and more information concerning the policies discussed herein,
please see "Investment Restrictions" in the SAI.
Any of the Fund's fundamental policies may be changed only by the affirmative
vote of a majority of the Fund's outstanding shares.
The Fund's investment in options, futures and forward contracts, options on
futures, forward contracts and stock indices, foreign currencies and securities,
synthetic and enhanced convertible securities, structured notes, zero
coupon/deferred interest securities and pay-in-kind bonds, and its participation
in spread and straddle transactions, and actual or deemed short sales, may be
limited by the requirements of the Internal Revenue Code of 1986, as amended
(the "Code"), for qualification as a regulated investment company. The Fund's
investment in these securities or participation in these transactions may also
trigger the application of complex tax rules that may affect the amount, timing
and character of distributions to shareholders. For more information, please see
"Additional Information Regarding Taxation" in the SAI.
HOW YOU PARTICIPATE IN THE RESULTS OF THE FUND'S ACTIVITIES
The assets of the Fund are invested in portfolio securities. If the securities
owned by the Fund increase in value, the value of the shares of the Fund which
you own will increase. If the securities owned by the Fund decrease in value,
the value of your shares will also decline. In this way, you participate in any
change in the value of the securities owned by the Fund.
In addition to the factors which affect the value of individual securities, as
described in the preceding sections, you may anticipate that the value of Fund
shares will fluctuate with movements in the broader equity and bond markets.
To the extent the Fund's investments consist of debt securities, changes in
interest rates will affect the value of the Fund's portfolio and thus its share
price. Increased rates of interest which frequently accompany higher inflation
and/or a growing economy are likely to have a negative effect on the value of
Fund shares. To the extent the Fund's investments consist of common stocks, a
decline in the market, expressed for example by a drop in the Dow Jones
Industrials or the Standard & Poor's 500 average or any other equity-based
index, may also be reflected in declines in the Fund's share price. History
reflects both increases and decreases in the prevailing rate of interest and in
the valuation of the market, and these may reoccur unpredictably in the future.
WHAT ARE THE FUND'S POTENTIAL RISKS?
NON-DIVERSIFICATION. The Fund is non-diversified under the federal securities
laws. As a non-diversified Fund, there is no restriction under the 1940 Act on
the percentage of the Fund's assets that may be invested in the securities of
any one issuer. The Fund, however, intends to comply with the diversification
and other requirements of the Code applicable to regulated investment companies,
such as the Fund, so that it will not be subject to U.S. federal income tax on
income and capital gain distributions to shareholders. Accordingly, the Fund
will not purchase securities if, as a result, as of the last day of any fiscal
quarter, (i) more than 25% of its total assets would be invested in the
securities of a single issuer, or (ii) with respect to 50% of its total assets,
more than 5% of such assets would be invested in the securities of a single
issuer, or the Fund would own more than 10% of the outstanding voting securities
of any one issuer. These limitations do not apply to investments in securities
issued or guaranteed by the U.S. government, its agencies or instrumentalities.
To the extent the Fund is not fully diversified, it may be more susceptible to
adverse economic, political or regulatory developments affecting a single issuer
than if it were more fully diversified.
FOREIGN SECURITIES. Investments in the securities of companies organized outside
the U.S. or whose securities are principally traded outside the U.S. ("foreign
issuers") may offer potential benefits not available from investments solely in
securities of U.S. issuers. Such benefits may include the opportunity to invest
in foreign issuers that appear, in the opinion of the investment manager, to
offer more potential for long-term capital appreciation or current earnings than
investments in U.S. issuers, the opportunity to invest in foreign countries with
economic policies or business cycles different from those of the U.S., and the
opportunity to reduce fluctuations in portfolio value by taking advantage of
foreign securities markets that do not necessarily move in a manner parallel to
U.S. markets.
Investments in securities of foreign issuers involve significant risks,
including possible losses that are not typically associated with investments in
securities of U.S. issuers. These risks include political, social or economic
instability in the country of the issuer, the difficulty of predicting
international trade patterns, the possibility of the imposition of exchange
controls, expropriation, limits on removal of currency or other assets,
nationalization of assets, foreign withholding and income taxation and foreign
trading practices (including higher trading commissions, custodial charges and
delayed settlements). Changes in government administrations and economic or
monetary policies in the U.S. or abroad, changes in circumstances surrounding
dealings between nations, and changes in currency convertibility or exchange
rates could also result in investment losses for the Fund. Other risks include
the possibility that public information may not be as readily available for a
foreign company as it is for a U.S.-domiciled company, that foreign companies
are generally not subject to uniform accounting, auditing and financial
reporting standards comparable to those applicable to U.S. companies, and that
there is usually less government regulation of securities exchanges, brokers and
listed companies. Confiscatory taxation or diplomatic developments could also
affect these investments.
Investments 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 laws limiting the amount and type of foreign investments.
The Fund may purchase securities in any foreign country, developed or
developing, but investments will not be made in any securities issued without
stock certificates or comparable stock documents.
Foreign securities may be subject to greater fluctuations in price than U.S.
securities. The markets on which such securities trade may also have less volume
and liquidity. Securities acquired by the Fund outside the U.S. and which are
publicly traded in the U.S. or on a foreign securities exchange or in a foreign
securities market will not be considered illiquid so long as the Fund acquires
and holds the security with the intention of reselling the security in the
foreign trading market, the Fund reasonably believes it can readily dispose of
the security for cash in the U.S. or foreign market, and current market
quotations are readily available.
You should carefully consider the substantial risks involved in investing in
securities of foreign issuers - risks that are often heightened for investments
in developing markets. For example, the small size, inexperience and limited
volume of trading on securities markets in certain developing countries may make
the Fund's investments in developing countries illiquid and more volatile than
investments in more developed countries, and the Fund may be required to
establish special custody or other arrangements before making certain
investments in such countries. The laws of some foreign countries may also limit
the ability of the Fund to invest in securities of certain issuers located in
those countries.
OPTIONS. The purchase and sale of stock options and stock index options,
including the writing of covered call options, involve risks different from
those involved with direct investments in securities. A liquid secondary market
for any particular option may not be available when a position is sought to be
closed and the inability to close a position may have an adverse impact on the
Fund's ability to effectively hedge securities. In addition, there may be an
imperfect correlation between movements in the securities on which an option
contract is based and movements in the securities in the Fund's portfolio.
Successful use of option contracts is further dependent on the investment
manager's ability to correctly predict movements in the securities markets, but
no assurance can be given that the manager's judgment will be correct. By
writing covered call options, the Fund gives up the opportunity to profit from
any price increase in the underlying security above the option exercise price
while the option is in effect. For more information on the potential risks of
the Fund, please see "How Does the Fund Invest Its Assets?" in the SAI.
ENHANCED CONVERTIBLES. An investment in enhanced convertible securities or any
other securities may involve additional risks to the Fund. The Fund may have
difficulty disposing of such securities because there may be a thin trading
market for a particular security at any given time. Reduced liquidity may have
an adverse impact on market price and the Fund's ability to dispose of
particular securities, when necessary, to meet the Fund's liquidity needs or in
response to a specific economic event, such as the deterioration in the
creditworthiness of an issuer. Reduced liquidity in the secondary market for
certain securities may also make it more difficult for the Fund to obtain market
quotations based on actual trades for purposes of valuing the Fund's portfolio.
The Fund, however, intends to acquire liquid securities, though there can be no
assurances that this will be achieved.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. Mortgage-backed and asset-backed
securities are often subject to more rapid repayment than their stated maturity
dates would indicate because of the pass-through of prepayments of principal on
the underlying loans. During periods of declining interest rates, prepayment of
loans underlying mortgage-backed and asset-backed securities can be expected to
accelerate, and thus impair the Fund's ability to reinvest the returns of
principal at comparable yields. Accordingly, the market values of such
securities will vary with changes in market interest rates generally and in
yield differentials among various kinds of U.S. Government Securities and other
mortgage-backed and asset-backed securities. Asset-backed securities present
certain additional risks that are not presented by mortgage-backed securities
because asset-backed securities generally do not have the benefit of a security
interest in collateral that is comparable to mortgage assets. There is the
possibility that, in some cases, recoveries on repossessed collateral may not be
available to support payments on these securities.
SMALL COMPANIES. Historically, the small capitalization stocks have been more
volatile in price than the larger capitalization stocks. Among the reasons for
the greater price volatility of these securities are the less certain growth
prospects of smaller firms, the lower degree of liquidity in the markets for
such stocks, and the greater sensitivity of small companies to changing economic
conditions. Besides exhibiting greater volatility, small company stocks may, to
a degree, fluctuate independently of larger company stocks. Small company stocks
may decline in price as large company stocks rise, or rise in price as large
company stocks decline. Investors should therefore expect that the value of a
Fund's shares which invests a substantial portion of its net assets in small
company stocks may be more volatile than the shares of a fund that invests
solely in larger capitalization stocks.
LOWER-RATED SECURITIES. Because of the Fund's policy of investing in
higher-yielding, higher risk securities, an investment in the Fund is
accompanied by a higher degree of risk than is present with an investment in
higher-rated, lower-yielding securities. Accordingly, an investment in the Fund
should not be considered a complete investment program and should be carefully
evaluated for its appropriateness in light of your overall investment needs and
goals. If you are on a fixed income or retired, you should also consider the
increased risk of loss to principal which is present with an investment in
higher risk securities such as those in which the Fund invests.
The market value of lower-rated, fixed-income securities and unrated securities
of comparable quality, commonly known as "junk bonds," tend to reflect
individual developments affecting the issuer to a greater extent than do higher
rated securities, which react primarily to fluctuations in the general level of
interest rates. Lower-rated securities also tend to be more sensitive to
economic conditions than higher rated securities. These lower-rated fixed-income
securities are considered by the rating agencies, on balance, to be
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation and will
generally involve more credit risk than securities in the higher rating
categories. Even bonds rated BBB by S&P or Baa by Moody's, ratings which are
considered investment grade, possess some speculative characteristics.
Issuers of high-yielding, fixed-income securities are often highly leveraged and
may not have more traditional methods of financing available to them. Therefore,
the risk associated with acquiring the securities of such issuers is generally
greater than is the case with higher rated securities. For example, during an
economic downturn or a sustained period of rising interest rates, highly
leveraged issuers of high-yielding securities may experience financial stress.
During these periods, such issuers may not have sufficient cash flow to meet
their interest payment obligations. The issuer's ability to service its debt
obligations may also be adversely affected by specific developments affecting
the issuer, the issuer's inability to meet specific projected business
forecasts, or the unavailability of additional financing. The risk of loss due
to default by the issuer may be significantly greater for the holders of
high-yielding securities because such securities are generally unsecured and are
often subordinated to other creditors of the issuer. Current prices for
defaulted bonds are generally significantly lower than their purchase price, and
the Fund may have unrealized losses on such defaulted securities which are
reflected in the price of the Fund's shares. In general, securities which
default lose much of their value in the time period prior to the actual default
so that the Fund's net assets are impacted prior to the default. The Fund may
retain an issue which has defaulted because such issue may present an
opportunity for subsequent price recovery.
High-yielding, fixed-income securities frequently have call or buy-back features
which permit an issuer to call or repurchase the securities from the Fund.
Although such securities are typically not callable for a period from three to
five years after their issuance, when calls are exercised by the issuer during
periods of declining interest rates, the investment manager may find it
necessary to replace such securities with lower-yielding securities, which could
result in less net investment income to the fund. The premature disposition of a
high -yielding security due to a call or buy-back feature, the deterioration of
the issuer's creditworthiness, or a default may also make it more difficult for
the Fund to manage the timing of its receipt of income, which may have tax
implications. The Fund may be required under the Code and U.S. Treasury
regulations to accrue income for income tax purposes on defaulted obligations
and to distribute such income to the Fund's shareholders even though the Fund is
not currently receiving interest or principal payments on such obligations. In
order to generate cash to satisfy any or all of these distribution requirements,
the Fund may be required to dispose of portfolio securities that it otherwise
would have continued to hold or to use cash flows from other sources such as the
sale of Fund shares.
The Fund may have difficulty disposing of certain high-yielding securities
because there may be a thin trading market for a particular security at any
given time. The market for lower-rated, fixed-income securities generally tends
to be concentrated among a smaller number of dealers than is the case for
securities which trade in a broader secondary retail market. Generally,
purchasers of these securities are predominantly dealers and other institutional
buyers, rather than individuals. To the extent the secondary trading market for
a particular high-yielding, fixed-income security does exist, it is generally
not as liquid as the secondary market for higher-rated securities. Reduced
liquidity in the secondary market may have an adverse impact on market price and
the Fund's ability to dispose of particular issues, when necessary, to meet the
Fund's liquidity needs or in response to a specific economic event, such as the
deterioration in the creditworthiness of the issuer. Reduced liquidity in the
secondary market for certain securities may also make it more difficult for the
Fund to obtain market quotations based on actual trades for purposes of valuing
the Fund's portfolio. Current values for these high yield issues are obtained
from pricing services and/or a limited number of dealers and may be based upon
factors other than actual sales. (See "How Are Fund Shares Valued?" in this
Prospectus and in the SAI.)
The Fund is authorized to acquire high-yielding, fixed-income securities that
are sold without registration under the federal securities laws and therefore
carry restrictions on resale. While many recent high-yielding securities have
been sold with registration rights, covenants and penalty provisions for delayed
registration, if the Fund is required to sell such restricted securities before
the securities have been registered, it may be deemed an underwriter of such
securities as defined in the Securities Act of 1933, which entails special
responsibilities and liabilities. The Fund may incur special costs in disposing
of such securities; however, the Fund will generally incur no costs when the
issuer is responsible for registering the securities.
The Fund may acquire high-yielding, fixed-income securities during an initial
underwriting. Such securities involve special risks because they are new issues.
The Fund has no arrangement with its underwriters or any other person concerning
the acquisition of such securities, and the investment manager will carefully
review the credit and other characteristics pertinent to such new issues.
The high yield securities market is relatively new and much of its growth prior
to 1990 paralleled a long economic expansion. The recent recession disrupted the
market for high yielding securities and adversely affected the value of
outstanding securities and the ability of issuers of such securities to meet
their obligations. Those adverse effects may continue even as the economy
recovers. Factors adversely impacting the market value of high yielding
securities will adversely impact the Fund's net asset value. For example, the
highly publicized defaults of some high yield issuers in 1989 and 1990 and
concerns regarding a sluggish economy which continued in 1993, depressed the
prices for many such securities. However, while market prices may be temporarily
depressed due to these factors, the ultimate security price will generally
reflect the true operating results of the corporation. The Fund will rely on the
investment manager's judgment, analysis and experience in evaluating the
creditworthiness of an issuer. In this evaluation, the investment manager will
take 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.
ZERO COUPON/DEFERRED-INTEREST SECURITIES. Zero coupon or deferred-interest
securities are debt obligations which do not entitle the holder to any periodic
payments of interest prior to maturity or a specified date when the securities
begin paying current interest (the "cash payment date") and therefore are
generally issued and traded at a discount from their face amounts or par value.
The discount varies depending on the time remaining until maturity or cash
payment date, prevailing interest rates, liquidity of the security and the
perceived credit quality of the issuer. The discount, in the absence of
financial difficulties of the issuer, typically decreases as the final maturity
or cash payment date of the security approaches. The market prices of zero
coupon securities are generally more volatile than the market prices of
securities that pay interest periodically and are likely to respond to changes
in interest rates to a greater degree than do non-zero coupon or deferred
interest securities having similar maturities and credit quality. Current
federal income tax law requires that a holder of a zero coupon security report
as income each year the portion of the original issue discount on such security
that accrues that year, even though the holder receives no cash payments of
interest during the year.
PAY-IN-KIND BONDS. Pay-in-kind bonds are securities which pay interest through
the issuance of additional bonds. The Fund will be deemed to receive interest
over the life of such bonds and be taxed as if interest were paid on a current
basis, although no cash interest payments are received by the Fund until the
cash payment date or until the bonds mature. Current federal income tax law
requires that companies such as the Fund, which seek to qualify for pass-through
federal income tax treatment as regulated investment companies, distribute at
least 90% of their investment company taxable income each year, including
tax-exempt and non-cash income. The Fund is not limited in the amount of its
assets that may be invested in such securities. Accordingly, during periods when
the Fund receives no cash interest payments on its zero coupon securities or
deferred-interest or pay-in-kind bonds, it will be required, in order to
maintain its desired tax treatment, to distribute cash approximating the income
attributable to such securities. Such distribution may require the sale of
portfolio securities to meet the distribution requirements and such sales may be
subject to the risk factors discussed above. Further information is included
under "How Taxation Affects You and the Fund."
The credit risk factors pertaining to lower rated securities also apply to
lower-rated zero coupon, deferred-interest and pay-in-kind bonds. Such bonds
carry an additional risk in that, unlike bonds which pay interest throughout the
period to maturity, the Fund will realize no cash until the cash payment date
and, if the issuer defaults, the Fund may obtain no return at all on its
investment. Zero coupon, deferred-interest and pay-in-kind bonds involve
additional special considerations.
WHO MANAGES THE FUND?
The Board has the primary responsibility for the overall management of the Fund
and for electing the officers of the Fund who are responsible for administering
its day-to-day operations.
Franklin Advisers, Inc. ("Advisers" or "Manager"), serves as the Fund's
investment manager. Advisers is a wholly-owned subsidiary of Franklin Resources,
Inc. ("Resources"), a publicly owned holding company, the principal shareholders
of which are Charles B. Johnson and Rupert H. Johnson, Jr., who own
approximately 20% and 16%, respectively, of Resources' outstanding shares.
Resources is engaged in various aspects of the financial services industry
through its subsidiaries (the "Franklin Templeton Group"). Advisers acts as
investment manager or administrator to 34 U.S. registered investment companies
(117 separate series) with aggregate assets of over $78 billion.
The team responsible for the day-to-day management of the Fund's portfolio since
its inception is:
William Lippman
Portfolio Manager of Advisers
Mr. Lippman holds a bachelor of business administration degree from City College
New York and a master's degree in business administration from the Graduate
School of Business Administration of New York University. He has been with
Advisers since 1988.
Margaret McGee
Portfolio Manager of Advisers
Ms. McGee holds a bachelor of arts degree from William Paterson College. She has
been with Advisers since 1988.
Bruce C. Baughman
Portfolio Manager of Advisers
Mr. Baughman holds a bachelor of arts degree from Stanford University and a
master of science degree in accounting from New York University. He has been
with Advisers since 1988.
Pursuant to a management agreement, the Manager supervises and implements the
Fund's investment activities and provides certain administrative services and
facilities which are necessary to conduct the Fund's business. The Manager
performs similar services for other funds and there may be times when the
actions taken with respect to the Fund's portfolio will differ from those taken
by the Manager on behalf of other funds. Neither the Manager (including its
affiliates) nor its officers, directors or employees nor the officers and
trustees of the Fund are prohibited from investing in securities held by the
Fund or other funds which are managed or administered by the Manager to the
extent such transactions comply with the Fund's Code of Ethics. Please see
"Investment Advisory and Other Services" and "General Information" in the SAI
for further information on securities transactions and a summary of the Fund's
Code of Ethics.
The Fund is responsible for its own operating expenses including, but not
limited to, the Manager's fee; taxes, if any; custodian, legal and auditing
fees; fees and expenses of trustees who are not members of, affiliated with, or
interested persons of the Manager; salaries of any personnel not affiliated with
the Manager; insurance premiums; trade association dues; expenses of obtaining
quotations for calculating the value of the Fund's net assets; and printing and
other expenses which are not expressly assumed by the Manager.
Under the management agreement dated March 6, 1995, the Fund is obligated to pay
the Manager a fee computed daily at the following annual rates: 0.75% per year
on the first $500 million of the average daily net assets of the Fund, 0.625%
per year on the next $500 million of the average daily net assets of the Fund,
and 0.50% per year on the average daily net assets of the Fund in excess of $1
billion. The management fee charged to the Fund is higher than that charged to
most mutual funds.
During the start-up period of the Fund, Advisers has agreed in advance to waive
a portion of its management fees so that the Fund's aggregate annual operating
expenses do not exceed 1.35% of the Fund's average net assets for the current
fiscal year. After October 31, 1996, the investment manager may terminate this
arrangement at any time.
The management agreement specifies that the management fee will be reduced to
the extent necessary to comply with the most stringent limits on the expenses
which may be borne by the Fund as prescribed by any state in which the Fund's
shares are offered for sale. Currently, the most restrictive of such provisions
limits a fund's allowable expenses as a percentage of its average net assets for
each fiscal year to 2.5% of the first $30 million in assets, 2% of the next $70
million, and 1.5% of assets in excess of $100 million.
Among the responsibilities of the Manager under the management agreement is the
selection of brokers and dealers through whom transactions in the Fund's
portfolio securities will be effected. The Manager would try to obtain the best
execution on all such transactions. If it is felt that more than one broker
would be able to provide the best execution, the Manager will consider the
furnishing of quotations and of other market services, research, statistical and
other data for the Manager and its affiliates, as well as the sale of shares of
the Fund, as factors in selecting a broker. Further information is included
under "How Does the Fund Purchase Securities For Its Portfolio?" in the SAI.
Shareholder accounting and many of the clerical functions for the Fund are
performed by Franklin/Templeton Investor Services, Inc. ("Investor Services" or
"Shareholder Services Agent"), in its capacity as transfer agent and
dividend-paying agent. Investor Services is a wholly-owned subsidiary of
Resources.
PLAN OF DISTRIBUTION
A plan of distribution has been approved and adopted for the Fund (the "Plan")
pursuant to Rule 12b-1 under the 1940 Act. Under the Plan, the Fund may
reimburse Distributors or others for all expenses incurred by Distributors or
others in the promotion and distribution of the Fund's shares. Such expenses may
include, but are not limited to, the printing of prospectuses and reports used
for sales purposes, expenses of preparing and distributing sales literature and
related expenses, advertisements, and other distribution-related expenses,
including a prorated portion of Distributors' overhead expenses attributable to
the distribution of Fund shares, as well as any distribution or service fees
paid to securities dealers or their firms or others who have executed a
servicing agreement with the Fund, Distributors or its affiliates.
The Fund may reimburse to Distributors or others up to 0.25% per annum of its
average daily net assets, payable on a quarterly basis, for such distribution
expenses. The Fund is also permitted to pay Distributors up to an additional
0.10% per annum of its daily net assets for reimbursement of distribution
expenses. All expenses of distribution in excess of 0.35% per annum will be
borne by Distributors, or others who have incurred them, without reimbursement
from the Fund.
The Plan also covers any payments to or by the Fund, Advisers, Distributors, or
other parties on behalf of the Fund, Advisers or Distributors, to the extent
such payments are deemed to be for the financing of any activity primarily
intended to result in the sale of shares issued by the Fund within the context
of Rule 12b-1. The payments under the Plan are included in the maximum operating
expenses which may be borne by the Fund. For more information, please see "The
Fund's Underwriter" in the SAI.
WHAT DISTRIBUTIONS MIGHT I RECEIVE FROM THE FUND?
You may receive two types of distributions from the Fund:
1. INCOME DIVIDENDS. The Fund receives income generally in the form of
dividends, interest and other income derived from its investments. This income,
less the expenses incurred in the Fund's operations, is its net investment
income from which income dividends may be distributed. Thus, the amount of
dividends paid per share may vary with each distribution.
2. CAPITAL GAIN DISTRIBUTIONS. The Fund may derive capital gains or losses in
connection with sales or other dispositions of its portfolio securities.
Distributions by the Fund derived from net short-term and net long-term capital
gains (after taking into account any net capital loss carryovers) may generally
be made once a year in December to reflect any net short-term and net long-term
capital gains realized by the Fund as of October 31 of the current fiscal year
and any undistributed capital gains from the prior fiscal year. The Fund may
make more than one distribution derived from net short-term and net long-term
capital gains in any year or adjust the timing of these distributions for
operational or other reasons.
DISTRIBUTION DATE
Although subject to change by the Board, without prior notice to or approval by
shareholders, the Fund's current policy is to declare income dividends
quarterly, payable in March, June, September and December, for shareholders of
record on the first business day preceding the 15th of the month, payable on or
about the last business day of that month.
The amount of income dividend payments by the Fund is dependent upon the amount
of net income received by the Fund from its portfolio holdings, is not
guaranteed and is subject to the discretion of the Board. Fund shares are quoted
ex-dividend on the first business day following the record date (generally the
15th day of the month or prior business day depending on the record date.). THE
FUND DOES NOT PAY "INTEREST" OR GUARANTEE ANY FIXED RATE OF RETURN ON AN
INVESTMENT IN ITS SHARES.
In order to be entitled to a dividend, you must have acquired Fund shares prior
to the close of business on the record date. If you are considering purchasing
Fund shares shortly before the record date of a distribution, you should be
aware that because the value of the Fund's shares is based directly on the
amount of its net assets, rather than on the principle of supply and demand, any
distribution of income or capital gain will result in a decrease in the value of
the Fund's shares equal to the amount of the distribution. While a dividend or
capital gain distribution received shortly after purchasing shares represents,
in effect, a return of a portion of your investment, it may be taxable as
dividend income or capital gain.
DISTRIBUTION OPTIONS
You may choose to receive your distributions from the Fund in any of these ways:
1. PURCHASE ADDITIONAL SHARES OF THE FUND - You may purchase additional shares
of the Fund (without a sales charge or imposition of a contingent deferred sales
charge) by reinvesting capital gain distributions, or both dividend and capital
gain distributions. This is a convenient way to accumulate additional shares and
maintain or increase your earnings base.
2. PURCHASE SHARES OF OTHER FRANKLIN TEMPLETON FUNDS - You may direct your
distributions to purchase the same class of shares of another Franklin Templeton
Fund (without a sales charge or imposition of a contingent deferred sales
charge). Many shareholders find this a convenient way to diversify their
investments.
3. RECEIVE DISTRIBUTIONS IN CASH - You may choose to receive dividends, or both
dividend and capital gain distributions in cash. You may have the money sent
directly to you, to another person, or to a checking account. If you choose to
send the money to a checking account, please see "Electronic Fund Transfers"
under "What Programs and Privileges Are Available to Me as a Shareholder?"
TO SELECT ONE OF THESE OPTIONS, PLEASE COMPLETE SECTIONS 6 AND 7 OF THE
SHAREHOLDER APPLICATION INCLUDED WITH THIS PROSPECTUS OR TELL YOUR INVESTMENT
REPRESENTATIVE WHICH OPTION YOU PREFER. IF NO OPTION IS SELECTED, DIVIDEND AND
CAPITAL GAIN DISTRIBUTIONS WILL BE AUTOMATICALLY REINVESTED IN THE FUND. You may
change the distribution option selected at any time by notifying the Fund by
mail or by telephone. Please allow at least seven days prior to the record date
for the Fund to process the new option.
HOW TAXATION AFFECTS YOU AND THE FUND
The following discussion reflects some of the tax considerations that affect
mutual funds and their shareholders. For additional information on tax matters
relating to the Fund and its shareholders, see "Additional Information Regarding
Taxation" in the SAI.
The Fund intends to qualify and elect to be treated as a regulated investment
company under Subchapter M of the Code. By distributing all of its income and
meeting certain other requirements relating to the sources of its income and
diversification of its assets, the Fund will not be liable for federal income or
excise taxes.
For federal income tax purposes, any income dividends which the shareholder
receives from the Fund, as well as any distributions derived from the excess of
net short-term capital gain over net long-term capital loss, are treated as
ordinary income whether the shareholder has elected to receive them in cash or
in additional shares.
Distributions derived from the excess of net long-term capital gain over net
short-term capital loss are treated as long-term capital gain regardless of the
length of time the shareholder has owned Fund shares and regardless of whether
such distributions are received in cash or in additional shares.
Pursuant to the Code, certain distributions which are declared in October,
November or December but which, for operational reasons, may not be paid to the
shareholder until the following January, will be treated for tax purposes as if
paid by the Fund and received by the shareholder on December 31 of the calendar
year in which they are declared.
Redemptions and exchanges of Fund shares are taxable events on which a
shareholder may realize a gain or a loss. Any loss incurred on sale or exchange
of the Fund's shares, held for six months or less, will be treated as a
long-term capital loss to the extent of capital gain dividends received with
respect to such shares.
The Fund will inform shareholders of the source of their dividends and
distributions at the time they are paid, and will promptly after the close of
each calendar year advise them of the tax status for federal income tax purposes
of such dividends and distributions.
Shareholders who are not U.S. persons for purposes of federal income taxation
should consult with their financial or tax advisors regarding the applicability
of U.S. withholding or other taxes on distributions received by them from the
Fund and the application of foreign tax laws to these distributions.
Shareholders should consult their tax advisors with respect to the applicability
of state and local intangible property or income taxes to their shares in the
Fund and to distributions and redemption proceeds received from the Fund.
HOW DO I BUY SHARES?
Shares of the Fund are continuously offered through securities dealers which
execute an agreement with Distributors. The use of the term "securities dealer"
shall include other financial institutions which, either directly or through
affiliates, have an agreement with Distributors to handle customer orders and
accounts with the Fund. Such reference, however, is for convenience only and
does not indicate a legal conclusion of capacity.
The minimum initial investment is $2,500 and subsequent investments must be $100
or more. These minimums may be waived when the shares are purchased through
retirement plans established by the Franklin Templeton Group. The Fund and
Distributors reserve the right to refuse any order for the purchase of shares.
The Fund currently does not permit investment by market timing or allocation
services ("Timing Accounts"), which generally include accounts administered so
as to buy or sell shares based upon certain predetermined market indicators.
PURCHASE PRICE OF FUND SHARES
Shares of the Fund are offered at the public offering price, which is determined
by adding the net asset value per share plus a front-end sales charge, next
computed (1) after your securities dealer receives the order which is promptly
transmitted to the Fund or (2) after receipt of an order by mail from you
directly in proper form (which generally means a completed Shareholder
Application accompanied by a negotiable check). The sales charge is a variable
percentage of the offering price depending upon the amount of the sale. The
offering price will be calculated to two decimal places using standard rounding
criteria. A description of the method of calculating net asset value per share
is included under the caption "How Are Fund Shares Valued?"
Set forth below is a table showing front-end sales charges and dealer
concessions.
<TABLE>
<CAPTION>
TOTAL SALES CHARGE
DEALER CONCESSION AS A
SIZE OF TRANSACTION AT AS A PERCENTAGE OF OFFERING AS A PERCENTAGE OF NET PERCENTAGE OF OFFERING
OFFERING PRICE PRICE AMOUNT INVESTED PRICE*
<S> <C> <C> <C>
Less than $100,000 4.50% 4.71% 4.00%
$100,000 but less than 3.75% 3.90% 3.25%
$250,000
$250,000 but less than 2.75% 2.83% 2.50%
$500,000
$500,000 but less than 2.25% 2.30% 2.00%
$1,000,000
$1,000,000 or more None None (see below)**
</TABLE>
*Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages indicated. At the discretion of Distributors,
all sales charges may at times be allowed to the securities dealer. A securities
dealer who receives 90% or more of the sales commission may be deemed to be an
underwriter under the Securities Act of 1933, as amended.
**The following commissions will be paid by Distributors, out of its own
resources, to securities dealers who initiate and are responsible for purchases
of $1 million or more: 1% on sales of $1 million but less than $2 million, plus
0.80% on sales of $2 million but less than $3 million, plus 0.50% on sales of $3
million but less than $50 million, plus 0.25% on sales of $50 million but less
than $100 million, plus 0.15% on sales of $100 million or more. Dealer
concession breakpoints are reset every 12 months for purposes of additional
purchases.
No front-end sales charge applies on investments of $1 million or more, but a
contingent deferred sales charge of 1% is imposed on certain redemptions of all
or a portion of investments of $1 million or more within the contingency period.
See "How Do I Sell Shares? - Contingent Deferred Sales Charge."
The size of a transaction which determines the applicable sales charge on the
purchase of Fund shares is determined by adding the amount of your current
purchase plus the cost or current value (whichever is higher) of your existing
investments in one or more of the funds in the Franklin Group of Funds(R) and
the Templeton Group of Funds. Included for these aggregation purposes are (a)
the mutual funds in the Franklin Group of Funds except Franklin Valuemark Funds
and Franklin Government Securities Trust (the "Franklin Funds"), (b) other
investment products underwritten by Distributors or its affiliates, and (c) the
U.S. registered mutual funds in the Templeton Group of Funds except Templeton
Capital Accumulator Fund, Inc., Templeton Variable Annuity Fund, and Templeton
Variable Products Series Fund (the "Templeton Funds"). Franklin Funds and
Templeton Funds are collectively referred to as the "Franklin Templeton
Fund(s)". Sales charge reductions based upon aggregate holdings of (a), (b) and
(c) above ("Franklin Templeton Investments") may be effective only after
notification to Distributors that the investment qualifies for a discount.
OTHER PAYMENTS TO SECURITIES DEALERS. Either Distributors or one of its
affiliates may make payments, out of its own resources, of up to 1% of the
amount purchased to securities dealers who initiate and are responsible for
purchases made at net asset value by certain designated retirement plans
(excluding IRA and IRA rollovers), certain non-designated plans, certain trust
companies and trust departments of banks and certain retirement plans of
organizations with collective retirement plan assets of $10 million or more. See
"Description of Special Net Asset Value Purchases" below and "How Do I Buy and
Sell Shares?" in the SAI.
Distributors or one of its affiliates, out of its own resources, may also
provide additional compensation to securities dealers in connection with sales
of shares of the Franklin Templeton Funds. Compensation may include financial
assistance to securities dealers and payments made in connection with
conferences, sales or training programs for their employees, seminars for the
public, advertising, sales campaigns and/or shareholder services and programs
regarding one or more of the Franklin Templeton Funds and other dealer-sponsored
programs or events. In some instances, this compensation may be made available
only to certain securities dealers whose representatives have sold or are
expected to sell significant amounts of shares of the Franklin Templeton Funds.
Compensation may include payment for travel expenses, including lodging,
incurred in connection with trips taken by invited registered representatives
and members of their families to locations within or outside of the United
States for meetings or seminars of a business nature. Securities dealers may not
use sales of the Fund's shares to qualify for this compensation to the extent
such may be prohibited by the laws of any state or any self-regulatory agency,
such as the National Association of Securities Dealers, Inc. None of the
aforementioned additional compensation is paid for by the Fund or its
shareholders.
Additional terms concerning the offering of the Fund's shares are included in
the SAI under "How Do I Buy and Sell Shares?".
Certain officers and trustees of the Fund are also affiliated with Distributors.
A detailed description is included under "Officers and Trustees" in the SAI.
QUANTITY DISCOUNTS IN SALES CHARGES
Shares may be purchased under a variety of plans which provide for a reduced
sales charge. To be certain to obtain the reduction of the sales charge, you or
your securities dealer should notify Distributors at the time of each purchase
of shares which qualifies for the reduction. In determining whether a purchase
qualifies for a discount, an investment in any of the Franklin Templeton
Investments may be combined with those of your spouse, children under the age of
21 and grandchildren under the age of 21. The value of Class II shares you own
may also be included for this purpose.
In addition, an investment in the Fund may qualify for a reduction in the sales
charge under the following programs:
1. RIGHTS OF ACCUMULATION. The cost or current value (whichever is higher) of
existing investments in the Franklin Templeton Investments may be combined with
the amount of the current purchase in determining the sales charge to be paid.
2. LETTER OF INTENT. You may immediately qualify for a reduced sales charge on a
purchase of shares of the Fund by completing the Letter of Intent section of the
Shareholder Application (the "Letter"). By completing the Letter, you (i)
express an intention to invest during the next 13 months a specified amount
which, if made at one time, would qualify for a reduced sales charge, (ii) grant
to Distributors a security interest in the reserved shares discussed below, and
(iii) irrevocably appoint Distributors as attorney-in-fact with full power of
substitution to surrender for redemption any or all shares for the purpose of
paying any additional sales charge due. You or your securities dealer must
inform Investor Services or Distributors that this Letter is in effect each time
a purchase is made.
YOU ACKNOWLEDGE AND AGREE TO THE FOLLOWING PROVISIONS BY COMPLETING THE LETTER
OF INTENT SECTION OF THE SHAREHOLDER APPLICATION: Five percent (5%) of the
amount of the total intended purchase will be reserved in shares of the Fund,
registered in your name, to assure that the full applicable sales charge will be
paid if the intended purchase is not completed. The reserved shares will be
included in the total shares owned as reflected on periodic statements. Income
and capital gain distributions on the reserved shares will be paid as you have
directed. You will not be able to liquidate the reserved shares until the Letter
has been completed or the higher sales charge paid. This policy of reserving
shares does not apply to certain benefit plans described under "Description of
Special Net Asset Value Purchases." For more information, see "How Do I Buy and
Sell Shares?" in the SAI.
The value of Class II shares you own may be included in determining a reduced
sales charge to be paid on shares of the Fund pursuant to the Letter of Intent
and Rights of Accumulation programs.
GROUP PURCHASES
If you are a member of a qualified group you may purchase shares of the Fund at
the reduced sales charge applicable to the group as a whole. The sales charge is
based upon the aggregate dollar value of shares previously purchased and still
owned by the members of the group, plus the amount of the current purchase. For
example, if members of the group had previously invested and still held $80,000
of Fund shares and now were investing $25,000, the sales charge would be 3.75%.
Information concerning the current sales charge applicable to a group may be
obtained by contacting Distributors.
A "qualified group" is one which (i) has been in existence for more than six
months, (ii) has a purpose other than acquiring Fund shares at a discount, and
(iii) satisfies uniform criteria which enable Distributors to realize economies
of scale in its costs of distributing shares. A qualified group must have more
than 10 members, be available to arrange for group meetings between
representatives of the Fund or Distributors and the members, agree to include
sales and other materials related to the Fund in its publications and mailings
to members at reduced or no cost to Distributors, and seek to arrange for
payroll deduction or other bulk transmission of investments to the Fund.
If you select a payroll deduction plan, subsequent investments will be automatic
and will continue until such time as you notify the Fund and your employer to
discontinue further investments. Due to the varying procedures used to prepare,
process and forward the payroll deduction information to the Fund, there may be
a delay between the time of the payroll deduction and the time the money reaches
the Fund. The investment in the Fund will be made at the offering price per
share determined on the day that both the check and payroll deduction data are
received in required form by the Fund.
PURCHASES AT NET ASSET VALUE
Shares of the Fund may be purchased without the imposition of a front-end sales
charge ("net asset value") or a contingent deferred sales charge by (1)
officers, trustees, directors and full-time employees of the Fund, any of the
Franklin Templeton Funds, or of the Franklin Templeton Group, and by their
spouses and family members, including subsequent investments made by such
parties after cessation of employment; (2) companies exchanging shares or
selling assets pursuant to a merger, acquisition or exchange offer; (3) accounts
managed by the Franklin Templeton Group; (4) certain unit investment trusts and
unit holders of such trusts reinvesting their distributions from the trusts in
the Fund; (5) registered securities dealers and their affiliates, for their
investment account only; (6) current employees of securities dealers and their
affiliates and by their family members, in accordance with the internal policies
and procedures of the employing securities dealer and affiliate; (7) insurance
company separate accounts for pension plan contracts; and (8) shareholders of
Templeton Institutional Funds, Inc. reinvesting redemption proceeds from that
fund under an employee benefit plan qualified under Section 401 of the Code, in
shares of the Fund.
Shares of the Fund may be purchased at net asset value by persons who have
redeemed, within the previous 365 days, their shares of the Fund or another of
the Class I Franklin Templeton Funds which were purchased with a front-end sales
charge or assessed a contingent deferred sales charge on redemption. IF A
DIFFERENT CLASS OF SHARES IS PURCHASED, THE FULL FRONT-END SALES CHARGE MUST BE
PAID AT THE TIME OF PURCHASE OF THE NEW SHARES. Under this privilege, you may
reinvest an amount not exceeding the redemption proceeds. While credit will be
given for any contingent deferred sales charge paid on the shares redeemed and
subsequently repurchased, a new contingency period will begin. Shares that were
no longer subject to a contingent deferred sales charge will be reinvested at
net asset value and will not be subject to a new contingent deferred sales
charge. Shares of the Fund redeemed in connection with an exchange into another
fund (see "What If My Investment Outlook Changes? - Exchange Privilege") are not
considered "redeemed" for this privilege. In order to exercise this privilege, a
written order for the purchase of shares of the Fund must be received by the
Fund or the Fund's Shareholder Services Agent within 365 days after the
redemption. The 365 days, however, do not begin to run on redemption proceeds
placed immediately after redemption in a Franklin Bank Certificate of Deposit
("CD") until the CD (including any rollover) matures. Reinvestment at net asset
value may also be handled by a securities dealer or other financial institution,
who may charge you a fee for this service. The redemption is a taxable
transaction but reinvestment without a sales charge may affect the amount of
gain or loss recognized and the tax basis of the shares reinvested. If there has
been a loss on the redemption, the loss may be disallowed if a reinvestment in
the same fund is made within a 30-day period. Information regarding the possible
tax consequences of such a reinvestment is included in the tax section of this
Prospectus and under "Additional Information Regarding Taxation" in the SAI.
Shares of the Fund may be purchased at net asset value and without a contingent
deferred sales charge by persons who have received dividends and capital gain
distributions from investments in the Fund or another Franklin Templeton Fund
within 365 days of the payment date of such distribution. To exercise this
privilege, a written request to reinvest the distribution must accompany the
purchase order. Additional information may be obtained from Shareholder Services
at 1-800/632-2301. See "Distribution Options" under "What Distributions Might I
Receive from the Fund?"
Shares of the Fund may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by investors who have, within
the past 60 days, redeemed an investment in a mutual fund which is not part of
the Franklin Templeton Funds and which was subject to a front-end sales charge
or a contingent deferred sales charge and which has investment objectives
similar to those of the Fund.
Shares of the Fund may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by broker-dealers who have
entered into a supplemental agreement with Distributors, or by registered
investment advisors affiliated with such broker-dealers, on behalf of their
clients who are participating in a comprehensive fee program (sometimes known as
a wrap fee program).
Shares of the Fund may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by anyone who has taken a
distribution from an existing retirement plan already invested in the Franklin
Templeton Funds, including former participants of the Franklin Templeton Profit
Sharing 401(k) plan, to the extent of such distribution. In order to exercise
this privilege a written order for the purchase of shares of the Fund must be
received by Franklin Templeton Trust Company (the "Trust Company"), the Fund or
the Fund's Shareholder Services Agent within 365 days after the plan
distribution.
Shares of the Fund may also be purchased at net asset value and without the
imposition of a contingent deferred sales charge by any state, county, or city,
or any instrumentality, department, authority or agency thereof which has
determined that the Fund is a legally permissible investment and which is
prohibited by applicable investment laws from paying a sales charge or
commission in connection with the purchase of shares of any registered
management investment company ("an eligible governmental authority"). SUCH
INVESTORS SHOULD CONSULT THEIR OWN LEGAL ADVISORS TO DETERMINE WHETHER AND TO
WHAT EXTENT THE SHARES OF THE FUND CONSTITUTE LEGAL INVESTMENTS FOR THEM.
Municipal investors considering investment of proceeds of bond offerings into
the Fund should consult with expert counsel to determine the effect, if any, of
various payments made by the Fund or its investment manager on arbitrage rebate
calculations. In connection with investments by eligible governmental
authorities at net asset value made through a securities dealer who has executed
a dealer agreement with Distributors, either Distributors or one of its
affiliates may make a payment, out of its own resources, to such securities
dealer in an amount not to exceed 0.25% of the amount invested. Contact the
Franklin Templeton Institutional Services Department for additional information.
DESCRIPTION OF SPECIAL NET ASSET VALUE PURCHASES
Shares of the Fund may also be purchased at net asset value and without the
imposition of a contingent deferred sales charge by certain designated
retirement plans, including profit sharing, pension, 401(k) and simplified
employee pension plans ("designated plans"), subject to minimum requirements
with respect to number of employees or amount of purchase, which may be
established by Distributors. Currently, those criteria require that the employer
establishing the plan have 200 or more employees or that the amount invested or
to be invested during the subsequent 13-month period in the Fund or in any of
the Franklin Templeton Investments totals at least $1,000,000. Employee benefit
plans not designated above or qualified under Section 401 of the Code
("non-designated plans") may be afforded the same privilege if they meet the
above requirements as well as the uniform criteria for qualified groups
previously described under "Group Purchases," which enable Distributors to
realize economies of scale in its sales efforts and sales related expenses.
Shares of the Fund may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by trust companies and bank
trust departments for funds over which they exercise exclusive discretionary
investment authority and which are held in a fiduciary, agency, advisory,
custodial or similar capacity. Such purchases are subject to minimum
requirements with respect to the amount to be purchased, which may be
established by Distributors. Currently, those criteria require that the amount
invested or to be invested during the subsequent 13-month period in the Fund or
any of the Franklin Templeton Investments must total at least $1,000,000. Orders
for such accounts will be accepted by mail accompanied by a check or by
telephone or other means of electronic data transfer directly from the bank or
trust company, with payment by federal funds received by the close of business
on the next business day following such order.
Shares of the Fund may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by trustees or other
fiduciaries purchasing securities for certain retirement plans of organizations
with collective retirement plan assets of $10 million or more, without regard to
where such assets are currently invested.
Please see "How Do I Buy and Sell Shares?" in the SAI for further information
regarding net asset value purchases.
HOW DO I BUY SHARES IN CONNECTION WITH TAX-DEFERRED RETIREMENT PLANS?
Shares of the Fund may be used for individual or employer-sponsored retirement
plans involving tax-deferred investments. The Fund may be used as an investment
vehicle for an existing retirement plan, or, because Trust Company can serve as
custodian or trustee for retirement plans, you may ask Trust Company to provide
the plan documents and serve as custodian or trustee. A plan document must be
adopted in order for a retirement plan to be in existence.
Trust Company, an affiliate of Distributors, can serve as custodian or trustee
for retirement plans. Brochures for Trust Company plans contain important
information regarding eligibility, contribution and deferral limits and
distribution requirements. Please note that an application other than the one
contained in this Prospectus must be used to establish a retirement plan account
with Trust Company. To obtain a retirement plan brochure or application, call
1-800/DIAL BEN (1-800/342-5236).
Please see "How Do I Sell Shares?" for specific information regarding
redemptions from retirement plan accounts. Specific forms are required to be
completed for distributions from Trust Company retirement plans.
Individuals and plan sponsors should consult with legal, tax or benefits and
pension plan consultants before choosing a retirement plan. In addition,
retirement plan investors should consider consulting their investment
representatives or advisors concerning investment decisions within their plans.
GENERAL
Securities laws of states in which the Fund's shares are offered for sale may
differ from federal law, and banks and financial institutions selling Fund
shares may be required to register as dealers pursuant to state law.
WHAT PROGRAMS AND PRIVILEGES
ARE AVAILABLE TO ME AS A SHAREHOLDER?
CERTAIN OF THE PROGRAMS AND PRIVILEGES DESCRIBED IN THIS SECTION MAY NOT BE
AVAILABLE DIRECTLY FROM THE FUND IF YOUR SHARES ARE HELD, OF RECORD, BY A
FINANCIAL INSTITUTION OR IN A "STREET NAME" ACCOUNT OR NETWORKED ACCOUNT THROUGH
THE NATIONAL SECURITIES CLEARING CORPORATION ("NSCC") (SEE "REGISTERING YOUR
ACCOUNT" IN THIS PROSPECTUS).
SHARE CERTIFICATES
Shares from an initial investment, as well as subsequent investments, including
the reinvestment of dividends and capital gain distributions, are generally
credited to an account in your name on the books of the Fund, without the
issuance of a share certificate. Maintaining shares in uncertificated form (also
known as "plan balance") minimizes the risk of loss or theft of a share
certificate. A lost, stolen or destroyed certificate cannot be replaced without
obtaining a sufficient indemnity bond. The cost of such a bond, which is
generally borne by you, can be 2% or more of the value of the lost, stolen or
destroyed certificate. A certificate will be issued if requested by you or by
your securities dealer.
CONFIRMATIONS
A confirmation statement will be sent to you quarterly to reflect the dividends
reinvested during the period and after each other transaction which affects your
account. This statement will also show the total number of shares you own,
including the number of shares in "plan balance" for your account.
AUTOMATIC INVESTMENT PLAN
The Automatic Investment Plan offers a convenient way to invest in the Fund.
Under the plan, you can arrange to have money transferred automatically from
your checking account to the Fund each month to purchase additional shares. If
you are interested in this program, please refer to the Automatic Investment
Plan Application at the back of this Prospectus for the requirements of the
program or contact your investment representative. Of course, the market value
of the Fund's shares may fluctuate and a systematic investment plan such as this
will not assure a profit or protect against a loss. You may terminate the
program at any time by notifying Investor Services by mail or by phone.
SYSTEMATIC WITHDRAWAL PLAN
The Systematic Withdrawal Plan allows you to receive regular payments from your
account on a monthly, quarterly, semiannual or annual basis. To establish a
Systematic Withdrawal Plan, the value of your account must be at least $5,000
and the minimum payment amount for each withdrawal must be at least $50. Please
keep in mind that $50 is merely the minimum amount and is not a recommended
amount. For retirement plans subject to mandatory distribution requirements, the
$50 minimum will not apply.
If you would like to establish a Systematic Withdrawal Plan, please complete the
Systematic Withdrawal Plan section of the Shareholder Application included with
this Prospectus and indicate how you would like to receive your payments. You
may choose to receive your payments in any of the following ways:
1. PURCHASE SHARES OF OTHER FRANKLIN TEMPLETON FUNDS - You may direct your
payments to purchase the same class of shares of another Franklin Templeton
Fund.
2. RECEIVE PAYMENTS IN CASH - You may choose to receive your payments in cash.
You may have the money sent directly to you, to another person, or to a checking
account. If you choose to have the money sent to a checking account, please see
"Electronic Fund Transfers" below.
There are no service charges for establishing or maintaining a Systematic
Withdrawal Plan. Once your plan is established, any distributions paid by the
Fund will be automatically reinvested in your account. Payments under the plan
will be made from the redemption of an equivalent amount of shares in your
account, generally on the first business day of the month in which a payment is
scheduled. You will generally receive your payments within three to five days
after the shares are redeemed.
Redeeming shares through a Systematic Withdrawal Plan may reduce or exhaust the
shares in your account if payments exceed distributions received from the Fund.
This is especially likely to occur if there is a market decline. If a withdrawal
amount exceeds the value of your account, your account will be closed and the
remaining balance in your account will be sent to you.
Redemptions under a Systematic Withdrawal Plan are considered a sale for federal
income tax purposes. Because the amount withdrawn under the plan may be more
than your actual yield or income, part of the payment may be a return of your
investment.
While a Systematic Withdrawal Plan is in effect, no share certificates will be
issued. You should ordinarily not make additional investments in the Fund of
less than $5,000 or three times the amount of annual withdrawals under the plan
because of the sales charge on additional purchases. Shares redeemed under the
plan may also be subject to a contingent deferred sales charge. Please see
"Contingent Deferred Sales Charge" under "How Do I Sell Shares?"
You may terminate a Systematic Withdrawal Plan, change the amount and schedule
of withdrawal payments, or suspend a payment by notifying Investor Services in
writing at least seven business days prior to the end of the month preceding a
scheduled payment. The Fund may also terminate a Systematic Withdrawal Plan by
notifying you in writing and will automatically terminate a Systematic
Withdrawal Plan if all shares in your account are withdrawn or if the Fund
receives notification of the shareholder's death or incapacity.
ELECTRONIC FUND TRANSFERS
You may choose to have distributions from the Fund or payments under a
Systematic Withdrawal Plan sent directly to a checking account. If the checking
account is maintained at a bank that is a member of the Automated Clearing
House, the payments may be made automatically by electronic funds transfer. If
you choose this option, please allow at least fifteen days for initial
processing. Any payments made during that time will be sent to the address of
record on your account.
INSTITUTIONAL ACCOUNTS
There may be additional methods of purchasing, redeeming or exchanging shares of
the Fund available to institutional accounts. For further information, contact
the Franklin Templeton Institutional Services Department at 1-800/321-8563.
WHAT IF MY INVESTMENT OUTLOOK CHANGES? - EXCHANGE PRIVILEGE
The Franklin Templeton Funds consist of a number of mutual funds with various
investment objectives and policies. The shares of most of these funds are
offered to the public with a sales charge. If your investment objective or
outlook for the securities markets changes, Fund shares may be exchanged for the
same class of shares of other Franklin Templeton Funds which are eligible for
sale in your state of residence and in conformity with such fund's stated
eligibility requirements and investment minimums.
No exchanges between different classes of shares will be allowed. Shareholders
may choose to redeem shares of the Fund and purchase Class II shares of another
Franklin Templeton Fund but such purchase will be subject to that fund's Class
II front-end and contingent deferred sales charges. Although there are no
exchanges between different classes of shares, Class II shareholders of a
Franklin Templeton Fund may elect to direct their dividends and capital gain
distributions to the Fund at net asset value.
A contingent deferred sales charge will not be imposed on exchanges. If,
however, the exchanged shares were subject to a contingent deferred sales charge
in the original fund purchased and shares are subsequently redeemed within the
contingency period, a contingent deferred sales charge will be imposed.
Before making an exchange, you should review the prospectus of the fund you wish
to exchange from and the fund you wish to exchange into for all specific
requirements or limitations on exercising the exchange privilege, for example,
limitations on a fund's sale of its shares, minimum holding periods for
exchanges at net asset value, or applicable sales charges.
You may exchange shares in any of the following ways:
BY MAIL
Send written instructions signed by all account owners and accompanied by any
outstanding share certificates properly endorsed. The transaction will be
effective upon receipt of the written instructions together with any outstanding
share certificates.
BY TELEPHONE
YOU OR YOUR INVESTMENT REPRESENTATIVE OF RECORD, IF ANY, MAY EXCHANGE SHARES OF
THE FUND BY CALLING INVESTOR SERVICES AT 1-800/632-2301 OR THE AUTOMATED
FRANKLIN TELEFACTS(R) SYSTEM (DAY OR NIGHT) AT 1-800/247-1753. IF YOU DO NOT
WISH THIS PRIVILEGE EXTENDED TO A PARTICULAR ACCOUNT, YOU SHOULD NOTIFY THE FUND
OR INVESTOR SERVICES.
The telephone exchange privilege allows you to effect exchanges from the Fund
into an identically registered account of the same class of shares in one of the
other available Franklin Templeton Funds. The telephone exchange privilege is
available only for uncertificated shares or those which have previously been
deposited in your account. The Fund and Investor Services will employ reasonable
procedures to confirm that instructions communicated by telephone are genuine.
Please see "Telephone Transactions - Verification Procedures."
During periods of drastic economic or market changes, it is possible that the
telephone exchange privilege may be difficult to implement and the TeleFACTS
option may not be available. In this event, you should follow the other exchange
procedures discussed in this section, including the procedures for processing
exchanges through securities dealers.
THROUGH SECURITIES DEALERS
As is the case with all purchases and redemptions of the Fund's shares, Investor
Services will accept exchange orders from securities dealers who execute a
dealer or similar agreement with Distributors. See also "By Telephone" above.
Such a dealer-ordered exchange will be effective only for uncertificated shares
on deposit in your account or for which certificates have previously been
deposited. A securities dealer may charge a fee for handling an exchange.
ADDITIONAL INFORMATION REGARDING EXCHANGES
Exchanges are made on the basis of the net asset value of the funds involved,
except as set forth below. Exchanges of shares of the Fund which were purchased
without a sales charge will be charged a sales charge in accordance with the
terms of the prospectus of the fund being purchased, unless the original
investment in the Franklin Templeton Funds was made pursuant to the privilege
permitting purchases at net asset value, as discussed under "How Do I Buy
Shares?" Exchanges of shares of the Fund which were purchased with a lower sales
charge into a fund which has a higher sales charge will be charged the
difference, unless the shares were held in the Fund for at least six months
prior to executing the exchange.
The contingency period during which a contingent deferred sales charge may be
assessed will be tolled (or stopped) for the period shares are exchanged into
and held in a Franklin or Templeton money market fund. If your account has
shares subject to a contingent deferred sales charge, shares will be exchanged
into the new account on a "first-in, first-out" basis. See "How Do I Sell
Shares? - Contingent Deferred Sales Charge" for a discussion of investments
subject to a contingent deferred sales charge.
If you request the exchange of the total value of your account, declared but
unpaid income dividends and capital gain distributions will be transferred to
the fund being exchanged into and will be invested at net asset value. Because
the exchange is considered a redemption and purchase of shares, you may realize
a gain or loss for federal income tax purposes. Backup withholding and
information reporting may also apply. Information regarding the possible tax
consequences of such an exchange is included in the tax section in this
Prospectus and under "Additional Information Regarding Taxation" in the SAI.
If a substantial portion of the Fund's shareholders should, within a short
period, elect to redeem their shares of the Fund pursuant to the exchange
privilege, the Fund might have to liquidate portfolio securities it might
otherwise hold and incur the additional costs related to such transactions. On
the other hand, increased use of the exchange privilege may result in periodic
large inflows of money. If this should occur, it is the general policy of the
Fund to initially invest this money in short-term, interest-bearing money market
instruments, unless it is felt that attractive investment opportunities
consistent with the Fund's investment objective exist immediately. Subsequently,
this money will be withdrawn from such short-term money market instruments and
invested in portfolio securities in as orderly a manner as is possible when
attractive investment opportunities arise.
The exchange privilege may be modified or discontinued by the Fund at any time
upon 60 days' written notice to shareholders.
RETIREMENT PLAN ACCOUNTS
Franklin Templeton IRA and 403(b) retirement plan accounts may exchange shares
directly. Certain restrictions may apply, however, to other types of retirement
plans. See "Restricted Accounts" under "Telephone Transactions."
TIMING ACCOUNTS
The Fund currently will not accept investments from Timing Accounts.
HOW DO I SELL SHARES?
You may liquidate your shares at any time and receive from the Fund the value of
the shares. You may redeem shares in any of the following ways:
BY MAIL
Send a written request signed by all registered owners to Investor Services, at
the address shown on the back cover of this Prospectus, and any share
certificates which have been issued for the shares being redeemed, properly
endorsed and in order for transfer. You will then receive from the Fund the
value of the shares redeemed based upon the net asset value per share (less a
contingent deferred sales charge, if applicable) next computed after the written
request in proper form is received by Investor Services. Redemption requests
received after the time at which the net asset value is calculated will receive
the price calculated on the following business day. The net asset value per
share is determined as of the scheduled close of the New York Stock Exchange
(the "Exchange") (generally 1:00 p.m. Pacific time) each day that the Exchange
is open for trading. You are requested to provide a telephone number where you
may be reached during business hours, or in the evening if preferred. Investor
Services' ability to contact you promptly when necessary will speed the
processing of the redemption.
TO BE CONSIDERED IN PROPER FORM, SIGNATURES MUST BE GUARANTEED IF THE REDEMPTION
REQUEST INVOLVES ANY OF THE FOLLOWING:
(1) the proceeds of the redemption are over $50,000;
(2) the proceeds (in any amount) are to be paid to someone other than the
registered owners of the account;
(3) the proceeds (in any amount) are to be sent to any address other than the
address of record, preauthorized bank account or brokerage firm account;
(4) share certificates, if the redemption proceeds are in excess of $50,000; or
(5) the Fund or Investor Services believes that a signature guarantee would
protect against potential claims based on the transfer instructions, including,
for example, when (a) the current address of one or more joint owners of an
account cannot be confirmed, (b) multiple owners have a dispute or give
inconsistent instructions to the Fund, (c) the Fund has been notified of an
adverse claim, (d) the instructions received by the Fund are given by an agent,
not the actual registered owner, (e) the Fund determines that joint owners who
are married to each other are separated or may be the subject of divorce
proceedings, or (f) the authority of a representative of a corporation,
partnership, association, or other entity has not been established to the
satisfaction of the Fund.
Signatures must be guaranteed by an "eligible guarantor institution" as defined
under Rule 17Ad-15 under the Securities Exchange Act of 1934. Generally,
eligible guarantor institutions include (1) national or state banks, savings
associations, savings and loan associations, trust companies, savings banks,
industrial loan companies and credit unions; (2) national securities exchanges,
registered securities associations and clearing agencies; (3) securities dealers
which are members of a national securities exchange or a clearing agency or
which have minimum net capital of $100,000; or (4) institutions that participate
in the Securities Transfer Agent Medallion Program ("STAMP") or other recognized
signature guarantee medallion program. A notarized signature will not be
sufficient for the request to be in proper form.
Where shares to be redeemed are represented by share certificates, the request
for redemption must be accompanied by the share certificate and a share
assignment form signed by the registered owners exactly as the account is
registered, with the signatures guaranteed as referenced above. You are advised,
for your protection, to send the share certificate and assignment form in
separate envelopes if they are being mailed in for redemption.
Liquidation requests of corporate, partnership, trust and custodianship
accounts, and accounts under court jurisdiction require the following
documentation to be in proper form:
Corporation - (1) Signature guaranteed letter of instruction from the authorized
officers of the corporation and (2) a corporate resolution.
Partnership - (1) Signature guaranteed letter of instruction from a general
partner and (2) pertinent pages from the partnership agreement identifying the
general partners or a certification for a partnership agreement.
Trust - (1) Signature guaranteed letter of instruction from the trustees and (2)
a copy of the pertinent pages of the trust document listing the trustees or a
Certification for Trust if the trustees are not listed on the account
registration.
Custodial (other than a retirement account) - Signature guaranteed letter of
instruction from the custodian.
Accounts under court jurisdiction - Check court documents and applicable state
law since these accounts have varying requirements, depending upon the state of
residence.
Payment for redeemed shares will be sent to you within seven days after receipt
of the request in proper form.
BY TELEPHONE
If you complete the Franklin Templeton Telephone Redemption Authorization
Agreement (the "Agreement"), included with this Prospectus, you may redeem
shares of the Fund by telephone, subject to the Restricted Account exception
noted under "Telephone Transactions - Restricted Accounts". You may obtain
additional information about telephone redemptions by writing to the Fund or
Investor Services at the address shown on the cover or by calling
1-800/632-2301. THE FUND AND INVESTOR SERVICES WILL EMPLOY REASONABLE PROCEDURES
TO CONFIRM THAT INSTRUCTIONS GIVEN BY TELEPHONE ARE GENUINE. YOU, HOWEVER, BEAR
THE RISK OF LOSS IN CERTAIN CASES AS DESCRIBED UNDER "TELEPHONE TRANSACTIONS -
VERIFICATION PROCEDURES."
If your account has a completed Agreement on file, redemptions of uncertificated
shares or shares which have previously been deposited with the Fund or Investor
Services may be made for up to $50,000 per day per Fund account. Telephone
redemption requests received before the scheduled close of the Exchange
(generally 1:00 p.m. Pacific time) on any business day will be processed that
same day. The redemption check will be sent within seven days, made payable to
all the registered owners on the account, and will be sent only to the address
of record.
Redemption requests by telephone will not be accepted within 30 days following
an address change by telephone. In that case, you should follow the other
redemption procedures set forth in this Prospectus. Institutional accounts
(certain corporations, bank trust departments, qualified retirement plans and
government entities which qualify to purchase shares at net asset value pursuant
to the terms of this Prospectus) that wish to execute redemptions in excess of
$50,000 must complete an Institutional Telephone Privileges Agreement which is
available from the Franklin Templeton Institutional Services Department by
calling 1-800/321-8563.
THROUGH SECURITIES DEALERS
The Fund will accept redemption orders from securities dealers who have entered
into an agreement with Distributors. This is known as a repurchase. The only
difference between a normal redemption and a repurchase is that if you redeem
shares through a dealer, the redemption price will be the net asset value next
calculated after your dealer receives the order which is promptly transmitted to
the Fund, rather than on the day the Fund receives your written request in
proper form. The documents described under "By Mail" above, as well as a signed
letter of instruction, are required regardless of whether you redeem shares
directly or submit such shares to a securities dealer for repurchase. Your
letter should reference the Fund, the account number, the fact that the
repurchase was ordered by a dealer and the dealer's name. Details of the
dealer-ordered trade, such as trade date, confirmation number, and the amount of
shares or dollars, will help speed processing of the redemption. The seven-day
period within which the proceeds of your redemption will be sent will begin when
the Fund receives all documents required to complete ("settle") the repurchase
in proper form. The redemption proceeds will not earn dividends or interest
during the time between receipt of the dealer's repurchase order and the date
the redemption is processed upon receipt of all documents necessary to settle
the repurchase. Thus, it is in your best interest to have the required
documentation completed and forwarded to the Fund as soon as possible. Your
dealer may charge a fee for handling the order. See "How Do I Buy and Sell
Shares?" in the SAI for more information on the redemption of shares.
CONTINGENT DEFERRED SALES CHARGE
In order to recover commissions paid to securities dealers, all or a portion of
investments of $1 million or more redeemed within the contingency period of 12
months of the calendar month of such investment will be assessed a contingent
deferred sales charge, unless one of the exceptions described below applies. The
charge is 1% of the lesser of the value of the shares redeemed (exclusive of
reinvested dividends and capital gain distributions) or the net asset value at
the time of purchase of such shares, and is retained by Distributors. The
contingent deferred sales charge is waived in certain instances.
In determining whether a contingent deferred sales charge applies, shares not
subject to a contingent deferred sales charge are deemed to be redeemed first,
in the following order: (i) a calculated number of shares representing amounts
attributable to capital appreciation on shares held less than the contingency
period; (ii) shares purchased with reinvested dividends and capital gain
distributions; and (iii) other shares held longer than the contingency period.
Shares subject to a contingent deferred sales charge will then be redeemed on a
"first-in, first-out" basis. For tax purposes, a contingent deferred sales
charge is treated as either a reduction in redemption proceeds or an adjustment
to the cost basis of the shares redeemed.
The contingent deferred sales charge is waived, as applicable, for: exchanges;
any account fees; distributions from an individual retirement plan account due
to death or disability or upon periodic distributions based on life expectancy;
tax-free returns of excess contributions from employee benefit plans;
distributions from employee benefit plans, including those due to termination or
plan transfer; redemptions initiated by the Fund due to an account falling below
the minimum specified account size; redemptions following the death of the
shareholder or beneficial owner; and redemptions through a Systematic Withdrawal
Plan set up for shares prior to February 1, 1995, and for Systematic Withdrawal
Plans set up thereafter, redemptions of up to 1% monthly of an account's net
asset value (3% quarterly, 6% semiannually or 12% annually). For example, if an
account maintained an annual balance of $1,000,000, only $120,000 could be
withdrawn through a once-yearly Systematic Withdrawal Plan free of charge. Any
amount over that $120,000 would be assessed a 1% contingent deferred sales
charge.
All investments made during a calendar month, regardless of when during the
month the investment occurred, will age one month on the last day of that month
and each subsequent month.
Unless otherwise specified, requests for redemptions of a SPECIFIED DOLLAR
amount will result in additional shares being redeemed to cover any applicable
contingent deferred sales charge, while requests for redemption of a SPECIFIC
NUMBER of shares will result in the applicable contingent deferred sales charge
being deducted from the total dollar amount redeemed.
ADDITIONAL INFORMATION REGARDING REDEMPTIONS
The Fund may delay the mailing of the redemption check, or a portion thereof,
until the clearance of the check used to purchase Fund shares, which may take up
to 15 days or more. Although the use of a certified or cashier's check will
generally reduce this delay, shares purchased with these checks will also be
held pending clearance.
Shares purchased by federal funds wire are available for immediate redemption.
The right of redemption may be suspended or the date of payment postponed if the
Exchange is closed (other than customary closing) or upon the determination of
the SEC that trading on the Exchange is restricted or an emergency exists, or if
the SEC permits it, by order, for the protection of shareholders. Of course, the
amount received may be more or less than the amount you invested, depending on
fluctuations in the market value of securities owned by the Fund.
RETIREMENT PLAN ACCOUNTS
Retirement plan account liquidations require the completion of certain
additional forms to ensure compliance with IRS regulations. To liquidate a
retirement plan account, you or your securities dealer may call Franklin's
Retirement Plans Department to obtain the necessary forms.
Tax penalties will generally apply to any distribution from such plans to a
participant under age 59 1/2, unless the distribution meets one of the
exceptions set forth in the Code.
OTHER INFORMATION
Distribution or redemption checks sent to you do not earn interest or any other
income during the time such checks remain uncashed and neither the Fund nor its
affiliates will be liable for any loss caused by your failure to cash such
checks.
"Cash" payments to or from the Fund may be made by check, draft or wire. The
Fund has no facility to receive, or pay out, cash in the form of currency.
For any information required about a proposed liquidation, you may call
Franklin's Shareholder Services Department. Securities dealers may call
Franklin's Dealer Services Department.
TELEPHONE TRANSACTIONS
By calling Investor Services at 1-800/632-2301, you or your investment
representative of record, if any, may be able to execute various telephone
transactions, including to: (i) effect a change in address, (ii) change a
dividend option (see "Restricted Accounts" below), (iii) transfer Fund shares in
one account to another identically registered account in the Fund, (iv) request
the issuance of certificates (to be sent to the address of record only) and (v)
exchange Fund shares as described in this Prospectus by telephone. In addition,
if you complete and file an Agreement as described under "How Do I Sell Shares?
- - By Telephone" you will be able to redeem shares of the Fund.
VERIFICATION PROCEDURES
The Fund and Investor Services will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. These will include:
recording all telephone calls requesting account activity by telephone,
requiring that the caller provide certain personal and/or account information
requested by the telephone service agent at the time of the call for the purpose
of establishing the caller's identification, and sending a confirmation
statement on redemptions to the address of record each time account activity is
initiated by telephone. So long as the Fund and Investor Services follow
instructions communicated by telephone which were reasonably believed to be
genuine at the time of their receipt, neither they nor their affiliates will be
liable for any loss to you caused by an unauthorized transaction. The Fund and
Investor Services may be liable for any losses due to unauthorized or fraudulent
instructions in the event such reasonable procedures are not followed. You are,
of course, under no obligation to apply for or accept telephone transaction
privileges. In any instance where the Fund or Investor Services is not
reasonably satisfied that instructions received by telephone are genuine, the
requested transaction will not be executed, and neither the Fund nor Investor
Services will be liable for any losses which may occur because of a delay in
implementing a transaction.
RESTRICTED ACCOUNTS
Telephone redemptions and dividend option changes may not be accepted on
Franklin Templeton retirement accounts. To assure compliance with all applicable
regulations, special forms are required for any redemption, distribution or
dividend payment changes. While the telephone exchange privilege is extended to
Franklin Templeton IRA and 403(b) retirement accounts, certain restrictions may
apply to other types of retirement plans.
To obtain further information regarding distribution or transfer procedures,
including any required forms, retirement account shareholders may call to speak
to a Retirement Plan Specialist at 1-800/527-2020.
GENERAL
During periods of drastic economic or market changes, it is possible that the
telephone transaction privilege will be difficult to execute because of heavy
telephone volume. In such situations, you may wish to contact your investment
representative for assistance or send written instructions to the Fund as
detailed elsewhere in this Prospectus.
Neither the Fund nor Investor Services will be liable for any losses resulting
from your inability to execute a telephone transaction.
HOW ARE FUND SHARES VALUED?
The net asset value per share of the Fund is determined as of the scheduled
close of the Exchange (generally 1:00 p.m. Pacific time) each day that the
Exchange is open for trading. Many newspapers carry daily quotations of the
prior trading day's closing "bid" (net asset value) and "ask" (offering price,
which includes the maximum front-end sales charge of the Fund).
The net asset value per share of the Fund is determined by deducting the
aggregate gross value of all liabilities from the aggregate gross value of all
assets, and then dividing the difference by the number of shares outstanding.
Assets in the Fund's portfolio are valued as described under "How Are Fund
Shares Valued?" in the SAI.
HOW DO I GET MORE INFORMATION ABOUT MY INVESTMENT?
Any questions or communications regarding your account should be directed to
Investor Services at the address shown on the back cover of this Prospectus.
From a touch-tone phone, you may access an automated system (day or night) which
offers the following features.
By calling the Franklin TeleFACTS(R) system at 1-800/247-1753, you may obtain
account information, current price and, if available, yield or other performance
information specific to the Fund or any Franklin Templeton Fund. In addition,
you may process an exchange, within the same class, into an identically
registered Franklin account and request duplicate confirmation or year-end
statements and deposit slips.
The Fund code, which will be needed to access system information, is xxxx. The
system's automated operator will prompt you with easy to follow step-by-step
instructions from the main menu. Other features may be added in the future.
To assist you and securities dealers wishing to speak directly with a
representative, the following list of Franklin departments, telephone numbers
and hours of operation is provided. The same numbers may be used when calling
from a rotary phone.
<TABLE>
<CAPTION>
HOURS OF OPERATION
(PACIFIC TIME)
DEPARTMENT NAME TELEPHONE NO. (MONDAY THROUGH FRIDAY)
<S> <C> <C>
Shareholder Services 1-800/632-2301 5:30 a.m. to 5:00 p.m.
Dealer Services 1-800/524-4040 5:30 a.m. to 5:00 p.m.
Fund Information 1-800/DIAL BEN 5:30 a.m. to 8:00 p.m.
8:30 a.m. to 5:00 p.m.
(Saturday)
Retirement Plans 1-800/527-2020 5:30 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 5:30 a.m. to 5:00 p.m.
</TABLE>
In order to ensure that the highest quality of service is being provided,
telephone calls placed to or by representatives in Franklin's service
departments may be accessed, recorded and monitored. These calls can be
determined by the presence of a regular beeping tone.
HOW DOES THE FUND MEASURE PERFORMANCE?
Advertisements, sales literature and communications to you may contain several
measures of the Fund's performance, including current yield, various expressions
of total return and current distribution rate. They may also occasionally cite
statistics to reflect the Fund's volatility or risk.
Average annual total return figures as prescribed by the SEC represent the
average annual percentage change in value of $1,000 invested at the maximum
public offering price (offering price includes sales charge) for one-, five- and
ten-year periods, or portion thereof, to the extent applicable, through the end
of the most recent calendar quarter, assuming reinvestment of all distributions.
The Fund may also furnish total return quotations for other periods or based on
investments at various sales charge levels or at net asset value. For such
purposes total return equals the total of all income and capital gain paid to
shareholders, assuming reinvestment of all distributions, plus (or minus) the
change in the value of the original investment, expressed as a percentage of the
purchase price.
Current yield reflects the income per share earned by the Fund's portfolio
investments. It is calculated by dividing the Fund's net investment income per
share during a recent 30-day period by the maximum public offering price on the
last day of that period and annualizing the result.
Current yield for the Fund, which is calculated according to a formula
prescribed by the SEC (see "General Information" in the SAI), is not indicative
of the dividends or distributions which were or will be paid to the Fund's
shareholders. Dividends or distributions paid to shareholders of the Fund are
reflected in the current distribution rate, which may be quoted to you. The
current distribution rate is computed by dividing the total amount of dividends
per share paid by the Fund during the past 12 months by a current maximum
offering price. Under certain circumstances, such as when there has been a
change in the amount of dividend payout or a fundamental change in investment
policies, it might be appropriate to annualize the dividends paid during the
period such policies were in effect, rather than using the dividends during the
past 12 months. The current distribution rate differs from the current yield
computation because it may include distributions to shareholders from sources
other than dividends and interest, such as premium income from option writing
and short-term capital gain, and is calculated over a different period of time.
In each case, performance figures are based upon past performance, reflect all
recurring charges against Fund income and will assume the payment of the maximum
sales charge on the purchase of shares. When there has been a change in the
sales charge structure, the historical performance figures will be restated to
reflect the new rate. The investment results of the Fund, like all other
investment companies, will fluctuate over time; thus, performance figures should
not be considered to represent what an investment may earn in the future or what
the Fund's total return, current yield, or distribution rate may be in any
future period.
GENERAL INFORMATION
REPORTS TO SHAREHOLDERS
The Fund's fiscal year ends October 31. Annual Reports containing audited
financial statements of the Fund, including the auditors' report, and
Semi-Annual Reports containing unaudited financial statements are automatically
sent to shareholders. To reduce the volume of mail sent to one household, as
well as to reduce Fund expenses, Investor Services will attempt to identify
related shareholders within a household and send only one copy of the report.
Additional copies may be obtained, without charge, upon request to the Fund at
the telephone number or address set forth on the cover page of this Prospectus.
Additional information on Fund performance is included in the Fund's Annual
Report to Shareholders and under "General Information" in the SAI.
ORGANIZATION AND VOTING RIGHTS
The Trust was organized as a Massachusetts business trust on September 11, 1989.
The Agreement and Declaration of Trust permits the trustees to issue an
unlimited number of full and fractional shares of beneficial interest of $.01
par value, which may be issued in any number of series and classes. Shares
issued will be fully paid and non-assessable and will have no preemptive,
conversion, or sinking rights. Shares of each series have equal and exclusive
rights as to dividends and distributions as declared by such series and the net
assets of such series upon liquidation or dissolution. Additional series or
classes may be added in the future by the Board.
Voting rights are noncumulative, so that in any election of trustees, the
holders of more than 50% of the shares voting can elect all of the trustees, if
they choose to do so, and in such event the holders of the remaining shares
voting will not be able to elect any person or persons to the Board.
The Trust does not intend to hold annual shareholders meetings. The Trust may,
however, hold a special shareholders meeting of a series for such purposes as
changing fundamental investment restrictions, approving a new management
agreement or any other matters which are required to be acted on by shareholders
under the 1940 Act. A meeting may also be called by the trustees in their
discretion or by shareholders holding at least ten percent of the outstanding
shares of the Trust. Shareholders will receive assistance in communicating with
other shareholders in connection with the election or removal of trustees such
as that provided in Section 16(c) of the 1940 Act.
CONVERSION TO MULTIPLE CLASSES OR MASTER/FEEDER STRUCTURE
The Board reserves the right to convert the Fund to a master/feeder structure at
a future date. Certain funds administered by the investment manager participate
as feeder funds in master/feeder fund structures. Under a master/feeder
structure, one or more feeder funds, such as the Fund, invests its assets in a
master fund which, in turn, invests its assets directly in the securities.
Various state governments have adopted the North American Securities
Administrators Association Guidelines for registration of master/feeder funds.
If required by those guidelines, as then in effect, the Fund will seek
shareholder approval prior to converting the Fund to a master/feeder structure,
subject to there not being adopted a superseding contrary provision or ruling
under federal law. If it is determined by the requisite regulatory authorities
that such approval is not required, shareholders will be deemed to have
consented to such conversion by their purchase of Fund shares and no further
shareholder approval will be sought or needed. Shareholders will, however, be
informed in writing in advance of the conversion. The determination to convert
the Fund to a master/feeder fund structure will not result in an increase in the
fees or expenses paid by the Fund or its shareholders. The investment objective
and other fundamental policies of the Fund, which can be changed only with
shareholder approval, are structured so as to permit the Fund to invest directly
in securities or indirectly in securities through a master/feeder fund
structure.
REDEMPTIONS BY THE FUND
The Fund reserves the right to redeem your shares, at net asset value, if your
account has a value of less than $50, but only where the value of your account
has been reduced by the prior voluntary redemption of shares and has been
inactive (except for the reinvestment of distributions) for a period of at least
six months, provided you are given advance notice. For more information, see
"How Do I Buy and Sell Shares?" in the SAI.
REGISTERING YOUR ACCOUNT
An account registration should reflect your intentions as to ownership. Where
there are two co-owners on the account, the account will be registered as "Owner
1" AND "Owner 2"; the "or" designation is not used EXCEPT for money market fund
accounts. If co-owners wish to have the ability to redeem or convert on the
signature of only one owner, a limited power of attorney may be used.
Accounts should not be registered in the name of a minor, either as sole or
co-owner of the account. Transfer or redemption for such an account may require
court action to obtain release of the funds until the minor reaches the legal
age of majority. The account should be registered in the name of one "Adult" as
custodian for the benefit of the "Minor" under the Uniform Transfer or Gifts to
Minors Act.
A trust designation such as "trustee" or "in trust for" should only be used if
the account is being established pursuant to a legal, valid trust document. Use
of such a designation in the absence of a legal trust document may cause
difficulties and require court action for transfer or redemption of the funds.
Shares, whether in certificate form or not, registered as joint tenants or "Jt
Ten" shall mean "as joint tenants with rights of survivorship" and not "as
tenants in common."
Except as indicated, you may transfer an account in the Fund carried in "street"
or "nominee" name by your securities dealer to a comparably registered Fund
account maintained by another securities dealer. Both the delivering and
receiving securities dealers must have executed dealer agreements on file with
Distributors. Unless a dealer agreement has been executed and is on file with
Distributors, the Fund will not process the transfer and will so inform your
delivering securities dealer. To effect the transfer, you should instruct the
securities dealer to transfer the account to a receiving securities dealer and
sign any documents required by the securities dealers to evidence consent to the
transfer. Under current procedures, the account transfer may be processed by the
delivering securities dealer and the Fund after the Fund receives authorization
in proper form from your delivering securities dealer. Account transfers may be
effected electronically through the services of the NSCC.
The Fund may conclusively accept instructions from you or your nominee listed in
publicly available nominee lists, regardless of whether the account was
initially registered in the name of or by you, your nominee, or both. If a
securities dealer or other representative is of record on your account, you will
be deemed to have authorized the use of electronic instructions on the account,
including, without limitation, those initiated through the services of the NSCC,
to have adopted as instruction and signature any such electronic instructions
received by the Fund and Investor Services, and to have authorized them to
execute the instructions without further inquiry. At the present time, such
services which are available include the NSCC's "Networking," "Fund/SERV," and
"ACATS" systems.
Any questions regarding an intended registration should be answered by the
securities dealer handling the investment or by calling Franklin's Fund
Information Department.
IMPORTANT NOTICE REGARDING TAXPAYER IRS CERTIFICATIONS
Pursuant to the Code and U.S. Treasury regulations, the Fund may be required to
report to the IRS any taxable dividend, capital gain distribution, or other
reportable payment (including share redemption proceeds) and withhold 31% of any
such payments made to individuals and other non-exempt shareholders who have not
provided a correct taxpayer identification number ("TIN") and made certain
required certifications that appear in the Shareholder Application. You may also
be subject to backup withholding if the IRS or a securities dealer notifies the
Fund that the number furnished by you is incorrect or that you are subject to
backup withholding for previous under-reporting of interest or dividend income.
The Fund reserves the right to (1) refuse to open an account for any person
failing to provide a TIN along with the required certifications and (2) close an
account by redeeming its shares in full at the then-current net asset value upon
receipt of notice from the IRS that the TIN certified as correct by you is in
fact incorrect or upon the failure of a shareholder who has completed an
"awaiting TIN" certification to provide the Fund with a certified TIN within 60
days after opening the account.
APPENDIX
DESCRIPTION OF CORPORATE BOND RATINGS
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 of high quality by all standards. Together
with the Aaa group they comprise what are generally known as high grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large, fluctuation of protective elements may be of greater amplitude, or
there may be other elements present which make the long-term risks appear
somewhat larger.
A - Bonds rated A possess many favorable investment attributes and are
considered upper medium grade obligations. Factors giving security to principal
and interest are considered adequate but elements may be present which suggest a
susceptibility to impairment sometime in the future.
BAA - 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. Such
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. Such 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 which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
C - Bonds which are 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.
S&P
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 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 such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
D - Debt rated D is in default and payment of interest and/or repayment of
principal is in arrears.
DESCRIPTION OF COMMERCIAL PAPER RATINGS
MOODY'S
Moody's commercial paper ratings, which are also applicable to municipal paper
investments permitted to be made by the Fund, are opinions of the ability of
issuers to repay punctually their promissory obligations not having an original
maturity in excess of nine months. Moody's employs the following designations,
all judged to be investment grade, to indicate the relative repayment capacity
of rated issuers:
P-1 (PRIME-1): Superior capacity for repayment.
P-2 (PRIME-2): Strong capacity for repayment.
S&P
S&P's ratings are a current assessment of the likelihood of timely payment of
debt having an original maturity of no more than 365 days. Ratings are graded
into four categories, ranging from "A" for the highest quality obligations to
"D" for the lowest. Issues within the "A" category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety, as follows:
A-1: This designation indicates the degree of safety regarding timely payment is
very strong. A "plus" (+) designation indicates an even stronger likelihood of
timely payment.
A-2: Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as overwhelming as for issues
designated A-1.
A-3: Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
FRANKLIN VALUE FUND
FRANKLIN VALUE INVESTORS TRUST
777 Mariners Island Blvd.
P.O. Box 7777
San Mateo, California 94403-7777
INVESTMENT MANAGER
Franklin Advisers, Inc.
777 Mariners Island Blvd.
P.O. Box 7777
San Mateo, California 94403-7777
PRINCIPAL UNDERWRITER
Franklin/Templeton Distributors, Inc.
777 Mariners Island Blvd.
P.O. Box 7777
San Mateo, California 94403-7777
SHAREHOLDER SERVICES AGENT
Franklin/Templeton Investor Services, Inc.
777 Mariners Island Blvd.
P.O. Box 7777
San Mateo, California 94403-7777
CUSTODIAN
Bank of America
555 California Street, 4th Floor
San Francisco, California 94104
INDEPENDENT AUDITORS
Coopers & Lybrand L.L.P.
333 Market Street
San Francisco, California 94105
LEGAL COUNSEL
Stradley, Ronon, Stevens & Young
2600 One Commerce Square
Philadelphia, Pennsylvania 19103
For an enlarged version of this prospectus please call 1-800/DIAL BEN.
Your Representative Is:
FRANKLIN VALUE FUND
STATEMENT OF ADDITIONAL INFORMATION
MARCH 10, 1996
777 MARINERS ISLAND BLVD., P.O. BOX 7777
SAN MATEO, CA 94403-7777 1-800/DIAL BEN
CONTENTS PAGE
How Does the Fund Invest Its Assets?
What Are the Fund's Potential Risks?
Investment Restrictions
Officers and Trustees
Investment Advisory and Other Services
How Does the Fund Purchase Securities
For Its Portfolio?
How Do I Buy and Sell Shares?
How Are Fund Shares Valued?
Additional Information
Regarding Taxation
The Fund's Underwriter
General Information
Appendix
Franklin Value Fund (the "Fund") is a non-diversified, open-end series of
Franklin Value Investors Trust (the "Trust"), a management investment company.
The Fund's investment objective is to seek long-term total return. The Fund
seeks to achieve its objective by investing an unlimited amount of its total
assets in the securities of companies that the Fund's investment manager
believes are undervalued. A Prospectus for the Fund, dated March 6, 1996 as may
be amended from time to time, provides the basic information you should know
before investing in the Fund and may be obtained without charge from the Fund or
its principal underwriter, Franklin/Templeton Distributors, Inc.
("Distributors"), at the address or telephone number shown above.
THIS STATEMENT OF ADDITIONAL INFORMATION (THE "SAI") IS NOT A PROSPECTUS. IT
CONTAINS INFORMATION IN ADDITION TO AND IN MORE DETAIL THAN SET FORTH IN THE
PROSPECTUS. THIS SAI IS INTENDED TO PROVIDE YOU WITH ADDITIONAL INFORMATION
REGARDING THE ACTIVITIES AND OPERATIONS OF THE FUND, AND SHOULD BE READ IN
CONJUNCTION WITH THE FUND'S PROSPECTUS.
HOW DOES THE FUND INVEST ITS ASSETS?
As noted in the Prospectus, the Fund seeks long-term total return. The Fund
seeks to achieve this objective by investing an unlimited amount of its total
assets in the securities of companies that the Fund's management believes are
undervalued. Income will be an incidental consideration of the Fund. There can
be no assurance that this technique will be successful for the Fund or that the
Fund will achieve its investment objective.
The following information supplements and should be read in conjunction with the
section in the Fund's Prospectus entitled "How Does the Fund Invest Its Assets?"
OPTIONS AND FUTURES
OPTIONS. As noted in the Prospectus, the Fund may write covered call options
which are listed on a national securities exchange and purchase listed call and
put options on securities and securities indices for portfolio hedging purposes.
The Fund may also write covered call options and purchase call and put options
which are traded over-the-counter ("OTC"). In additon, the Fund may enter into
closing transactions with respect to its open option positions.
Because the writer of an option may be assigned an exercise notice at any time
prior to the termination of a call option, the writer may have no control over
when the underlying securities must be sold. At the same time, however, the
writer retains the amount of the premium paid by the purchaser of the option
regardless of whether the option is exercised. The premium amount reflects,
among other things, the relationship of the exercise price to the market price
and volatility of the underlying security, the remaining term of the option,
supply and demand and interest rates. This amount may, in the case of a covered
call option, be offset by a decline in the market value of the underlying
security during the option period. If a call option is exercised, the writer
experiences a profit or loss from the sale of the underlying security.
The writer of an option that wishes to terminate its obligation may effect a
"closing purchase transaction." This is done by buying an option of the same
series as the option previously written. This allows the writer's position to be
canceled by the clearing corporation. A writer may not effect a closing purchase
transaction, however, after being notified of the exercise of an option. A
holder of an option liquidates its position by effecting a "closing sale
transaction," which requires selling an option of the same series as the option
previously purchased. There is no guarantee that either a closing purchase or a
closing sale transaction can be effected.
Effecting a closing transaction on a written call option will permit the Fund to
write another call option on the underlying security with either a different
exercise price or expiration date or both. In addition, effecting a closing
transaction will permit the cash or proceeds from the sale of any securities
subject to the option to be used for other Fund investments. If the Fund desires
to sell a particular security from its portfolio on which it has written a call
option, it may effect a closing transaction prior to or at the same time as the
sale of the security.
The Fund will realize a profit from a closing transaction if the price of the
transaction is less than the premium received from writing the option or is more
than the premium paid to purchase the option. The Fund will realize a loss from
a closing transaction if the price of the transaction is more than the premium
received from writing the option or is less than the premium paid to purchase
the option. Because increases in the market price of a call option will
generally reflect increases in the market price of the underlying security, any
loss resulting from the repurchase of a call option is likely to be offset in
whole or in part by appreciation of the underlying security owned by the Fund.
The Fund may purchase call options on securities which it intends to purchase in
order to limit the risk of a substantial increase in the market price of such
security. The Fund may also purchase call options on securities held in its
portfolio and on which it has written call options. Prior to its expiration, a
call option may be sold in a closing sale transaction. Profit or loss from such
a sale will depend on whether the amount received is more or less than the
premium paid for the call option plus any related transaction costs.
The Fund may also purchase put options. The Fund may enter into closing sale
transactions with respect to such options, exercise them or permit them to
expire. The Fund may purchase a put option on an underlying security (a
"protective put") owned by the Fund as a hedging technique in order to protect
against an anticipated decline in the value of the security. Such hedge
protection is provided only during the life of the put option when the Fund, as
the holder of the put option, is able to sell the underlying security at the put
exercise price, regardless of any decline in the underlying security's market
price. For example, a put option may be purchased in order to protect unrealized
appreciation of a security when the investment manager deems it desirable to
continue to hold the security because of tax considerations. The premium paid
for the put option and any transaction costs would reduce any capital gain
otherwise available for distribution when the security is eventually sold.
PUT AND CALL OPTIONS ON THE SAME SECURITIES. The Fund may buy puts and write
calls on the same portfolio security in "forward conversion" transactions. All
options written by the Fund will be covered. In a forward conversion, the Fund
will purchase securities and write call options and purchase put options on such
securities. By purchasing puts, the Fund protects the underlying security from
depreciation in value. By selling or writing calls on the same security, the
Fund receives premiums which may offset part or all of the cost of purchasing
the puts while forgoing the opportunity for appreciation in the value of the
underlying security. The Fund will not exercise a put it has purchased while a
call option on the same security is outstanding.
The use of options in connection with forward conversions is intended to hedge
against fluctuations in the market value of the underlying security. Although it
is generally intended in forward conversion transactions that the exercise price
of put and call options would be identical, situations might occur in which some
option positions are acquired with different exercise prices. Therefore, the
Fund's return may depend in part on movements in the price of the underlying
security because of the different exercise prices of the call and put options.
Such price movements may also affect the Fund's total return if the conversion
is terminated prior to the expiration date of the options. In such event, the
Fund's return may be greater or less than it would otherwise have been if it had
hedged the security only by purchasing put options.
FUTURES. The Fund may enter into contracts for the purchase or sale for future
delivery of securities, in such contracts based upon financial indices, and in
options on such contracts ("financial futures"). Financial futures contracts are
contracts that obligate the long or short holder to take or make delivery of a
specified quantity of a financial instrument, such as a security, or the cash
value of a securities index during a specified future period at a specified
price. A "sale" of a futures contract means the acquisition of a contractual
obligation to deliver the securities called for by the contract at a specified
price on a specified date. A "purchase" of a futures contract means the
acquisition of a contractual obligation to acquire the securities called for by
the contract at a specified price on a specified date. Futures contracts have
been designed by exchanges which have been designated "contracts markets" by the
Commodity Futures Trading Commission ("CFTC") and must be executed through a
futures commission merchant, or brokerage firm, which is a member of the
relevant contract market
Although futures contracts by their terms call for the actual delivery or
acquisition of securities, in most cases the contractual obligation is fulfilled
before the date of the contract without having to make or take delivery of the
securities. The offsetting of a contractual obligation is accomplished by buying
(or selling, as the case may be) on a commodities exchange an identical futures
contract calling for delivery in the same month. Such a transaction, which is
effected through a member of an exchange, cancels the obligation to take
delivery of the securities. Since all transactions in the futures market are
made, offset or fulfilled through a clearinghouse associated with the exchange
on which the contracts are traded, the Fund will incur brokerage fees when it
purchases or sells futures contracts.
The Fund will not engage in transactions in futures contracts or related options
for speculation but only as a hedge against changes resulting from market
conditions in the values of its securities or securities which it intends to
purchase. The Fund will not enter into any stock index future or related option
if, immediately thereafter, more than one-third of the Fund's net assets would
be represented by futures contracts or related options. In addition, the Fund
may not purchase or sell futures contracts or purchase or sell related options
if, immediately thereafter, the sum of the amount of margin deposits on its
existing futures and related options positions, and premiums paid for related
options, would exceed 5% of the market value of the Fund's total assets. In
instances involving the purchase of futures contracts or related call options,
money market instruments equal to the market value of the futures contract or
related option will be deposited in a segregated account with the custodian to
collateralize such long positions.
The purpose of the acquisition or sale of a futures contract is to attempt to
protect the Fund from fluctuations in price of portfolio securities without
actually buying or selling the underlying security. To the extent the Fund
enters into futures contracts, it will deposit in a segregated account with its
custodian cash or other U.S. Treasury obligations equal to a specified
percentage of the value of the futures contract (the "initial margin"), as
required by the relevant contract market and futures commission merchant. The
futures contract will be marked-to-market daily. Should the value of the futures
contract decline relative to the Fund's position, the Fund will be required to
pay to the futures commission merchant an amount equal to such change in value.
STOCK INDEX FUTURES CONTRACTS. The Fund may purchase and sell stock index
futures contracts traded on domestic exchanges and, to the extent such contracts
have been approved by the CFTC for sale to customers in the U.S., on foreign
exchanges. A stock index futures contract obligates the seller to deliver (and
the purchaser to take) an amount of cash equal to a specific dollar amount times
the difference between the value of a specific stock index at the close of the
last trading day of the contract and the price at which the agreement is made.
Open futures contracts are valued on a daily basis and the Fund may be obligated
to provide or receive cash reflecting any decline or increase in the contract's
value. No physical delivery of the underlying stocks in the index is made in the
future.
The Fund may sell stock index futures contracts in anticipation of or during a
market decline in an attempt to offset the decrease in market value of its
securities that might otherwise result. When the Fund is not fully invested in
stocks and anticipates a significant market advance, it may purchase stock index
futures in order to gain rapid market exposure that may offset increases in the
cost of common stocks that it intends to purchase.
FUTURE DEVELOPMENTS. The Fund may take advantage of opportunities in the area of
options and futures contracts and any other derivative investments which are not
presently contemplated for use by the Fund or which are not currently available
but which may be developed, to the extent such opportunities are both consistent
with the Fund's investment objective and legally permissible for the Fund. Prior
to investing in any such investment vehicle, the Fund will supplement its
prospectus, if appropriate.
RISK FACTORS AND CONSIDERATIONS REGARDING OPTIONS, FUTURES AND OPTIONS ON
FUTURES. The Fund's ability to hedge effectively all or a portion of its
securities through transactions in options on stock indices, financial futures
and related options depends on the degree to which price movements in the
underlying index or underlying securities correlate with price movements in the
relevant portion of the Fund's portfolio. Inasmuch as such securities will not
duplicate the components of the index or such underlying 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 or other securities underlying the hedging instrument and the
hedged securities which would result in a loss on both such securities and the
hedging instrument. Accordingly, successful use by the Fund of options on stock
indices, financial futures and other options will be subject to the investment
manager's ability to predict correctly movements in the direction of the
securities markets generally or a particular segment. This requires different
skills and techniques than predicting changes in the price of individual stocks.
Positions in stock index options and financial futures and related options may
be closed out only on an exchange which provides a secondary market. There can
be no assurance that a liquid secondary market will exist for any particular
stock index option or futures contract or related option at any specific time.
Thus, it may not be possible to close such an option or futures position. The
inability to close options or futures positions also could have an adverse
impact on the Fund's ability to effectively hedge its securities. The Fund will
enter into an option or futures position only if there appears to be a liquid
secondary market for such options or futures.
OTC options may be subject to more risks than exchange-traded options because
OTC options are arranged with dealers, not with a clearing corporation, and
because pricing of OTC options is typically done by reference to information
from market makers. There can be no assurance that a continuous liquid secondary
market will exist for any particular OTC option at any specific time.
Consequently, the Fund may be able to realize the value of an OTC option it has
purchased only by exercising it or entering into a closing sale transaction with
the dealer that issued it. Similarly, when the Fund writes an OTC option, it
generally can close out that option prior to its expiration only by entering
into a closing purchase transaction with the dealer to which the Fund originally
wrote it. If a covered call option writer cannot effect a closing transaction,
it cannot sell the underlying security until the option expires or the option is
exercised. Therefore, a covered call option writer of an OTC option may not be
able to sell an underlying security even though it might otherwise be
advantageous to do so. Likewise, a secured put writer of an OTC option may be
unable to sell the securities pledged to secure the put for other investment
purposes while it is obligated as a put writer. Similarly, a purchaser of such
put or call option might also find it difficult to terminate its position on a
timely basis in the absence of a secondary market.
The CFTC and the various exchanges have established limits, referred to as
"speculative position limits," on the maximum net long or net short position
which any person may hold or control in a particular futures contract. Trading
limits are imposed on the maximum number of contracts which any person may trade
on a particular trading day. An exchange may order the liquidation of positions
found to be in violation of these limits and it may impose other sanctions or
restrictions. The Fund does not believe that these trading and positions limits
will have an adverse impact on the Fund's strategies for hedging its securities.
The ordinary spreads between prices in the cash and futures markets, due to
differences in the natures of those markets, are subject to distortions. First,
all participants in the futures market are subject to initial deposit and
variation margin requirements. Rather than meeting additional variation margin
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced, thus producing distortion. Third, from
the point of view of speculators, the margin deposit requirements in the futures
market are less onerous than margin requirements in the securities market.
Therefore, increased participation by speculators in the futures market may
cause temporary price distortions. Due to the possibility of distortion, a
correct forecast of general interest rate trends by the investment adviser may
still not result in a successful transaction.
In addition, futures contracts entail risks. Although the Fund believes that use
of such contracts will benefit the Fund, if the investment adviser's investment
judgment about the general direction of interest rates is incorrect, the Fund's
overall performance would be poorer than if it had not entered into any such
contract. For example, if the Fund has hedged against the possibility of an
increase in interest rates which would adversely affect the price of bonds held
in its portfolio and interest rates decrease instead, the Fund will lose part or
all of the benefit of the increased value of its bonds which it has hedged
because it will have offsetting losses in its futures positions. In addition, in
such situations, if the Fund has insufficient cash, it may have to sell
securities from its portfolio to meet daily variation margin requirements. Such
sales may be, but will not necessarily be, at increased prices which reflect the
rising market. The Fund may have to sell securities at a time when it may be
disadvantageous to do so.
The Fund's sale of futures contracts and purchase of put options on futures
contracts will be solely to protect its investments against declines in value.
The Fund expects that in the normal course it will purchase securities upon
termination of long futures contracts and long call options on future contracts,
but under unusual market conditions it may terminate any of such positions
without a corresponding purchase of securities.
OTHER INVESTMENTS
DEPOSITARY RECEIPTS. Many securities of foreign issuers are represented by
American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"),
and Global Depositary Receipts ("GDRs") (collectively "Depositary Receipts").
ADRs evidence ownership of, and represent the right to receive, securities of
foreign issuers deposited in a domestic bank or trust company or a foreign
correspondent bank. EDRs and GDRs are typically issued by foreign banks or trust
companies, although they also may be issued by U.S. banks or trust companies,
and evidence ownership of underlying securities issued by either a foreign or a
United States 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 United States.
Prices of ADRs are quoted in U.S. dollars, and ADRs are traded in the United
States on exchanges or over-the-counter. While ADRs do not eliminate all the
risk associated with foreign investments, by investing in ADRs rather than
directly in the stock of foreign issuers, the Fund will avoid currency risks
during the settlement period for either purchases or sales. In general, there is
a large, liquid market in the United States for ADRs quoted on a national
securities exchange or on NASDAQ. The information available for ADRs is subject
to the accounting, auditing and financial reporting standards of the U.S. market
or exchange on which they are traded, which standards are more uniform and more
exacting than those to which many foreign issuers may be subject. EDRs and GDRs
may not necessarily be denominated in the same currency as the underlying
securities into which they may be converted.
Depositary Receipts may be issued under 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 reduce but do not eliminate all the risk inherent in
investing in the securities of foreign issuers. To the extent that the Fund
acquires Depositary Receipts through banks which do not have a contractual
relationship with the foreign issuer of the security underlying the Depositary
Receipt to issue and service such Depositary Receipts, there may be an increased
possibility that the Fund would not become aware of and be able to respond to
corporate actions such as stock splits or rights offerings involving the foreign
issuer in a timely manner.
TRADE CLAIMS. Trade claims are purchased from creditors of companies in
financial difficulty who seek to reduce the number of debt obligations they are
owed. Such trade creditors generally sell their claims in an attempt to improve
their balance sheets and reduce uncertainty regarding payments. For purchasers,
trade claims offer the potential for profits since they are often purchased at a
significantly discounted value and, consequently, have the potential for higher
income and capital appreciation should the debt issuer's financial position
improve. Trade claims are generally liquid as there is a secondary market but
the Board of Trustees will monitor their liquidity. An investment in trade
claims is speculative and there can be no guarantee that the debt issuer will
ever be able to satisfy the obligation. Further, trading in trade claims is not
regulated by federal securities laws but primarily by bankruptcy laws and
commercial laws. Because trade claims are unsecured obligations, holders may
have a lower priority than secured or preferred creditors.
WARRANTS. A warrant is typically a long-term option issued by a corporation
which gives the holder the privilege of buying a specified number of shares of
the underlying common stock at a specified exercise price at any time on or
before an expiration date. Stock index warrants entitle the holder to receive,
upon exercise, an amount in cash determined by reference to fluctuations in the
level of a specified stock index. If the Fund does not exercise or dispose of a
warrant prior to its expiration, it will expire worthless. Further, the Fund
does not intend to invest directly in warrants (valued at the lower of cost or
market) in excess of 5% of the value of the Fund's net assets. No more than 2%
of the value of the Fund's net assets may be invested in warrants (valued at the
lower of cost or market) which are not listed on the New York or American Stock
Exchange.
INVESTMENT RESTRICTIONS
The Fund has adopted the following restrictions as fundamental policies, which
means that they may not be changed without the approval of a majority of the
outstanding voting securities of the Fund. Under the Investment Company Act of
1940, as amended (the "1940 Act"), a "vote of a majority of the outstanding
voting securities" of the Fund means the affirmative vote of the lesser of (i)
more than 50% of the outstanding voting securities of the Fund or (ii) 67% or
more of the shares of the Fund present at a shareholders meeting if more than
50% of the outstanding voting securities of the Fund are represented at the
meeting in person or by proxy. The Fund MAY NOT:
1. Invest in securities for purposes of exercising management or control of the
issuer, except that all or substantially all of the assets of the Fund may be
invested in another registered investment company having the same investment
objective and policies as the Fund.
2. Borrow money, except in the form of reverse repurchase agreements or in
connection with short-sales and short-sales "against the box," or from banks in
order to meet redemption requests or for other temporary or emergency purposes
in an amount up to 15% of the value of the Fund's total assets (including the
amount borrowed) based on the lesser of cost or market, less liabilities (not
including the amount borrowed) at the time the borrowing is made. While
borrowings exceed 5% of the Fund's total assets, the Fund will not make any
additional investments.
3. Pledge, hypothecate, mortgage or otherwise encumber its assets, except to
secure borrowings to meet redemption requests or for temporary or emergency
purposes and permissible options, futures, short-selling or other hedging
transactions.
4. Purchase securities on margin or underwrite securities of other issuers,
except insofar as the Fund may be technically deemed an underwriter under the
federal securities laws in connection with the disposition of portfolio
securities. (This does not preclude the Fund from obtaining such short-term
credit as may be necessary for the clearance of purchases and sales of its
portfolio securities.)
5. Invest directly in interests in real estate, oil, gas or other mineral
leases, exploration or development programs, including limited partnership
interests. This restriction does not preclude investments in marketable
securities of issuers engaged in such activities.
6. Make loans to other persons, except by the purchase of debt obligations, or
through loans of the Fund's portfolio securities, or to the extent the entry
into a repurchase agreement or similar transaction may be deemed a loan.
7. Purchase or sell commodities or commodity futures contracts, except that the
Fund may enter into financial futures contracts based on securities or
securities indices and invest in put, call, straddle or spread options on
financial or other futures contracts.
8. Purchase from or sell to its officers and trustees, or any firm of which any
officer or trustee is a member, as principal, any securities, but the Fund may
deal with such persons or firms as brokers and pay a customary brokerage
commission; nor invest in securities of any issuer if any officer, director or
trustee of the Fund or the investment advisor owns beneficially more than
one-half of 1% of the outstanding securities of such issuer and all such
officers, directors and trustees together own beneficially more than 5% of such
securities except as indicated under restriction number nine.
9. Invest in the securities of other investment companies, except where there is
no commission other than the customary brokerage commission or sales charge, or
except that securities of another investment company may be acquired pursuant to
a plan of reorganization, merger, consolidation or acquisition; except that all
or substantially all of the assets of the Fund may be invested in another
registered investment company having the same investment objective and policies
as the Fund. Pursuant to available exemptions from the 1940 Act, the Fund may
invest in shares of one or more money market funds managed by Franklin Advisers,
Inc. or its affiliates.
In addition to the restrictions above, the Fund does not intend to invest more
than 5% of its assets in securities of issuers with less than three years
continuous operation, including the operations of any predecessor companies.
The Fund also does not intend to hold or purchase the securities of any issuer
if, as a result, in the aggregate, more than 10% of the value of the Fund's
total assets would be invested in (i) securities that are not readily marketable
or (ii) repurchase agreements maturing in more than seven days.
If a percentage restriction is adhered to at the time of investment, a
subsequent increase or decrease in a percentage resulting from a change in the
value of assets will not constitute a violation of that restriction, except as
otherwise noted.
OFFICERS AND TRUSTEES
The Board of Trustees (the "Board") has the responsibility for the overall
management of the Fund, including general supervision and review of its
investment activities. The trustees, in turn, elect the officers of the Fund who
are responsible for administering day-to-day operations of the Fund. The
affiliations of the officers and trustees and their principal occupations for
the past five years are listed below. Trustees who are deemed to be "interested
persons" of the Fund, as defined in the 1940 Act, are indicated by an asterisk
(*).
NAME, AGE POSITIONS AND OFFICES PRINCIPAL OCCUPATIONS
AND ADDRESS WITH THE TRUST DURING PAST FIVE YEARS
- ----------- -------------- ----------------------
Frank T. Crohn (71)
7251 West Palmetto Park Road
Boca Raton, FL 33433
Trustee
Chairman and Chief Executive Officer, Financial Benefit Life Insurance Company
and Financial Benefit Group, Inc.; Director, Unity Mutual Life Insurance
Company; and trustee of three of the investment companies in the Franklin Group
of Funds.
*William J. Lippman (70)
One Parker Plaza
Fort Lee, NJ 07024
President, Chief Executive Officer and Trustee
Senior Vice President, Franklin Resources, Inc., Franklin Advisers, Inc.,
Franklin Templeton Distributors, Inc. and Franklin Management, Inc.; officer
and/or director or trustee of six of the investment companies in the Franklin
Group of Funds.
Charles Rubens II (65)
18 Park Road
Scarsdale, NY 10583
Trustee
Private Investor; and trustee of three of the investment companies in the
Franklin Group of Funds.
Leonard Rubin (70)
501 Broad Avenue
Ridgefield, NJ 07657
Trustee
Chairman of the Board, Carolace Embroidery Co., Inc.; President, F.N.C Textiles,
Inc.; Vice President, Trimtex Co. Inc.; and trustee of three of the investment
companies in the Franklin Group of Funds.
Harmon E. Burns (50)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Executive Vice President, Secretary and Director, Franklin Resources, Inc.;
Executive Vice President and Director, Franklin Templeton Distributors, Inc.;
Executive Vice President, Franklin Advisers, Inc.; Director, Franklin/Templeton
Investor Services, Inc.; officer and/or director, as the case may be, of other
subsidiaries of Franklin Resources, Inc.; and officer and/or director or trustee
of 43 of the investment companies in the Franklin Templeton Group of Funds.
Kenneth V. Domingues (63)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President - Financial Reporting and Accounting Standards
Senior Vice President, Franklin Resources, Inc., Franklin Advisers, Inc., and
Franklin Templeton Distributors, Inc.; officer and/or director, as the case may
be, of other subsidiaries of Franklin Resources, Inc.; and officer and/or
managing general partner, as the case may be, of 37 of the investment companies
in the Franklin Group of Funds.
Martin L. Flanagan (35)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Chief Financial Officer
Senior Vice President, Chief Financial Officer and Treasurer, Franklin
Resources, Inc.; Executive Vice President, Templeton Worldwide, Inc.; Senior
Vice President and Treasurer, Franklin Advisers, Inc. and Franklin Templeton
Distributors, Inc.; Senior Vice President, Franklin/Templeton Investor Services,
Inc.; officer of most other subsidiaries of Franklin Resources, Inc.; and
officer of 61 of the investment companies in the Franklin Templeton Group of
Funds.
Deborah R. Gatzek (47)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Secretary
Senior Vice President - Legal, Franklin Resources, Inc. and Franklin Templeton
Distributors, Inc.; Vice President, Franklin Advisers, Inc. and officer of 37 of
the investment companies in the Franklin Group of Funds.
Rupert H. Johnson, Jr. (55)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Executive Vice President and Director, Franklin Resources, Inc. and Franklin
Templeton Distributors, Inc.; President and Director, Franklin Advisers, Inc.;
Director, Franklin/Templeton Investor Services, Inc.; and officer and/or
director, trustee or managing general partner, as the case may be, of most other
subsidiaries of Franklin Resources, Inc. and of 43 of the investment companies
in the Franklin Templeton Group of Funds.
Diomedes Loo-Tam (56)
777 Mariners Island Blvd.
San Mateo, CA 94404
Treasurer and Principal Accounting Officer
Employee of Franklin Advisers, Inc.; and officer of 37 of the investment
companies in the Franklin Group of Funds.
Edward V. McVey (58)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Senior Vice President/National Sales Manager, Franklin Templeton Distributors,
Inc.; and officer of 32 of the investment companies in the Franklin Group of
Funds.
R. Martin Wiskemann (68)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Senior Vice President, Portfolio Manager and Director, Franklin Advisers, Inc.;
Senior Vice President, Franklin Management, Inc.; Vice President, Treasurer and
Director, ILA Financial Services, Inc. and Arizona Life Insurance Company of
America; and officer and/or director, as the case may be, of 20 of the
investment companies in the Franklin Group of Funds.
The preceding table indicates those officers and trustees who are also
affiliated persons of Distributors and Advisers. Trustees not affiliated with
the investment manager ("nonaffiliated trustees") are currently paid fees of
$600 per quarter plus $300 per meeting attended. As indicated above, certain of
the Trust's nonaffiliated trustees also serve as directors, trustees or managing
general partners of other investment companies in the Franklin Group of Funds(R)
from which they may receive fees for their services. The following table
indicates the total fees paid to nonaffiliated trustees by the Trust and by
other funds in the Franklin Group of Funds.
<TABLE>
<CAPTION>
NUMBER OF BOARDS IN
TOTAL FEES RECEIVED THE FRANKLIN GROUP OF
FROM THE FRANKLIN FUNDS ON WHICH EACH
TOTAL FEES GROUP OF FUNDS** SERVES***
RECEIVED FROM THE
NAME TRUST*
<S> <C> <C> <C>
Frank T. Crohn $3,900 $14,700 3
Charles Rubens, II $3,900 $15,900 3
Leonard Rubin $3,900 $15,900 3
</TABLE>
*For the fiscal year ended October 31, 1995.
**For the calendar year ended December 31, 1994.
***The number of boards is based on the number of registered investment
companies in the Franklin Group of Funds and does not include the total number
of series or funds within each investment company for which the trustees are
responsible.
Nonaffiliated trustees are reimbursed for expenses incurred in connection with
attending board meetings, paid pro rata by each fund in the Franklin Templeton
Group of Funds for which they serve as director, trustee or managing general
partner. No officer or trustee received any other compensation directly from the
Trust. Certain officers or trustees who are shareholders of Franklin Resources,
Inc. may be deemed to receive indirect remuneration by virtue of their
participation, if any, in the fees paid to its subsidiaries.
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 the
date of this document, Franklin Resources, Inc. owned substantially all of the
outstanding shares of the Fund as a result of having provided the Fund's initial
capitalization.
INVESTMENT ADVISORY AND OTHER SERVICES
The investment manager of the Fund is Franklin Advisers, Inc. ("Advisers" or
"Manager"). Advisers is a wholly-owned subsidiary of Franklin Resources, Inc.
("Resources"), a publicly owned holding company whose shares are listed on the
New York Stock Exchange (the "Exchange"). Resources owns several other
subsidiaries which are involved in investment management and shareholder
services.
Pursuant to a management agreement with the Fund, the Manager provides
investment research and portfolio management services, including the selection
of securities for the Fund to purchase, hold or sell and the selection of
brokers through whom the Fund's portfolio transactions are executed. The
Manager's activities are subject to the review and supervision of the Board to
whom the Manager renders periodic reports of the Fund's investment activities.
Under the terms of the management agreement, the Manager provides office space
and office furnishings, facilities and equipment required for managing the
business affairs of the Fund; maintains all internal bookkeeping, clerical,
secretarial and administrative personnel and services; and provides certain
telephone and other mechanical services. The Manager is covered by fidelity
insurance on its officers, directors and employees for the protection of the
Fund.
Pursuant to the management agreement, the Fund is obligated to pay the Manager a
fee computed daily and paid monthly at the annual rate of 0.75% of the Fund's
average daily net assets.
The management agreement is in effect until March 6, 1997. Thereafter, it may
continue in effect for successive annual periods providing such continuance is
specifically approved at least annually by a vote of the Board or by a vote of
the holders of a majority of the Fund's outstanding voting securities, and in
either event by a majority vote of the trustees who are not parties to the
management agreement or interested persons of any such party (other than as
trustees of the Fund), cast in person at a meeting called for that purpose. The
management agreement may be terminated without penalty at any time by the Board
or by a vote of the holders of a majority of the Fund's outstanding voting
securities or by the Manager on 60 days' written notice and will automatically
terminate in the event of its assignment, as defined in the 1940 Act.
Franklin/Templeton Investor Services, Inc. ("Investor Services" or "Shareholder
Services Agent"), a wholly-owned subsidiary of Resources, is the shareholder
servicing agent for the Fund and acts as the Fund's transfer agent and
dividend-paying agent. Investor Services is compensated on the basis of a fixed
fee per account.
Bank of America NT & SA, 555 California Street, 4th Floor, San Francisco,
California 94104, acts as custodian of the securities and other assets of the
Fund. Citibank Delaware, One Penn's Way, New Castle, Delaware 19720, acts as
custodian in connection with transfer services through bank automated clearing
houses. The custodians do not participate in decisions relating to the purchase
and sale of portfolio securities.
Coopers & Lybrand L.L.P., 333 Market Street, San Francisco, California 94105,
are the Fund's independent auditors.
HOW DOES THE FUND PURCHASE SECURITIES FOR ITS PORTFOLIO?
Under the current management agreement with Advisers, the selection of brokers
and dealers to execute transactions in the Fund's portfolio is made by the
Manager in accordance with criteria set forth in the management agreement and
any directions which the Board may give.
When placing a portfolio transaction, the Manager attempts to obtain the best
net price and execution of the transaction. On portfolio transactions which are
done on a securities exchange, the amount of commission paid by the Fund is
negotiated between the Manager and the broker executing the transaction. The
Manager seeks to obtain the lowest commission rate available from brokers which
are felt to be capable of efficient execution of the transactions. The
determination and evaluation of the reasonableness of the brokerage commissions
paid in connection with portfolio transactions are based to a large degree on
the professional opinions of the persons responsible for the placement and
review of such transactions. These opinions are formed on the basis of, among
other things, the experience of these individuals in the securities industry and
information available to them concerning the level of commissions being paid by
other institutional investors of comparable size. The Manager will ordinarily
place orders for the purchase and sale of over-the-counter securities on a
principal rather than agency basis with a principal market maker unless, in the
opinion of the Manager, a better price and execution can otherwise be obtained.
Purchases of portfolio securities from underwriters will include a commission or
concession paid by the issuer to the underwriter, and purchases from dealers
will include a spread between the bid and ask price. The Fund seeks to obtain
prompt execution of orders at the most favorable net price.
The amount of commission is not the only relevant factor to be considered in the
selection of a broker to execute a trade. If it is felt to be in the Fund's best
interests, the Manager may place portfolio transactions with brokers who provide
the types of services described below, even if it means the Fund will have to
pay a higher commission than would be the case if no weight were given to the
broker's furnishing of these services. This will be done only if, in the opinion
of the Manager, the amount of any additional commission is reasonable in
relation to the value of the services. Higher commissions will be paid only when
the brokerage and research services received are bona fide and produce a direct
benefit to the Fund or assist the Manager in carrying out its responsibilities
to the Fund, or when it is otherwise in the best interest of the Fund to do so,
whether or not such data may also be useful to the Manager in advising other
clients.
When it is felt that several brokers are equally able to provide the best net
price and execution, the Manager may decide to execute transactions through
brokers who provide quotations and other services to the Fund, specifically
including the quotations necessary to determine the value of the Fund's net
assets, in such amount of total brokerage as may reasonably be required in light
of such services, and through brokers who supply research, statistical and other
data to the Fund and Manager in such amount of total brokerage as may reasonably
be required.
It is not possible to place a dollar value on the special executions or on the
research services received by Advisers from dealers effecting transactions in
portfolio securities. The allocation of transactions in order to obtain
additional research services permits Advisers to supplement its own research and
analysis activities and to receive the views and information of individuals and
research staff of other securities firms. As long as it is lawful and
appropriate to do so, the Manager and its affiliates may use this research and
data in their investment advisory capacities with other clients. Provided that
the officers of the Trust are satisfied that the best execution is obtained, the
sale of Fund shares may also be considered as a factor in the selection of
broker-dealers to execute the Fund's portfolio transactions.
Because Distributors is a member of the National Association of Securities
Dealers, it is sometimes entitled to obtain certain fees when the Fund tenders
portfolio securities pursuant to a tender-offer solicitation. As a means of
recapturing brokerage for the benefit of the Fund, any portfolio securities
tendered by the Fund will be tendered through Distributors if it is legally
permissible to do so. In turn, the next management fee payable to Advisers under
the management agreement will be reduced by the amount of any fees received by
Distributors in cash, less any costs and expenses incurred in connection
therewith.
If purchases or sales of securities of the Fund and one or more other investment
companies or clients supervised by the Manager are considered at or about the
same time, transactions in such securities will be allocated among the several
investment companies and clients in a manner deemed equitable to all by the
Manager, taking into account the respective sizes of the funds and the amount of
securities to be purchased or sold. It is recognized that in some cases this
procedure could possibly have a detrimental effect on the price or volume of the
security so far as the Fund is concerned. In other cases it is possible that the
ability to participate in volume transactions and to negotiate lower brokerage
commissions will be beneficial to the Fund.
HOW DO I BUY AND SELL SHARES?
All checks, drafts, wires and other payment mediums used for purchasing or
redeeming shares of the Fund must be denominated in U.S. dollars. The Fund
reserves the right, in its sole discretion, to either (a) reject any order for
the purchase or sale of shares denominated in any other currency, or (b) honor
the transaction or make adjustments to your account for the transaction as of a
date and with a foreign currency exchange factor determined by the drawee bank.
In connection with exchanges (see the Prospectus "What If My Investment Outlook
Changes? - Exchange Privilege"), it should be noted that since the proceeds from
the sale of shares of an investment company generally are not available until
the fifth business day following the redemption, the funds into which you are
seeking to exchange reserve the right to delay issuing shares pursuant to an
exchange until said fifth business day. The redemption of shares of the Fund to
complete an exchange will be effected at the close of business on the day the
request for exchange is received in proper form at the net asset value then
effective.
The Fund may impose a $10 charge for each returned item, against your account
if, in connection with the purchase of Fund shares, you submit a check or a
draft which is returned unpaid to the Fund.
Dividend checks which are returned to the Fund marked "unable to forward" by the
postal service will be deemed to be a request by you to change the dividend
option and the proceeds will be reinvested in additional shares at net asset
value until new instructions are received.
The Fund may deduct from your account the cost of its efforts to locate you if
mail is returned as undeliverable or the Fund is otherwise unable to locate you
or verify your current mailing address. These costs may include a percentage of
the account when a search company charges a percentage fee in exchange for its
location services.
Under agreements with certain banks in Taiwan, Republic of China, the Fund's
shares are available to such banks' discretionary trust funds at net asset
value. The banks may charge service fees to their customers who participate in
the discretionary trusts. Pursuant to agreements, a portion of such service fees
may be paid to Distributors, or an affiliate of Distributors, to help defray
expenses of maintaining a service office in Taiwan, including expenses related
to local literature fulfillment and communication facilities.
Shares of the Fund may be offered to investors in Taiwan through securities
firms known locally as Securities Investment Consulting Enterprises. In
conformity with local business practices in Taiwan, shares of the Fund will be
offered with the following schedule of sales charges:
SIZE OF PURCHASE - IN U.S. DOLLARS SALES CHARGE
Up to $100,000 3%
$100,000 to $1,000,000 2%
Over $1,000,000 1%
PURCHASES AND REDEMPTIONS THROUGH SECURITIES DEALERS
Orders for the purchase of shares of the Fund received in proper form prior to
the scheduled close of the Exchange (generally 1:00 p.m. Pacific time) any
business day that the Exchange is open for trading and promptly transmitted to
the Fund will be based upon the public offering price determined that day.
Purchase orders received by securities dealers or other financial institutions
after the scheduled close of the Exchange will be effected at the Fund's public
offering price on the day it is next calculated. The use of the term "securities
dealer" herein shall include other financial institutions which, either directly
or through affiliates, have an agreement with Distributors to handle customer
orders and accounts with the Fund. Such reference, however, is for convenience
only and does not indicate a legal conclusion of capacity.
Orders for the redemption of shares are effected at net asset value subject to
the same conditions concerning time of receipt in proper form. It is the
securities dealer's responsibility to transmit the order in a timely fashion and
any loss to the customer resulting from failure to do so must be settled between
the customer and the securities dealer.
SPECIAL NET ASSET VALUE PURCHASES
As discussed in the Prospectus under "How Do I Buy Shares? - Description of
Special Net Asset Value Purchases," certain categories of investors may purchase
shares of the Fund without a front-end sales charge ("net asset value") or a
contingent deferred sales charge. Either Distributors or one of its affiliates
may make payments, out of its own resources, to securities dealers who initiate
and are responsible for such purchases, as indicated below. Distributors may
make these payments in the form of contingent advance payments, which may be
recovered from the securities dealer, or set off against other payments due to
the securities dealer, in the event of investor redemptions made 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 its
affiliates, and the securities dealer.
The following amounts may be paid by Distributors or one of its affiliates, out
of its own resources, to securities dealers who initiate and are responsible for
purchases of shares of the Fund made at net asset value by certain designated
retirement plans (excluding IRA and IRA rollovers): 1% on sales of $1 million
but less than $2 million, plus 0.80% on sales of $2 million but less than $3
million, plus 0.50% on sales of $3 million but less than $50 million, plus 0.25%
on sales of $50 million but less than $100 million, plus 0.15% on sales of $100
million or more. These payment breakpoints are reset every 12 months for
purposes of additional purchases. With respect to purchases made at net asset
value by certain trust companies and trust departments of banks and certain
retirement plans of organizations with collective retirement plan assets of $10
million or more, either Distributors or one of its affiliates, out of its own
resources, may pay up to 1% of the amount invested.
LETTER OF INTENT
You may qualify for a reduced sales charge on the purchase of shares of the
Fund, as described in the Prospectus. At any time within 90 days after the first
investment which you want to qualify for the reduced sales charge, a signed
Shareholder Application, with the Letter of Intent (the "Letter") section
completed, may be filed with the Fund. After the Letter is filed, each
additional investment will be entitled to the sales charge applicable to the
level of investment indicated on the Letter. Sales charge reductions based upon
purchases in more than one of the Franklin Templeton Funds will be effective
only after notification to Distributors that the investment qualifies for a
discount. Your holdings in the Franklin Templeton Funds, including Class II
shares, acquired more than 90 days before the Letter is filed will be counted
towards completion of the Letter but will not be entitled to a retroactive
downward adjustment in the sales charge. Any redemptions made, other than by a
designated benefit plan, during the 13-month period will be subtracted from the
amount of the purchases for purposes of determining whether the terms of the
Letter have been completed. If the Letter is not completed within the 13-month
period, there will be an upward adjustment of the sales charge, depending upon
the amount actually purchased (less redemptions) during the period. The upward
adjustment does not apply to designated benefit plans. If you execute a Letter
prior to a change in the sales charge structure for the Fund you will be
entitled to complete the Letter at the lower of the new sales charge structure
or the sales charge structure in effect at the time the Letter was filed with
the Fund.
As mentioned in the Prospectus, five percent (5%) of the amount of the total
intended purchase will be reserved in shares of the Fund registered in your
name, unless you are a designated benefit plan. If the total purchases, less
redemptions, equal the amount specified under the Letter, the reserved shares
will be deposited to an account in your name or delivered to you or your order.
If the total purchases, less redemptions, exceed the amount specified under the
Letter and is an amount which would qualify for a further quantity discount, a
retroactive price adjustment will be made by Distributors and the securities
dealer through whom purchases were made pursuant to the Letter (to reflect such
further quantity discount) on purchases made within 90 days before and on those
made after filing the Letter. The resulting difference in offering price will be
applied to the purchase of additional shares at the offering price applicable to
a single purchase or the dollar amount of the total purchases. If the total
purchases, less redemptions, are less than the amount specified under the
Letter, you will remit to Distributors an amount equal to the difference in the
dollar amount of sales charge actually paid and the amount of sales charge which
would have applied to the aggregate purchases if the total of such purchases had
been made at a single time. Upon such remittance the reserved shares held for
your account will be deposited to an account in your name or delivered to you or
your order. If within 20 days after written request such difference in sales
charge is not paid, the redemption of an appropriate number of reserved shares
to realize such difference will be made. In the event of a total redemption of
the account prior to fulfillment of the Letter, the additional sales charge due
will be deducted from the proceeds of the redemption, and the balance will be
forwarded to you.
If a Letter of Intent is executed on behalf of a benefit plan (such plans are
described under "Description of Special Net Asset Value Purchases" in the
Prospectus), the level and any reduction in sales charge for these designated
benefit plans will be based on actual plan participation and the projected
investments in the Franklin Templeton Funds under the Letter. Benefit plans are
not subject to the requirement to reserve 5% of the total intended purchase, or
to any penalty as a result of the early termination of a plan, nor are benefit
plans entitled to receive retroactive adjustments in price for investments made
before executing the Letter.
REDEMPTIONS IN KIND
The Fund has committed itself to pay in cash (by check) all requests for
redemption by any shareholder of record, limited in amount, however, during any
90-day period to the lesser of $250,000 or 1% of the value of the Fund's net
assets at the beginning of such period. Such commitment is irrevocable without
the prior approval of the Securities and Exchange Commission ("SEC"). In the
case of requests for redemption in excess of such amounts, the trustees reserve
the right to make payments in whole or in part in securities or other assets of
the Fund from which you are redeeming, in case of an emergency, or if the
payment of such a redemption in cash would be detrimental to the existing
shareholders of the Fund. In such circumstances, the securities distributed
would be valued at the price used to compute the Fund's net assets. Should the
Fund do so, you may incur brokerage fees in converting the securities to cash.
The Fund does not intend to redeem illiquid securities in kind; however, should
it happen, you may not be able to timely recover your investment and may also
incur brokerage costs in selling such securities.
REDEMPTIONS BY THE FUND
Due to the relatively high cost of handling small investments, the Fund reserves
the right to redeem, involuntarily, at net asset value, your shares if your
account has a value of less than one-half of the initial minimum investment
required for you, but only where the value of such account has been reduced by
the prior voluntary redemption of shares. Until further notice, it is the
present policy of the Fund not to exercise this right if your account has a
value of $1,250 or more. In any event, before the Fund redeems such shares and
sends you the proceeds, it will notify you that the value of the shares in your
account is less than the minimum amount and allow you 30 days to make an
additional investment in an amount which will increase the value of the account
to at least $2,500.
REINVESTMENT DATE
Shares acquired through the reinvestment of dividends will be purchased at the
net asset value determined on the business day following the dividend record
date (sometimes known as "ex-dividend date"). The processing date for the
reinvestment of dividends may vary from month to month and does not affect the
amount or value of the shares acquired.
REPORTS TO SHAREHOLDERS
The Fund sends annual and semiannual reports to you regarding the Fund's
performance and its portfolio holdings. If you would like to receive an interim
quarterly report you may phone Fund Information at 1-800/DIAL BEN.
SPECIAL SERVICES
The Franklin Templeton Institutional Services Department provides specialized
services, including recordkeeping, for institutional investors of the Fund. The
cost of these services is not borne by the Fund.
Investor Services may pay certain financial institutions which maintain omnibus
accounts with the Fund on behalf of numerous beneficial owners for recordkeeping
operations performed with respect to such beneficial owners. For each beneficial
owner in the omnibus account, the Fund may reimburse Investor Services an amount
not to exceed the per account fee which the Fund normally pays Investor
Services. Such financial institutions may also charge a fee for their services
directly to their clients.
HOW ARE FUND SHARES VALUED?
As noted in the Prospectus, the Fund calculates net asset value as of the
scheduled close of the Exchange (generally 1:00 p.m. Pacific time) each day that
the Exchange is open for trading. As of the date of this SAI, the Fund is
informed that the Exchange observes the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
For the purpose of determining the aggregate net assets of the Fund, cash and
receivables are valued at their realizable amounts. Interest is recorded as
accrued and dividends are recorded on the ex-dividend date. Portfolio securities
listed on a securities exchange or on the NASDAQ National Market System for
which market quotations are readily available are valued at the last quoted sale
price of the day or, if there is no such reported sale, within the range of the
most recent quoted bid and ask prices. The value of a foreign security is
determined as of the close of trading on the foreign exchange on which it is
traded or as of the scheduled close of trading on the Exchange, if that is
earlier, and that 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
mean between the current bid and asked price is used. Occasionally, events which
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 Fund's net asset
value. If events materially affecting the value of these foreign securities
occur during such period, then these securities will be valued in accordance
with procedures established by the Board.
Over-the-counter securities are valued within the range of the most recent
quoted bid and ask price. Portfolio securities which are traded both in the
over-the-counter market and on a stock exchange are valued according to the
broadest and most representative market as determined by the Manager. Portfolio
securities underlying actively traded call options are valued at their market
price as determined above. The current market value of any option held by the
Fund is its last sale price on the relevant exchange prior to the time when
assets are valued. Lacking any sales that day or if the last sale price is
outside the bid and ask prices, the options are valued within the range of the
current closing bid and ask prices if such valuation is believed to fairly
reflect the contract's market value. Other securities for which market
quotations are readily available are valued at the current market price, which
may be obtained from a pricing service, based on a variety of factors including
recent trades, institutional size trading in similar types of securities
(considering yield, risk and maturity) and/or developments related to specific
issues. Securities and other assets for which market prices are not readily
available are valued at fair value as determined following procedures approved
by the Board. With the approval of trustees, the Fund may utilize a pricing
service, bank or securities dealer to perform any of the above described
functions.
Generally, trading in corporate bonds, U.S. government securities and money
market instruments is substantially completed each day at various times prior to
the scheduled close of the Exchange. The value of such securities used in
computing the net asset value of the Fund's shares is determined as of such
times. Occasionally, events affecting the value of such securities may occur
between the times at which they are determined and the scheduled close of the
Exchange which will not be reflected in the computation of the Fund's net asset
value. If events materially affecting the value of such securities occur during
such period, then these securities will be valued at their fair value as
determined in good faith by the Board.
ADDITIONAL INFORMATION
REGARDING TAXATION
GENERALLY. As stated in the Prospectus, the Fund intends to qualify and elect to
be treated as a regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"). The trustees reserve the right
not to maintain the qualification of the Fund as a regulated investment company
if they determine such course of action to be beneficial to shareholders. In
such case, the Fund will be subject to federal and possibly state corporate
taxes on its taxable income and gains, and distributions to shareholders will be
taxable to the extent of the Fund's available earnings and profits.
Subject to the limitations discussed below, all or a portion of the income
distributions paid by the Fund may be treated by corporate shareholders as
qualifying dividends for purposes of the dividends-received deduction under
federal income tax law. If the aggregate qualifying dividends received by the
Fund (generally, dividends from U.S. domestic corporations, the stock in which
is not debt-financed by the Fund and is held for at least a minimum holding
period) is less than 100% of its distributable income, then the amount of the
Fund's dividends paid to corporate shareholders which may be designated as
eligible for such deduction will not exceed the aggregate qualifying dividends
received by the Fund for the taxable year. The amount or percentage of income
qualifying for the corporate dividends-received deduction will be provided by
the Fund annually in a notice to shareholders mailed shortly after the end of
the Fund's fiscal year.
Corporate shareholders should note that dividends paid by the Fund from sources
other than the qualifying dividends it receives will not qualify for the
dividend-received deduction. For example, any interest income and net short-term
capital gain (in excess of any net long-term capital loss or capital loss
carryover) included in investment company taxable income and distributed by the
Fund as a dividend will not qualify for the dividends-received deduction.
Corporate shareholders should also note that availability of the corporate
dividends-received deduction is subject to certain restrictions. For example,
the deduction is eliminated unless Fund shares have been held (or deemed held)
for at least 46 days in a substantially unhedged manner. The dividends-received
deduction may also be reduced to the extent interest paid or accrued by a
corporate shareholder is directly attributable to its investment in Fund shares.
The entire dividend, including the portion which is treated as a deduction, is
includable in the tax base on which the federal alternative minimum tax is
computed and may also result in a reduction in the shareholder's tax basis in
its Fund shares, under certain circumstances, if the shares have been held for
less than two years. Corporate shareholders whose investment in the Fund is
"debt financed" for these tax purposes should consult with their tax advisors
concerning the availability of the dividends-received deduction.
The Code requires all funds to distribute at least 98% of their taxable ordinary
income earned during the calendar year and at least 98% of their capital gain
net income earned during the twelve month period ending October 31 of each year
(in addition to amounts from the prior year that were neither distributed nor
taxed to the Fund) to shareholders by December 31 of each year in order to avoid
the imposition of a federal excise tax. Under these rules, certain distributions
which are declared in October, November or December but which, for operational
reasons, may not be paid to the shareholder until the following January, will be
treated for tax purposes as if paid by the Fund and received by the shareholder
on December 31 of the calendar year in which they are declared. The Fund intends
as a matter of policy to declare such dividends, if any, in December and to pay
these dividends in December or January to avoid the imposition of this tax, but
does not guarantee that its distributions will be sufficient to avoid any or all
federal excise taxes.
Redemptions and exchanges of Fund shares are taxable transactions for federal
and state income tax purposes. For most shareholders, gain or loss will be
recognized in an amount equal to the difference between the shareholder's basis
in the shares and the amount received, subject to the rules described below. If
such shares are a capital asset in the hands of the shareholder, gain or loss
will be capital gain or loss and will be long-term for federal income tax
purposes if the shares have been held for more than one year.
All or a portion of the sales charge incurred in purchasing shares of the Fund
will not be included in the federal tax basis of such shares sold or exchanged
within 90 days of their purchase (for purposes of determining gain or loss with
respect to such shares) if the sales proceeds are reinvested in the Fund or in
another fund in the Franklin Templeton Group of Funds and a sales charge which
would otherwise apply to the reinvestment is reduced or eliminated. Any portion
of such sales charge excluded from the tax basis of the shares sold will be
added to the tax basis of the shares acquired in the reinvestment. Shareholders
should consult with their tax advisors concerning the tax rules applicable to
the redemption or exchange of Fund shares.
All or a portion of a loss realized upon a redemption of shares will be
disallowed to the extent other shares of the Fund are purchased (through
reinvestment of dividends or otherwise) within 30 days before or after such
redemption. Any loss disallowed under these rules will be added to the tax basis
of the shares purchased.
THE FUND'S INVESTMENTS - GENERALLY. The Fund's investment in options, futures
and forward contracts, options on futures, forward contracts and stock indices,
foreign currencies and securities, synthetic and enhanced convertible
securities, structured notes, zero coupon/deferred interest securities and
pay-in-kind bonds, and its participation in spread and straddle transactions, or
actual or deem short sales may require the application of many complex and
special tax rules.
Absent a tax election to the contrary, each such Section 1256 position held by
the Fund will be marked-to-market (i.e., treated as if it were sold for fair
market value) on the last business day of the Fund's fiscal year, and all gain
or loss associated with fiscal year transactions and mark-to-market positions at
fiscal year end (except certain foreign currency gain or loss covered by Section
988 of the Code) will generally be treated as 60% long-term capital gain or loss
and 40% short-term capital gain or loss. The effect of Section 1256
mark-to-market rules may be to accelerate income or to convert what otherwise
would have been long-term capital gains into short-term capital gains or
short-term capital losses into long-term capital losses within the Fund. The
acceleration of income on Section 1256 positions may require the Fund to accrue
taxable income without the corresponding receipt of cash. In order to generate
cash to satisfy the distribution requirements of the Code, the Fund may be
required to dispose of portfolio securities that it otherwise would have
continued to hold or to use cash flows from other sources such as the sale of
Fund shares. In these ways, any or all of these rules may affect both the
amount, character and time of income distributed to shareholders by the Fund.
OPTIONS AND RELATED TAX RULES. When the Fund holds an option or contract which
substantially diminishes the Fund's risk of loss with respect to another
position of the Fund (as might occur in some hedging transactions), this
combination of positions could be treated as a "straddle" for tax purposes,
resulting in possible deferral of losses, adjustments in the holding periods of
Fund securities and conversion of short-term capital losses into long-term
capital losses.
As a regulated investment company, the Fund is also subject to the requirement
that less than 30% of its annual gross income be derived from the sale or other
disposition of securities and certain other investments held for less than three
months ("short-short income"). This requirement may limit the Fund's ability to
engage in options and hedging transactions because these transactions are often
consummated in less than three months, may require the sale of portfolio
securities held less than three months and may, as in the case of short sales of
portfolio securities, reduce the holding periods of certain securities within
the Fund, resulting in additional short-short income for the Fund.
The Fund will monitor its transactions in such options and contracts and may
make certain other tax elections in order to mitigate the effect of the above
rules and to prevent disqualification of the Fund as a regulated investment
company under Subchapter M of the Code.
FOREIGN SECURITIES. The Fund is authorized to invest in foreign securities (see
the discussion in the prospectus under "Other Types of Securities in Which the
Fund May Invest"). Such investments, if made, will have the following tax
consequences.
Foreign exchange gains and losses realized by the Fund in connection with
certain transactions involving foreign currencies, foreign currency payables or
receivables, foreign currency-denominated debt securities, foreign currency
forward contracts, and options or futures contracts on foreign currencies are
subject to special tax rules which may cause such gains and losses to be treated
as ordinary income and losses rather than capital gains and losses, and may
affect the amount and timing of the Fund's income or loss from such transactions
and in turn it distributions to shareholders.
The Fund may be subject to foreign withholding taxes on income from certain of
its foreign securities. Because the Fund intends to invest 50% or less of its
total assets in securities of foreign corporations, it will not be entitled
under the Code to pass-through to its shareholders their pro-rata share of the
foreign taxes paid by the Fund. These taxes will be taken as a deduction by the
Fund.
CONVERSION TRANSACTIONS. Gain realized by the Fund from transactions that are
deemed to constitute "conversion transactions" under the Code and which would
otherwise produce capital gain may be recharacterized as ordinary income to the
extent that such gain does not exceed an amount defined by the Code as the
"applicable imputed income amount." A conversion transaction is any transaction
in which substantially all of the Fund's expected return is attributable to the
time value of the Fund's net investment in such transaction and any one of the
following criteria are met: 1) there is an acquisition of property with a
substantially contemporaneous agreement to sell the same or substantially
identical property in the future; 2) the transaction is an applicable straddle;
3) the transaction was marketed or sold to the Fund on the basis that it would
have the economic characteristics of a loan but would be taxed as capital gain;
or 4) the transaction is specified in Treasury regulations to be promulgated in
the future. The applicable imputed income amount, which represents the deemed
return on the conversion transaction based upon the time value of money, is
computed using a yield equal to 120 percent of the applicable federal rate,
reduced by any prior recharacterizations under this provision or Section 263(g)
of the Code concerning capitalized carrying costs.
ZERO COUPON/DEFERRED INTEREST AND PAY-IN-KIND BONDS. The Fund's investment in
zero coupon/deferred interest or pay-in-kind bonds that provide for the payment
of delayed interest may cause the Fund to recognize income and make
distributions to shareholders prior to the receipt of cash payments on these
obligations. These debt instruments are subject to special tax rules concerning
the amount, character and timing of income required to be accrued by the Fund.
The Fund may be required to accrue income for income tax purposes on these
obligations and to distribute such income to the Fund's shareholders even though
the Fund is not currently receiving interest or principal payments on the
obligations. In order to generate cash to satisfy distribution requirements, the
Fund may be required to dispose of portfolio securities that it otherwise would
have continued to hold or to use cash flows from other sources such as the sale
of Fund shares.
U.S. GOVERNMENT SECURITIES. The Fund may also invest for temporary or defensive
purposes in securities of the U.S. Government and certain of its agencies or
instrumentalities. Many states grant tax-free status to dividends paid to
shareholders of regulated investment companies from interest earned by the fund
from direct obligations of the U.S. Government, subject in some states to
minimum investment requirements that must be met by the Fund. Investments in
mortgage-backed securities and repurchase agreements collateralized by U.S.
Government securities do not generally qualify for tax-free treatment. At the
end of each calendar year, the Fund will provide shareholders with the
percentage of any dividends paid which may qualify for such tax-free treatment.
Shareholders should then consult with their tax advisers with respect to the
application of their state and local income tax laws to these distributions.
THE FUND'S UNDERWRITER
Pursuant to an underwriting agreement in effect until March 31, 1996,
Distributors acts as principal underwriter in a continuous public offering for
shares of the Fund. The underwriting agreement will continue in effect for
successive annual periods provided that its continuance is specifically approved
at least annually by a vote of the Board or by a vote of the holders of a
majority of the Fund's outstanding voting securities, and in either event by a
majority vote of the trustees who are not parties to the underwriting agreement
or interested persons of any such party (other than as trustees of the Fund),
cast in person at a meeting called for that purpose. The underwriting agreement
terminates automatically in the event of its assignment and may be terminated by
either party on 90 days' written notice.
Distributors pays the expenses of distribution of Fund shares, including
advertising expenses and the costs of printing sales material and prospectuses
used to offer shares to the public. The Fund pays the expenses of preparing and
printing amendments to its registration statements and prospectuses (other than
those necessitated by the activities of Distributors) and of sending
prospectuses to existing shareholders.
DISTRIBUTION PLAN
The Fund has adopted a distribution plan pursuant to Rule 12b-1 under the 1940
Act (the "Plan") whereby the Fund may pay up to a maximum of 0.25% per annum of
its average daily net assets, payable quarterly, for expenses incurred in the
promotion and distribution of its shares. In addition, the Fund is permitted to
pay Distributors up to an additional 0.10% per annum of its average daily net
assets for reimbursement of such distribution expenses.
Pursuant to the Plan, Distributors or others will be entitled to be reimbursed
each quarter (up to the maximum as stated above) for actual expenses incurred in
the distribution and promotion of the Fund's shares, including, but not limited
to, the printing of prospectuses and reports used for sales purposes, expenses
of preparing and distributing sales literature and related expenses,
advertisements, and other distribution-related expenses, including a prorated
portion of Distributors' overhead expenses attributable to the distribution of
Fund shares, as well as any distribution or service fees paid to securities
dealers or their firms or others who have executed a servicing agreement with
the Fund, Distributors or its affiliates.
In addition to the payments to which Distributors or others are entitled under
the Plan, the Plan also provides that to the extent the Fund, the Manager or
Distributors or other parties on behalf of the Fund, the Manager or
Distributors, make payments that are deemed to be payments for the financing of
any activity primarily intended to result in the sale of shares of the Fund
within the context of Rule 12b-1 under the 1940 Act, then such payments shall be
deemed to have been made pursuant to the Plan.
In no event shall the aggregate asset-based sales charges which include payments
made under the Plan, plus any other payments deemed to be made pursuant to the
Plan, exceed the amount permitted to be paid pursuant to the Rules of Fair
Practice of the National Association of Securities Dealers, Inc., Article III,
Section 26(d)4.
The terms and provisions of the Plan relating to required reports, term, and
approval are consistent with Rule 12b-1.To the extent fees are for distribution
or marketing functions, as distinguished from administrative servicing or agency
transactions, certain banks will not be entitled to participate in the Plan as a
result of applicable federal law prohibiting certain banks from engaging in the
distribution of mutual fund shares. Such banking institutions, however, are
permitted to receive fees under the Plan for administrative servicing or for
agency transactions. If a bank were prohibited from providing such services, its
customers who are shareholders would be permitted to remain shareholders of the
Fund, and alternate means for continuing the servicing of such shareholders
would be sought. In such an event, changes in the services provided might occur
and such shareholders might no longer be able to avail themselves of any
automatic investment or other services then being provided by the bank. It is
not expected that shareholders would suffer any adverse financial consequences
as a result of any of these changes. Securities laws of states in which the
Fund's shares are offered for sale may differ from the interpretations of
federal law expressed herein, and banks and financial institutions selling
shares of the Fund may be required to register as dealers pursuant to state law.
The Plan has been approved in accordance with the provisions of Rule 12b-1. The
Plan is effective through March 6, 1997 and is renewable annually by a vote of
the Board, including a majority vote of the trustees who are non-interested
persons of the Trust and who have no direct or indirect financial interest in
the operation of the Plan, cast in person at a meeting called for that purpose.
It is also required that the selection and nomination of such trustees be done
by the non-interested trustees. The Plan and any related agreement may be
terminated at any time, without any penalty, by vote of a majority of the
non-interested trustees on not more than 60 days' written notice, by
Distributors on not more than 60 days' written notice, by any act that
constitutes an assignment of the management agreement with the Manager, or by
vote of a majority of the Fund's outstanding shares. Distributors or any dealer
or other firm may also terminate their respective distribution or service
agreement at any time upon written notice.
The Plan and any related agreements may not be amended to increase materially
the amount to be spent for distribution expenses without approval by a majority
of the Fund's outstanding shares, and all material amendments to the Plan or any
related agreements shall be approved by a vote of the non- interested trustees,
cast in person at a meeting called for the purpose of voting on any such
amendment.
Distributors is required to report in writing to the Board at least quarterly on
the amounts and purpose of any payment made under the Plan and any related
agreements, as well as to furnish the Board with such other information as may
reasonably be requested in order to enable the Board to make an informed
determination of whether the Plan should be continued.
GENERAL INFORMATION
PERFORMANCE
As noted in the Prospectus, the Fund may from time to time quote various
performance figures to illustrate the Fund's past performance. It may
occasionally cite statistics to reflect its volatility or risk.
Performance quotations by investment companies are subject to rules adopted by
the SEC. These rules require the use of standardized performance quotations or,
alternatively, that every non-standardized performance quotation furnished by
the Fund be accompanied by certain standardized performance information computed
as required by the SEC. Current yield and average annual compounded total return
quotations used by the Fund are based on the standardized methods of computing
performance mandated by the SEC. An explanation of those and other methods used
by the Fund to compute or express performance follows.
TOTAL RETURN
The average annual total return is determined by finding the average annual
compounded rates of return over one-, five- and ten-year periods, or fractional
portion thereof, that would equate an initial hypothetical $1,000 investment to
its ending redeemable value. The calculation assumes the maximum front-end sales
charge is deducted from the initial $1,000 purchase order, and income dividends
and capital gains are reinvested at net asset value. The quotation assumes the
account was completely redeemed at the end of each one-, five- and ten-year
period and the deduction of all applicable charges and fees. If a change is made
on the sales charge structure, historical performance information will be
restated to reflect the maximum front-end sales charge in effect currently.
The average annual compounded rates of return for the Fund will be calculated
according to the SEC formula:
n
P(1+T) = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the one-, five- or ten-year periods at the end of the one-, five-
or ten-year periods (or fractional portion thereof).
As discussed in the Prospectus, the Fund may quote total rates of return in
addition to its average annual total return. Such quotations are computed in the
same manner as the Fund's average annual compounded rate, except that such
quotations will be based on the Fund's actual return for a specified period
rather than on its average return over one-, five- and ten-year periods, or
fractional portion thereof.
YIELD
Current yield reflects the income per share earned by the Fund's portfolio
investments.
Current yield is determined by dividing the net investment income per share
earned during a 30-day base period by the maximum offering price per share on
the last day of the period and annualizing the result. Expenses accrued for the
period include any fees charged to all shareholders during the base period.
Current yield figures will be obtained using the following SEC formula:
6
Yield = 2 [( A-B + 1) -1]
-----
cd
where:
a = dividends and interest earned during the period
b = expenses accrued for the period
c = the average daily number of shares outstanding during the period that were
entitled to receive dividends
d = the maximum offering price per share on the last day of the period
CURRENT DISTRIBUTION RATE
Yield, which is calculated according to a formula prescribed by the SEC, is not
indicative of the amounts which were or will be paid to the Fund's shareholders.
Amounts paid to shareholders are reflected in the quoted "current distribution
rate." The current distribution rate is computed by dividing the total amount of
dividends per share paid by the Fund during the past 12 months by a current
maximum offering price. Under certain circumstances, such as when there has been
a change in the amount of dividend payout or a fundamental change in investment
policies, it might be appropriate to annualize the dividends paid over the
period such policies were in effect, rather than using the dividends during the
past 12 months. The current distribution rate differs from the current yield
computation because it may include distributions to shareholders from sources
other than dividends and interest, such as premium income from option writing
and short-term capital gains, and is calculated over a different period of time.
VOLATILITY
Occasionally statistics may be used to specify Fund volatility or risk. Measures
of volatility or risk are generally used to compare Fund net asset value or
performance relative to a market index. One measure of volatility is beta. Beta
is the volatility of a fund relative to the total market as represented by the
Standard & Poor's 500 Stock Index. A beta of more than 1.00 indicates volatility
greater than the market, and a beta of less than 1.00 indicates volatility less
than the market. Another measure of volatility or risk is standard deviation.
Standard deviation is used to measure variability of net asset value or total
return around an average over a specified period of time. The premise is that
greater volatility connotes greater risk undertaken in achieving performance.
OTHER PERFORMANCE QUOTATIONS
With respect to those categories of investors who are permitted to purchase
shares of the Fund at net asset value, sales literature pertaining to the Fund
may quote a current distribution rate, yield, total return, average annual total
return and other measures of performance as described elsewhere in this SAI with
the substitution of net asset value for the public offering price.
Sales literature referring to the use of the Fund as a potential investment for
Individual Retirement Accounts (IRAs), Business Retirement Plans, and other
tax-advantaged retirement plans may quote a total return based upon compounding
of dividends on which it is presumed no federal income tax applies.
Regardless of the method used, past performance is not necessarily indicative of
future results, but is an indication of the return to shareholders only for the
limited historical period used.
The Fund may include in its advertising or sales material information relating
to investment objectives and performance results of funds belonging to the
Templeton Group of Funds. Resources is the parent company of the advisors and
underwriter of both the Franklin Group of Funds and Templeton Group of Funds.
COMPARISONS
To help investors better evaluate how an investment in the Fund might satisfy
their investment objective, advertisements and other materials regarding the
Fund may discuss various measures of Fund performance as reported by various
financial publications. Materials may also compare performance (as calculated
above) to performance as reported by other investments, indices, and averages.
Such comparisons may include, but are not limited to, the following examples:
a) Dow Jones Composite Average or its component averages - an unmanaged index
composed of 30 blue-chip industrial corporation stocks (Dow Jones Industrial
Average), 15 utilities company stocks (Dow Jones Utilities Average), and 20
transportation company stocks.
Comparisons of performance assume reinvestment of dividends.
b) Standard & Poor's 500 Stock Index or its component indices - an unmanaged
index composed of 400 industrial stocks, 40 financial stocks, 40 utilities
stocks, and 20 transportation stocks. Comparisons of performance assume
reinvestment of dividends.
c) The New York Stock Exchange composite or component indices - unmanaged
indices of all industrial, utilities, transportation, and finance stocks listed
on the New York Stock Exchange.
d) 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.
e) Lipper - Mutual Fund Performance Analysis and Lipper - Fixed Income Fund
Performance Analysis - measure total return and average current yield for the
mutual fund industry and rank individual mutual fund performance over specified
time periods, assuming reinvestment of all distributions, exclusive of any
applicable sales charges.
f) 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.
g) Mutual Fund Source Book, published by Morningstar, Inc. - analyzes price,
yield, risk, and total return for equity funds.
h) Financial publications: The Wall Street Journal, Business Week, Changing
Times, Financial World, Forbes, Fortune, and Money magazines - provide
performance statistics over specified time periods.
i) 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.
j) 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.
k) Savings and Loan Historical Interest Rates - as published in the U.S. Savings
& Loan League Fact Book.
l) Historical data supplied by the research departments of First Boston
Corporation, the J. P. Morgan companies, Salomon Brothers, Merrill Lynch,
Pierce, Fenner & Smith, Lehman Brothers and Bloomberg L.P.
m) Standard & Poor's 100 Stock Index - an unmanaged index based on the prices of
100 blue-chip stocks, including 92 industrials, one utility, two transportation
companies, and 5 financial institutions. The S&P 100 Stock Index is a smaller
more flexible index for options trading.
From time to time, advertisements or information for the Fund may include a
discussion of certain attributes or benefits to be derived by an investment in
the Fund. Such advertisements or information may include symbols, headlines or
other material which highlight or summarize the information discussed in more
detail in the communication.
Such advertisements and sales literature may also note that deeply discounted
securities offer growth potential, but that finding these deeply discounted
securities involves expensive and extensive research generally available only to
large institutional investors and very affluent investors.
Advertisements or information may also compare the Fund's performance to the
return on certificates of deposit or other investments. You should be aware,
however, that an investment in the Fund involves the risk of fluctuation of
principal value, a risk generally not present in an investment in a certificate
of deposit issued by a bank. For example, as the general level of interest rates
rise, the value of the Fund's fixed-income investments, as well as the value of
its shares which are based upon the value of such portfolio investments, can be
expected to decrease. Conversely, when interest rates decrease, the value of the
Fund's shares can be expected to increase. Certificates of deposit are
frequently insured by an agency of the U.S. government. An investment in the
Fund is not insured by any federal, state or private entity.
In assessing such 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, that the indices and averages are generally
unmanaged, and that the items included in the calculations of such averages may
not be identical to the formula used by the Fund to calculate its figures. In
addition there can be no assurance that the Fund will continue this performance
as compared to such other averages.
OTHER FEATURES AND BENEFITS
The Fund may help you achieve various investment goals such as accumulating
money for retirement, saving for a down payment on a home, college cost and/or
other long-term goals. The Franklin College Costs Planner may assist 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 such goals will be met.
GENERAL INFORMATION
The Fund is a member of the Franklin Templeton Group of Funds, one of the
largest mutual fund organizations in the United States and may be considered in
a program for diversification of assets. Founded in 1947, Franklin, one of the
oldest mutual fund organizations, has managed mutual funds for over 47 years and
now services more than 2.5 million shareholder accounts. In 1992, Franklin, a
leader in managing fixed-income mutual funds and an innovator in creating
domestic equity funds, joined forces with Templeton Worldwide, Inc., a pioneer
in international investing. Together, the Franklin Templeton Group has over $130
billion in assets under management for more than 3.93 million U.S. based mutual
fund shareholder and other accounts. The Franklin Templeton Group of Funds offer
to the public 115 U.S. based mutual funds. The Fund may identify itself by its
NASDAQ symbol or CUSIP number.
The Dalbar Surveys, Inc. broker-dealer survey has ranked Franklin number one in
service quality for five of the past seven years.
Access persons of the Franklin Templeton Group, as defined in SEC Rule 17(j)
under the 1940 Act, who are employees of Resources or its subsidiaries, are
permitted to engage in personal securities transactions subject to the following
general restrictions and procedures: (1) The trade must receive advance
clearance from a compliance officer and must be completed within 24 hours after
this clearance; (2) Copies of all brokerage confirmations must be sent to the
compliance officer and within 10 days after the end of each calendar quarter, a
report of all securities transactions must be provided to the compliance
officer; (3) In addition to items (1) and (2), access persons involved in
preparing and making investment decisions must file annual reports of their
securities holdings each January and also inform the compliance officer (or
other designated personnel) if they own a security that is being considered for
a fund or other client transaction or if they are recommending a security in
which they have an ownership interest for purchase or sale by a fund or other
client.
Shareholders of a Massachusetts business trust could, under certain
circumstances, be held personally liable as partners for its obligations. The
Fund's Agreement and Declaration of Trust, however, contains an express
disclaimer of shareholder liability for acts or obligations of the Fund. The
Declaration of Trust also provides for indemnification and reimbursement of
expenses out of the Fund's assets for any shareholder held personally liable for
obligations of the Fund. The Declaration of Trust provides that the Fund shall,
upon request, assume the defense of any claim made against any shareholder for
any act or obligation of the Fund and satisfy any judgment thereon. All such
rights are limited to the assets of the Fund. The Declaration of Trust further
provides that the Fund may maintain appropriate insurance (for example, fidelity
bonding and errors and omissions insurance) for the protection of the Fund, its
shareholders, trustees, officers, employees and agents to cover possible tort
and other liabilities. Furthermore, the activities of the Fund as an investment
company, as distinguished from an operating company, would not likely give rise
to liabilities in excess of the Fund's total assets. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to the unlikely circumstances in which both inadequate insurance exists
and the Fund itself is unable to meet its obligations.
OWNERSHIP AND AUTHORITY DISPUTES
In the event of disputes involving multiple claims of ownership or authority to
control your account, the Fund has the right (but has no obligation) to: (a)
freeze the account and require the written agreement of all persons deemed by
the Fund to have a potential property interest in the account, prior to
executing instructions regarding the account; (b) interplead disputed funds or
accounts with a court of competent jurisdiction; or (c) surrender ownership of
all or a portion of the account to the Internal Revenue Service in response to a
Notice of Levy.
FRANKLIN VALUE INVESTORS TRUST
Franklin Value Fund (New Series)
File Nos. 33-31326
811-5878
FORM N-1A
PART C
Other Information
Item 24 Financial Statements and Exhibits
a) Financial Statements to be filed by Amendment
b) Exhibits:
The following exhibits are incorporated by reference to the filings noted, with
the exception of Exhibits 1(ii), 5(ii), 5(iii), 13(iii), 15(ii), 15(iii), 17(i)
and 17(ii) which are attached:
(1) copies of the charter as now in effect;
(i) Agreement and Declaration of Trust dated September 11,
1989
Filing: Post Effective Amendment No. 8 to
Registration Statement on Form N-1A
File No. 33-31326
Filing Date: September 21, 1995
(ii) Certificate of Amendment of Agreement and Declaration
of Trust of Franklin Balance Sheet Investment Fund dated
September 21, 1995
(2) copies of the existing By-Laws or instruments corresponding
thereto;, defining the rights of the holders of such
securities, and copies of each security being registered;
(i) By-Laws
Filing: Post Effective Amendment No. 8 to Registration
Statement on Form N-1A
File No. 33-31326
Filing Date: September 21, 1995
(5) copies of all investment advisory contracts relating to the
management of the assets of the Registrant;
(i) Management Agreement between Franklin Balance Sheet
Investment Fund and Franklin Advisers, Inc. dated
April 2, 1990
Filing: Post Effective Amendment No. 8 to
Registration Statement on Form N-1A
File No. 33-31326
Filing Date: September 21, 1995
(ii)Form of Management Agreement on behalf of Franklin MicroCap
Value Fund and Franklin Advisers, Inc. dated December
12, 1995
(iii)Form of Management Agreement on behalf of Franklin
Value Fund and Franklin Advisers, Inc.
(6) copies of each underwriting or distribution contract between
the Registrant and a principal underwriter, and specimens or
copies of all agreements between principal underwriters and
dealers;
(i) Distribution Agreement between Registrant and Franklin
Distributors, Inc. dated April 12, 1990
Filing: Post Effective Amendment No. 8 to
Registration Statement on Form N-1A
File No. 33-31326
Filing Date: September 21, 1995
(ii) Forms of dealer agreements between Registrant and
Franklin/Templeton Distributors, Inc.
Filing: Post Effective Amendment No. 8 to
Registration Statement on Form N-1A
File No. 33-31326
Filing Date: September 21, 1995
(7) copies of all bonus, profit sharing, pension or other similar
contracts or arrangements wholly or partly for the benefit
of Trustees or officers of the Registrant in their capacity
as such; any such plan that is not set forth in a formal
document, furnish a reasonably detailed description thereof;
N/A
(8) copies of all custodian agreements and depository contracts
under Section 17(f) of the Investment Company Act of 1940
(the "1940 Act"), with respect to securities and similar
investments of the Registrant, including the schedule of
remuneration;
(i) Custodian Agreement between Registrant and Bank of
America NT & SA dated June 12, 1991
Filing: Post Effective Amendment No. 8 to
Registration Statement on Form N-1A
File No. 33-31326
Filing Date: September 21, 1995
(ii) Copy of Custodian Agreements between Registrant and
Citibank Delaware:
1. Citicash Management ACH Customer
Agreement
2. Citibank Cash Management Services
Master Agreement
3. Short Form Bank Agreement - Deposit
and Disbursements of Funds
Registrant: Franklin Equity Fund
Filing: Post Effective Amendment No. 79 to
Registration on Form N-1A
File No. 2-30203
Filing Date: September 1, 1992
(iii) Amendment to Custodian Agreement between Registrant
and Bank of America NT & SA dated April 12, 1995
Filing: Post Effective Amendment No. 8 to
Registration Statement on Form N-1A
File No. 33-31326
Filing Date: September 21, 1995
(9) copies of all other material contracts not made in the
ordinary course of business which are to be performed in
whole or in part at or after the date of filing the
Registration Statement;
N/A
(10) an opinion and consent of counsel as to the legality of the
securities being registered, indicating whether they will
when sold be legally issued, fully paid and nonassessable;
(i) Opinion and Consent of Counsel dated December 1, 1989
Filing: Post Effective Amendment No. 8 to
Registration Statement on Form N-1A
File No. 33-31326
Filing Date: September 21, 1995
(11) copies of any other opinions, appraisals or rulings and
consents to the use thereof relied on in the preparation of
this registration statement and required by Section 7 of the
1933 Act;
N/A
(12) all financial statements omitted from Item 23;
N/A
(13) copies of any agreements or understandings made in
consideration for providing the initial capital between or
among the Registrant, the underwriter, adviser, promoter or
initial stockholders and written assurances from promoters
or initial stockholders that their purchases were made for
investment purposes without any present intention of
redeeming or reselling;
(i) Letter of Understanding relating to Initial Capital
of Franklin Balance Sheet Investment Fund dated
November 17, 1989
Filing: Post Effective Amendment No. 7 to
Registration Statement on Form N-1A
File No. 33-31326
Filing Date: September 21, 1995
(ii) Letter of Understanding relating to Initial Capital
of Franklin MicroCap Value Fund dated November 29,
1995
Filing: Post Effective Amendment No. 8 to
Registration Statement on Form N-1A
File No. 33-31326
Filing date: December 1, 1995
(iii) Form of Letter of Understanding relating to Initial
Capital of Franklin Value Fund
(14) copies of the model plan used in the establishment of any
retirement plan in conjunction with which Registrant offers
its securities, any instructions thereto and any other
documents making up the model plan. Such form(s) should
disclose the costs and fees charged in connection therewith;
(i) Copy of Model Retirement Plan
Registrant: AGE High Income Fund, Inc.
Filing: Post Effective Amendment No. 26 to
Registration Statement on Form N-1A
File No. 2-30203
Filing Date: August 1, 1989
(15) copies of any plan entered into by Registrant pursuant to
Rule 12b-l under the 1940 Act, which describes all material
aspects of the financing of distribution of Registrant's
shares, and any agreements with any person relating to
implementation of such plan.
(i) Amended and Restated Distribution Plan between
Franklin Balance Sheet Investment Fund and
Franklin Distributors, Inc. Pursuant to Rule 12b-1
dated July 1, 1993
Filing: Post Effective Amendment No. 8 to
Registration Statement on Form N-1A
File No. 33-31326
Filing Date: September 21, 1995
(ii) Form Distribution Plan between Franklin Value Investors
Trust on behalf of Franklin MicroCap Value Fund
and Franklin Templeton Distributors, Inc. pursuant
to Rule 12b-1 dated December 12, 1995
(iii) Form of Distribution Plan Pursuant to Rule 12b-1
between Franklin Value Fund and Franklin Templeton
Distributors, Inc.
(16) schedule for computation of each performance quotation
provided in the registration statement in response to Item
22.
N/A
(17) Power of Attorney
(i) Power of Attorney dated December 11, 1995
(ii) Certificate of Secretary dated December 11, 1995
Item 25 Persons Controlled by or under Common Control with Registrant
None
Item 26 Number of Holders of Securities
As of October 31, 1995 the number of record holders of the only
class of securities of the Registrant was as follows:
Number of
Title of Class Record Holders
Franklin Balance Sheet 25,725
Investment Fund
Franklin MicroCap Value Fund -0-
Item 27 Indemnification
Reference is made to Article VI of the Registrant's By-Laws
previously filed, which is incorporated herein by reference.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to officers and trustees
and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or
paid by a trustee, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is
asserted by such trustee, officer or controlling person in
connection with 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 or 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.
Notwithstanding the provisions contained in the Registrant's
By-Laws, in the absence of authorization by the appropriate court
on the merits pursuant to Sections 4 and 5 of Article VI of said
By-Laws, any indemnification under said Article shall be made by
Registrant only if authorized in the manner provided in either
subsection (a) or (b) of Section 6 of Article VI.
Item 28 Business and Other Connections of Investment Adviser
The officers and Directors of the Registrant's investment adviser also
serve as officers and/or directors for (1) the adviser's corporate parent,
Franklin Resources, Inc., and/or (2) other investment companies in the
Franklin Templeton Group of Funds. In addition, Mr. Charles B. Johnson is
a director of General Host Corporation. For additional information, please
see Part B.
Item 29 Principal Underwriters
a) Franklin/Templeton Distributors, Inc., ("Distributors") also acts as
principal underwriter of shares of Franklin Gold Fund, Franklin Premier
Return Fund, Franklin Equity Fund, AGE High Income Fund, Inc., Franklin
Custodian Funds, Inc., Franklin Money Fund, Franklin California Tax-Free
Income Fund, Inc., Franklin Federal Money Fund, Franklin Tax-Exempt Money
Fund, Franklin New York Tax-Free Income Fund, Inc., Franklin Federal Tax-Free
Income Fund, Franklin Tax-Free Trust, Franklin California Tax-Free Trust,
Franklin New York Tax-Free Trust, Franklin Investors Securities Trust,
Institutional Fiduciary Trust, Franklin Tax-Advantaged International Bond
Fund, Franklin Tax-Advantaged U.S. Government Securities Fund, Franklin
Tax-Advantaged High Yield Securities Fund, Franklin Municipal Securities
Trust, Franklin Managed Trust, Franklin Strategic Series, Franklin
International Trust, Franklin Real Estate Securities Trust, Franklin
Templeton Global Trust, Franklin Templeton Money Fund Trust, Franklin
Templeton Japan Fund, Templeton American Trust, Inc., Templeton Capital
Accumulator Fund, Inc., Templeton Developing Markets Trust, Templeton Funds,
Inc., Templeton Global Investment Trust, Templeton Global Opportunities
Trust, Templeton Growth Fund, Inc., Templeton Income Trust, Templeton
Institutional Funds, Inc., Templeton Real Estate Securities Fund, Templeton
Smaller Companies Growth Fund, Inc., and Templeton Variable Products Series
Fund.
(b)) The information required by this Item 29 with respect to
each director and officer of Distributors is incorporated by
reference to Part B of this N-1A and Schedule A of Form BD filed by
Distributors with the Securities and Exchange Commission pursuant to the
Securities Act of 1934 (SEC File No. 8-5889).
Item 30 Location of Accounts and Records
The accounts, books or other documents required to be maintained by
Section 31 (a) of the Investment Company Act of 1940 are kept by the 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 31 Management Services
There are no management-related service contracts not discussed in Part A
or Part B.
Item 32 Undertakings
(a) The Registrant hereby undertakes to promptly call a meeting of
shareholders for the purpose of voting upon the question of removal
of any trustee or trustees when requested in writing to do so by the
record holders of not less than 10 per cent of the Registrant's
outstanding shares to assist its shareholders in the communicating
with other shareholders in accordance with the requirements of
Section 16(c) of the Investment Company Act of 1940.
(b) The Registrant hereby undertakes to comply with the information
requirement in Item 5A of the Form N1-A by including the required
information in the Fund's annual report and to furnish each person
to whom a prospectus is delivered a copy of the annual report upon
request and without charge.
(c) The Registrant hereby undertakes to file a Post-Effective Amendment
on behalf of Franklin MicroCap Value Fund and Franklin Value Fund
using Financial Statements which need not be certified, within four
to six months from the effective dates of Registrant's applicable
Registration Statement under the Securities Act of 1933.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, as amended, the Registrant has duly caused this
Amendment to 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 22th day of December, 1995.
Franklin Value Investors Trust
(Registrant)
By: WILLIAM J. LIPPMAN
William J. Lippman
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:
William J. Lippman* Principal
/s/William J. Lippman Executive Officer
Dated: December 22, 1995
Martin L. Flanagan* Principal Financial Officer
/s/ Martin L. Flanagan Dated: December 22, 1995
Diomedes Loo-Tam* Principal Accounting Officer
/s/Diomedes Loo-Tam Dated: December 22, 1995
Franklin T. Crohn* Trustee
/s/Franklin T. Crohn Dated: December 22, 1995
Charles Rubens, II Trustee
/s/Charles Rubens, II Dated: December 22, 1995
Leonard Rubin* Trustee
/s/Leonard Rubin Dated: December 22, 1995
*By /s/ Larry L. Greene
Larry L. Greene, Attorney-in-Fact
Pursuant to Powers of Attorney filed herewith
FRANKLIN VALUE INVESTORS TRUST
REGISTRATION STATEMENT
EXHIBITS INDEX
EXHIBIT NO. DESCRIPTION LOCATION
EX-99.B1(i) Agreement and Declaration of Trust *
dated September 11, 1989
EX-99.B1(ii) Certificate of Amendment of Agreement Attached
and Declaration of Trust of
Franklin Balance Sheet Investment Fund
EX-99.B2(i) By-Laws *
EX-99.B5(i) Management Agreement between Franklin *
Balance Sheet Investment Fund and
Franklin Advisers, Inc. dated April 2,
1990
EX-99.B5(ii) Management Agreement between Franklin Attached
Value Investors Trust on behalf of
Franklin MicroCap Value and Franklin
Advisers, Inc. Fund dated December 12,
1995
EX-99.B5(iii) Form of Management Agreement between Attached
Franklin Value Investors Trust on
behalf of Franklin Value Fund and
Franklin Advisers, Inc.
EX-99.B6(i) Distribution Agreement dated April 12, *
1990
EX-99.B6(ii) Forms of Dealer Agreements between *
Registrant and Franklin/Templeton
Distributors, Inc.
EX-99.B8(i) Custodian Agreement dated June 12, 1991 *
EX-99.B8(ii) Custodian Agreement between Registrant *
and Citibank Delaware
EX-99.B8(iii) Amendment to Custodian Agreement *
between Registrant and Bank of America
NT & SA dated April 12, 1995
EX-99.B10(i) Opinion and Consent dated December 1, *
1989
EX-99.B13(i) Letter of Understanding relating to *
Initial Capital of Franklin Balance
Sheet Investment fund dated November
17, 1989
EX-99.B13(ii) Letter of Understanding relating to *
Initial Capital of Franklin MicroCap
Value Fund dated November 29, 1995
EX-99.B13(iii) Form of Letter of Understanding Attached
relating to Initial Capital of
Franklin Value Fund
EX-99.B14(i) Copy of Model Retirement Plan *
EX-99.B15(i) Amended and Restated Distribution Plan *
Pursuant to Rule 12b-1 dated July 1,
1993
EX-99.B15(ii) Distribution Plan pursuant to Rule Attached
12b-1 between Franklin Value Investors
Trust on behalf of Franklin MicroCap
Value Fund dated December 12, 1995
EX-99.B15(iii) Form of Distribution Plan Pursuant to Attached
Rule 12b-1 between Franklin Value Fund
and Franklin Templeton Distributors,
Inc.
EX-99.B17(i) Power of Attorney dated December 11, Attached
1995
Ex-99.B17(ii) Certificate of Secretary dated Attached
December 11, 1995
*Incorporated by Reference
CERTIFICATE OF AMENDMENT
OF
AGREEMENT AND DECLARATION OF TRUST
OF
FRANKLIN BALANCE SHEET INVESTMENT FUND
The undersigned certify that:
1. They constitute a majority of the Trustees of FRANKLIN BALANCE
SHEET INVESTMENT FUND, a Massachusetts business trust (the "Trust").
2. They hereby adopt the following amendment to the Agreement and
Declaration of Trust of the Trust, which deletes in its entirety the section
of the Agreement and Declaration of Trust entitled "Section 1. Division of
Beneficial Interest." of Article I and replaces such Section of Article I
with the following:
"Section 1. Name. This Trust shall be known as FRANKLIN
VALUE INVESTORS TRUST and the Trustees shall conduct the
business of the Trust under that name or any other name as they
may from time to time determine."
3. They hereby adopt the following amendment to the Agreement and
Declaration of Trust of the Trust, which deletes in its entirety the Section
of the Agreement and Declaration of Trust entitled "Section 1. Division of
Beneficial Interest." of Article III and replaces such Section of Article III
with the following:
"Section 1. Division of Beneficial Interest. The beneficial
interest in the Trust shall at all times be divided into an
unlimited number of Shares, with a par value of $.01 per Share.
the Trustees may authorize the division of Shares into separate
Series and the division of Series into separate classes of
sub-series of Shares (subject to any applicable rule, regulation
or order of the Commission or other applicable law or
regulation). the different Series and classes shall be
established and designated and shall have such preference,
conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualification, terms and conditions
or redemption and other characteristics as the Trustees may
determine.
Notwithstanding the provisions of Section 6(d) of this Article
III or any other provision of this Agreement and Declaration of
Trust, if any matter submitted to shareholders for a vote affects
only the interests of any class of a Series then only such
affected class shall be entitled to vote on the matter. Each
Share of a Series shall have equal rights with each other Share
of that Series with respect to the assets of the Trust pertaining
to that Series. Notwithstanding any other provision of this
Agreement and Declaration of Trust, the dividends payable to the
holders of any series (or class) (subject to any applicable rule,
regulation or order of the Commission or any other applicable law
or regulation) shall be determined by the Trustees and need not
be individually declared, but may be declared and paid in
accordance with a formula adopted by the Trustees. Except as
otherwise provided herein, all references in this Agreement and
Declaration of Trust to Shares or Series of Shares shall apply
without discrimination to the Shares of each Series.
Shareholders shall have no preemptive or other right to subscribe
to any additional Shares or other securities issued by the Trust
or any Series or class. The Trustees may from time to time divide
or combine the Shares of any particular Series or class into a
greater or lesser number of Shares of that Series or class
without thereby changing the proportionate beneficial interest of
the Shares of that Series or class in the assets belonging to
that Series or class or in any way affecting the rights of Shares
of any other Series or class."
4. It is the determination of the Trustees that approval of the
shareholders of the Trust is not required by the Investment Company Act of
1940, as amended, or other applicable law. This Amendment is made pursuant to
(a) Article III, Section 5 of this Agreement and Declaration of Trust which
empowers the Trustees to change provisions relating to Shares of the Trust;
and (b) Article VIII, Section 9 of this Agreement and Declaration of Trust
relating to Amendment.
We declare under penalty of perjury that the matters set forth in
this certificate are true and correct or our own knowledge.
Dated September 21, 1995
/s/ Frank T. Crohn
Frank T. Crohn Charles Rubens II
William J. Lippman Leonard Rubin
We declare under penalty of perjury that the matters set forth in
this certificate are true and correct or our own knowledge.
Dated September 21, 1995
Frank T. Crohn Charles Rubens II
/s/ William J. Lippman
William J. Lippman Leonard Rubin
We declare under penalty of perjury that the matters set forth in
this certificate are true and correct or our own knowledge.
Dated September 21, 1995
/s/ Charles Rubens II
Frank T. Crohn Charles Rubens II
William J. Lippman Leonard Rubin
We declare under penalty of perjury that the matters set forth in
this certificate are true and correct or our own knowledge.
Dated September 21, 1995
Frank T. Crohn Charles Rubens II
/s/ Leonard Rubin
William J. Lippman Leonard Rubin
FRANKLIN VALUE INVESTORS TRUST
on behalf of
FRANKLIN MICROCAP VALUE FUND
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT made between Franklin Value Investors Trust, a
Massachusetts business trust (the "Trust"), on behalf of Franklin MicroCap Value
Fund (the "Fund"), a series of the Trust, and FRANKLIN ADVISERS, INC., a
California corporation, (the "Manager").
WHEREAS, the Trust has been organized and intends to operate as an
investment company registered under the Investment Company Act of 1940 (the
"1940 Act") for the purpose of investing and reinvesting its assets in
securities, as set forth in its Agreement and Declaration of Trust, its By-Laws
and its Registration Statements under the 1940 Act and the Securities Act of
1933, all as heretofore and hereafter amended and supplemented; and the Trust
desires to avail itself of the services, information, advice, assistance and
facilities of an investment manager and to have an investment manager perform
various management, statistical, research, investment advisory and other
services for the Fund; and,
WHEREAS, the Manager is registered as an investment adviser under the
Investment Advisers Act of 1940, is engaged in the business of rendering
management, investment advisory, counseling and supervisory services to
investment companies and other investment counseling clients, and desires to
provide these services to the Fund.
NOW THEREFORE, in consideration of the terms and conditions hereinafter
set forth, it is mutually agreed as follows:
l. EMPLOYMENT OF THE MANAGER. The Trust hereby employs the Manager to
manage the investment and reinvestment of the Fund's assets and to administer
its affairs, subject to the direction of the Board of Trustees and the officers
of the Trust, for the period and on the terms hereinafter set forth. The Manager
hereby accepts such employment and agrees during such period to render the
services and to assume the obligations herein set forth for the compensation
herein provided. The Manager shall for all purposes herein be deemed to be an
independent contractor and shall, except as expressly provided or authorized
(whether herein or otherwise), have no authority to act for or represent the
Fund or the Trust in any way or otherwise be deemed an agent of the Fund or the
Trust.
2. OBLIGATIONS OF AND SERVICES TO BE PROVIDED BY THE MANAGER. The
Manager undertakes to provide the services hereinafter set forth and to
assume the following obligations:
A. ADMINISTRATIVE SERVICES. The Manager shall furnish to the Fund
adequate (i) office space, which may be space within the offices of the Manager
or in such other place as may be agreed upon from time to time, (ii) office
furnishings, facilities and equipment as may be reasonably required for managing
the affairs and conducting the business of the Fund, including conducting
correspondence and other communications with the shareholders of the Fund,
maintaining all internal bookkeeping, accounting and auditing services and
records in connection with the Fund's investment and business activities. The
Manager shall employ or provide and compensate the executive, secretarial and
clerical personnel necessary to provide such services. The Manager shall also
compensate all officers and employees of the Trust who are officers or employees
of the Manager or its affiliates.
B. INVESTMENT MANAGEMENT SERVICES.
(a) The Manager shall manage the Fund's assets subject to
and in accordance with the investment objectives and policies of the Fund and
any directions which the Trust's Board of Trustees may issue from time to time.
In pursuance of the foregoing, the Manager shall make all determinations with
respect to the investment of the Fund's assets and the purchase and sale of its
investment securities, and shall take such steps as may be necessary to
implement the same. Such determinations and services shall include determining
the manner in which any voting rights, rights to consent to corporate action and
any other rights pertaining to the Fund's investment securities shall be
exercised. The Manager shall render or cause to be rendered regular reports to
the Trust, at regular meetings of its Board of Trustees and at such other times
as may be reasonably requested by the Trust's Board of Trustees, of (i) the
decisions made with respect to the investment of the Fund's assets and the
purchase and sale of its investment securities, (ii) the reasons for such
decisions and (iii) the extent to which those decisions have been implemented.
(b) The Manager, subject to and in accordance with any
directions which the Trust's Board of Trustees may issue from time to time,
shall place, in the name of the Fund, orders for the execution of the Fund's
securities transactions. When placing such orders, the Manager shall seek to
obtain the best net price and execution for the Fund, but this requirement shall
not be deemed to obligate the Manager to place any order solely on the basis of
obtaining the lowest commission rate if the other standards set forth in this
section have been satisfied. The parties recognize that there are likely to be
many cases in which different brokers are equally able to provide such best
price and execution and that, in selecting among such brokers with respect to
particular trades, it is desirable to choose those brokers who furnish research,
statistical, quotations and other information to the Fund and the Manager in
accordance with the standards set forth below. Moreover, to the extent that it
continues to be lawful to do so and so long as the Board of Trustees determines
that the Fund will benefit, directly or indirectly, by doing so, the Manager may
place orders with a broker who charges a commission for that transaction which
is in excess of the amount of commission that another broker would have charged
for effecting that transaction, provided that the excess commission is
reasonable in relation to the value of "brokerage and research services" (as
defined in Section 28(e) (3) of the Securities Exchange Act of 1934) provided by
that broker.
Accordingly, the Trust and the Manager agree that the
Manager shall select brokers for the execution of the Fund's transactions from
among:
(i) Those brokers and dealers who provide quotations and
other services to the Fund, specifically including the
quotations necessary to determine the Fund's net assets, in
such amount of total brokerage as may reasonably be required
in light of such services; and
(ii) Those brokers and dealers who supply research,
statistical and other data to the Manager or its affiliates
which the Manager or its affiliates may lawfully and
appropriately use in their investment advisory capacities,
which relate directly to securities, actual or potential, of
the Fund, or which place the Manager in a better position to
make decisions in connection with the management of the
Fund's assets and securities, whether or not such data may
also be useful to the Manager and its affiliates in managing
other portfolios or advising other clients, in such amount
of total brokerage as may reasonably be required. Provided
that the Trust's officers are satisfied that the best
execution is obtained, the sale of shares of the Fund may
also be considered as a factor in the selection of
broker-dealers to execute the Fund's portfolio transactions.
(c) When the Manager has determined that the Fund should
tender securities pursuant to a "tender offer solicitation," Franklin/Templeton
Distributors, Inc. ("Distributors") shall be designated as the "tendering
dealer" so long as it is legally permitted to act in such capacity under the
federal securities laws and rules thereunder and the rules of any securities
exchange or association of which Distributors may be a member. Neither the
Manager nor Distributors shall be obligated to make any additional commitments
of capital, expense or personnel beyond that already committed (other than
normal periodic fees or payments necessary to maintain its corporate existence
and membership in the National Association of Securities Dealers, Inc.) as of
the date of this Agreement. This Agreement shall not obligate the Manager or
Distributors (i) to act pursuant to the foregoing requirement under any
circumstances in which they might reasonably believe that liability might be
imposed upon them as a result of so acting, or (ii) to institute legal or other
proceedings to collect fees which may be considered to be due from others to it
as a result of such a tender, unless the Trust on behalf of the Fund shall enter
into an agreement with the Manager and/or Distributors to reimburse them for all
such expenses connected with attempting to collect such fees, including legal
fees and expenses and that portion of the compensation due to their employees
which is attributable to the time involved in attempting to collect such fees.
(d) The Manager shall render regular reports to the Trust,
not more frequently than quarterly, of how much total brokerage business has
been placed by the Manager, on behalf of the Fund, with brokers falling into
each of the categories referred to above and the manner in which the allocation
has been accomplished.
(e) The Manager agrees that no investment decision will be
made or influenced by a desire to provide brokerage for allocation in accordance
with the foregoing, and that the right to make such allocation of brokerage
shall not interfere with the Manager's paramount duty to obtain the best net
price and execution for the Fund.
C. PROVISION OF INFORMATION NECESSARY FOR PREPARATION OF SECURITIES
REGISTRATION STATEMENTS, AMENDMENTS AND OTHER MATERIALS. The Manager, its
officers and employees will make available and provide accounting and
statistical information required by the Fund in the preparation of registration
statements, reports and other documents required by federal and state securities
laws and with such information as the Fund may reasonably request for use in the
preparation of such documents or of other materials necessary or helpful for the
underwriting and distribution of the Fund's shares.
D. OTHER OBLIGATIONS AND SERVICES. The Manager shall make its
officers and employees available to the Board of Trustees and officers of the
Trust for consultation and discussions regarding the administration and
management of the Fund and its investment activities.
3. EXPENSES OF THE FUND. It is understood that the Fund will pay all of
its own expenses other than those expressly assumed by the Manager herein, which
expenses payable by the Fund shall include:
A. Fees and expenses paid to the Manager as provided herein;
B. Expenses of all audits by independent public accountants;
C. Expenses of transfer agent, registrar, custodian, dividend
disbursing agent and shareholder record-keeping services, including the expenses
of issue, repurchase or redemption of its shares;
D. Expenses of obtaining quotations for calculating the value
of the Fund's net assets;
E. Salaries and other compensations of executive officers of
the Trust who are not officers, directors, stockholders or employees of the
Manager or its affiliates;
F. Taxes levied against the Fund;
G. Brokerage fees and commissions in connection with the
purchase and sale of securities for the Fund;
H. Costs, including the interest expense, of borrowing
money;
I. Costs incident to meetings of the Board of Trustees and
shareholders of the Fund, reports to the Fund's shareholders, the filing of
reports with regulatory bodies and the maintenance of the Fund's and the
Trust's legal existence;
J. Legal fees, including the legal fees related to the
registration and continued qualification of the Fund's shares for sale;
K. Trustees' fees and expenses to trustees who are not
directors, officers, employees or stockholders of the Manager or any of its
affiliates;
L. Costs and expense of registering and maintaining the
registration of the Fund and its shares under federal and any applicable
state laws; including the printing and mailing of prospectuses to its
shareholders;
M. Trade association dues; and
N. The Fund's pro rata portion of fidelity bond, errors and
omissions, and trustees and officer liability insurance premiums.
4. COMPENSATION OF THE MANAGER. The Fund shall pay a management fee in
cash to the Manager based upon a percentage of the value of the Fund's net
assets, calculated as set forth below, as compensation for the services rendered
and obligations assumed by the Manager, during the preceding month, on the first
business day of the month in each year.
A. For purposes of calculating such fee, the value of the net assets
of the Fund shall be determined in the same manner as the Fund uses to compute
the value of its net assets in connection with the determination of the net
asset value of its shares, all as set forth more fully in the Fund's current
prospectus and statement of additional information. The rate of the management
fee payable by the Fund shall be calculated daily at the rate of .75% (.75 of
1%) of the Fund's average daily net assets.
B. The management fee payable by the Fund shall be reduced or
eliminated to the extent that Distributors has actually received cash payments
of tender offer solicitation fees less certain costs and expenses incurred in
connection therewith and to the extent necessary to comply with the limitations
on expenses which may be borne by the Fund as set forth in the laws, regulations
and administrative interpretations of those states in which the Fund's shares
are registered. The Manager may waive all or a portion of its fees provided for
hereunder and such waiver shall be treated as a reduction in purchase price of
its services. The Manager shall be contractually bound hereunder by the terms of
any publicly announced waiver of its fee, or any limitation of the Fund's
expenses, as if such waiver or limitation were fully set forth herein.
C. If this Agreement is terminated prior to the end of any
month, the accrued management fee shall be paid to the date of termination.
5. ACTIVITIES OF THE MANAGER. The services of the Manager to the Fund
hereunder are not to be deemed exclusive, and the Manager and any of its
affiliates shall be free to render similar services to others. Subject to and in
accordance with the Agreement and Declaration of Trust and By-Laws of the Trust
and Section 10(a) of the 1940 Act, it is understood that trustees, officers,
agents and shareholders of the Trust are or may be interested in the Manager or
its affiliates as directors, officers, agents or stockholders; that directors,
officers, agents or stockholders of the Manager or its affiliates are or may be
interested in the Trust as trustees, officers, agents, shareholders or
otherwise; that the Manager or its affiliates may be interested in the Fund as
shareholders or otherwise; and that the effect of any such interests shall be
governed by said Agreement and Declaration of Trust, By-Laws and the 1940 Act.
6. LIABILITIES OF THE MANAGER.
A. In the absence of willful misfeasance, bad faith, gross
negligence, or reckless disregard of obligations or duties hereunder on the part
of the Manager, the Manager shall not be subject to liability to the Trust or
the Fund or to any shareholder of the Fund for any act or omission in the course
of, or connected with, rendering services hereunder or for any losses that may
be sustained in the purchase, holding or sale of any security by the Fund.
B. Notwithstanding the foregoing, the Manager agrees to reimburse
the Trust for any and all costs, expenses, and counsel and trustees' fees
reasonably incurred by the Trust in the preparation, printing and distribution
of proxy statements, amendments to its Registration Statement, holdings of
meetings of its shareholders or trustees, the conduct of factual investigations,
any legal or administrative proceedings (including any applications for
exemptions or determinations by the Securities and Exchange Commission) which
the Trust incurs as the result of action or inaction of the Manager or any of
its affiliates or any of their officers, directors, employees or stockholders
where the action or inaction necessitating such expenditures (i) is directly or
indirectly related to any transactions or proposed transaction in the stock or
control of the Manager or its affiliates (or litigation related to any pending
or proposed or future transaction in such shares or control) which shall have
been undertaken without the prior, express approval of the Trust's Board of
Trustees; or, (ii) is within the control of the Manager or any of its affiliates
or any of their officers, directors, employees or stockholders. The Manager
shall not be obligated pursuant to the provisions of this Subparagraph 6(B), to
reimburse the Trust for any expenditures related to the institution of an
administrative proceeding or civil litigation by the Trust or a shareholder
seeking to recover all or a portion of the proceeds derived by any stockholder
of the Manager or any of its affiliates from the sale of his shares of the
Manager, or similar matters. So long as this Agreement is in effect, the Manager
shall pay to the Trust the amount due for expenses subject to this Subparagraph
6(B) within 30 days after a bill or statement has been received by the Manager
therefor. This provision shall not be deemed to be a waiver of any claim the
Trust may have or may assert against the Manager or others for costs, expenses
or damages heretofore incurred by the Trust or for costs, expenses or damages
the Trust may hereafter incur which are not reimbursable to it hereunder.
C. No provision of this Agreement shall be construed to protect any
trustee or officer of the Trust, or director or officer of the Manager, from
liability in violation of Sections 17(h) and (i) of the 1940 Act.
7. RENEWAL AND TERMINATION.
A. This Agreement shall become effective on the date written below
and shall continue in effect for two (2) years thereafter, unless sooner
terminated as hereinafter provided and shall continue in effect thereafter for
periods not exceeding one (1) year so long as such continuation is approved at
least annually (i) by a vote of a majority of the outstanding voting securities
of each Fund or by a vote of the Board of Trustees of the Trust, and (ii) by a
vote of a majority of the Trustees of the Trust who are not parties to the
Agreement (other than as Trustees of the Trust), cast in person at a meeting
called for the purpose of voting on the Agreement.
B. This Agreement:
(i) may at any time be terminated without the payment of any
penalty either by vote of the Board of Trustees of the Trust or by vote of a
majority of the outstanding voting securities of the Fund on 60 days' written
notice to the Manager;
(ii) shall immediately terminate with respect to the
Fund in the event of its assignment; and
(iii) may be terminated by the Manager on 60 days'
written notice to the Fund.
C. As used in this Paragraph the terms "assignment," "interested
person" and "vote of a majority of the outstanding voting securities" shall have
the meanings set forth for any such terms in the 1940 Act.
D. Any notice under this Agreement shall be given in
writing addressed and delivered, or mailed post-paid, to the other party at
any office of such party.
8. SEVERABILITY. If any provision of this Agreement shall be held
or made invalid by a court decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby.
9. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of California.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
and effective on the 12th day of December, 1995.
FRANKLIN VALUE INVESTORS TRUST
By:
FRANKLIN ADVISERS, INC.
By:
FRANKLIN VALUE INVESTORS TRUST
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT made between FRANKLIN VALUE INVESTORS TRUST, a
Massachusetts business trust (the "Trust"), on behalf of FRANKLIN VALUE FUND
(the "Fund"), a series of the Trust, and other series of the Trust hereafter
created, unless other provisions are made respecting such services, and FRANKLIN
ADVISERS, INC., a California corporation, (the "Manager").
WHEREAS, the Trust has been organized and intends to operate as an
investment company registered under the Investment Company Act of 1940 (the
"1940 Act") for the purpose of investing and reinvesting its assets in
securities, as set forth in its Agreement and Declaration of Trust, its By-Laws
and its Registration Statements under the 1940 Act and the Securities Act of
1933, all as heretofore and hereafter amended and supplemented; and the Trust
desires to avail itself of the services, information, advice, assistance and
facilities of an investment manager and to have an investment manager perform
various management, statistical, research, investment advisory and other
services for the Fund; and,
WHEREAS, the Manager is registered as an investment adviser under the
Investment Advisers Act of 1940, is engaged in the business of rendering
management, investment advisory, counselling and supervisory services to
investment companies and other investment counselling clients, and desires to
provide these services to the Fund.
NOW THEREFORE, in consideration of the terms and conditions hereinafter
set forth, it is mutually agreed as follows:
l. EMPLOYMENT OF THE MANAGER. The Trust hereby employs the Manager to
manage the investment and reinvestment of the Fund's assets and to administer
its affairs, subject to the direction of the Board of Trustees and the officers
of the Trust, for the period and on the terms hereinafter set forth. The Manager
hereby accepts such employment and agrees during such period to render the
services and to assume the obligations herein set forth for the compensation
herein provided. The Manager shall for all purposes herein be deemed to be an
independent contractor and shall, except as expressly provided or authorized
(whether herein or otherwise), have no authority to act for or represent the
Fund or the Trust in any way or otherwise be deemed an agent of the Fund or the
Trust.
2. OBLIGATIONS OF AND SERVICES TO BE PROVIDED BY THE MANAGER. The
Manager undertakes to provide the services hereinafter set forth and to
assume the following obligations:
A. ADMINISTRATIVE SERVICES. The Manager shall furnish to the Fund
adequate (i) office space, which may be space within the offices of the Manager
or in such other place as may be agreed upon from time to time, (ii) office
furnishings, facilities and equipment as may be reasonably required for managing
the affairs and conducting the business of the Fund, including conducting
correspondence and other communications with the shareholders of the Fund,
maintaining all internal bookkeeping, accounting and auditing services and
records in connection with the Fund's investment and business activities. The
Manager shall employ or provide and compensate the executive, secretarial and
clerical personnel necessary to provide such services. The Manager shall also
compensate all officers and employees of the Trust who are officers or employees
of the Manager or its affiliates.
B. INVESTMENT MANAGEMENT SERVICES.
(a) The Manager shall manage the Fund's assets subject to
and in accordance with the investment objectives and policies of the Fund and
any directions which the Trust's Board of Trustees may issue from time to time.
In pursuance of the foregoing, the Manager shall make all determinations with
respect to the investment of the Fund's assets and the purchase and sale of its
investment securities, and shall take such steps as may be necessary to
implement the same. Such determinations and services shall include determining
the manner in which any voting rights, rights to consent to corporate action and
any other rights pertaining to the Fund's investment securities shall be
exercised. The Manager shall render or cause to be rendered regular reports to
the Trust, at regular meetings of its Board of Trustees and at such other times
as may be reasonably requested by the Trust's Board of Trustees, of (i) the
decisions made with respect to the investment of the Fund's assets and the
purchase and sale of its investment securities, (ii) the reasons for such
decisions and (iii) the extent to which those decisions have been implemented.
(b) The Manager, subject to and in accordance with any
directions which the Trust's Board of Trustees may issue from time to time,
shall place, in the name of the Fund, orders for the execution of the Fund's
securities transactions. When placing such orders, the Manager shall seek to
obtain the best net price and execution for the Fund, but this requirement shall
not be deemed to obligate the Manager to place any order solely on the basis of
obtaining the lowest commission rate if the other standards set forth in this
section have been satisfied. The parties recognize that there are likely to be
many cases in which different brokers are equally able to provide such best
price and execution and that, in selecting among such brokers with respect to
particular trades, it is desirable to choose those brokers who furnish research,
statistical, quotations and other information to the Fund and the Manager in
accordance with the standards set forth below. Moreover, to the extent that it
continues to be lawful to do so and so long as the Board of Trustees determines
that the Fund will benefit, directly or indirectly, by doing so, the Manager may
place orders with a broker who charges a commission for that transaction which
is in excess of the amount of commission that another broker would have charged
for effecting that transaction, provided that the excess commission is
reasonable in relation to the value of "brokerage and research services" (as
defined in Section 28(e) (3) of the Securities Exchange Act of 1934) provided by
that broker.
Accordingly, the Trust and the Manager agree that the
Manager shall select brokers for the execution of the Fund's transactions from
among:
(i) Those brokers and dealers who provide quotations and
other services to the Fund, specifically including the
quotations necessary to determine the Fund's net assets, in
such amount of total brokerage as may reasonably be required
in light of such services; and
(ii) Those brokers and dealers who supply research,
statistical and other data to the Manager or its affiliates
which the Manager or its affiliates may lawfully and
appropriately use in their investment advisory capacities,
which relate directly to securities, actual or potential, of
the Fund, or which place the Manager in a better position to
make decisions in connection with the management of the
Fund's assets and securities, whether or not such data may
also be useful to the Manager and its affiliates in managing
other portfolios or advising other clients, in such amount
of total brokerage as may reasonably be required. Provided
that the Trust's officers are satisfied that the best
execution is obtained, the sale of shares of the Fund may
also be considered as a factor in the selection of
broker-dealers to execute the Fund's portfolio transactions.
(c) When the Manager has determined that the Fund should
tender securities pursuant to a "tender offer solicitation," Franklin/Templeton
Distributors, Inc. ("Distributors") shall be designated as the "tendering
dealer" so long as it is legally permitted to act in such capacity under the
federal securities laws and rules thereunder and the rules of any securities
exchange or association of which Distributors may be a member. Neither the
Manager nor Distributors shall be obligated to make any additional commitments
of capital, expense or personnel beyond that already committed (other than
normal periodic fees or payments necessary to maintain its corporate existence
and membership in the National Association of Securities Dealers, Inc.) as of
the date of this Agreement. This Agreement shall not obligate the Manager or
Distributors (i) to act pursuant to the foregoing requirement under any
circumstances in which they might reasonably believe that liability might be
imposed upon them as a result of so acting, or (ii) to institute legal or other
proceedings to collect fees which may be considered to be due from others to it
as a result of such a tender, unless the Trust on behalf of the Fund shall enter
into an agreement with the Manager and/or Distributors to reimburse them for all
such expenses connected with attempting to collect such fees, including legal
fees and expenses and that portion of the compensation due to their employees
which is attributable to the time involved in attempting to collect such fees.
(d) The Manager shall render regular reports to the Trust,
not more frequently than quarterly, of how much total brokerage business has
been placed by the Manager, on behalf of the Fund, with brokers falling into
each of the categories referred to above and the manner in which the allocation
has been accomplished.
(e) The Manager agrees that no investment decision will be
made or influenced by a desire to provide brokerage for allocation in accordance
with the foregoing, and that the right to make such allocation of brokerage
shall not interfere with the Manager's paramount duty to obtain the best net
price and execution for the Fund.
C. PROVISION OF INFORMATION NECESSARY FOR PREPARATION OF SECURITIES
REGISTRATION STATEMENTS, AMENDMENTS AND OTHER MATERIALS. The Manager, its
officers and employees will make available and provide accounting and
statistical information required by the Fund in the preparation of registration
statements, reports and other documents required by federal and state securities
laws and with such information as the Fund may reasonably request for use in the
preparation of such documents or of other materials necessary or helpful for the
underwriting and distribution of the Fund's shares.
D. OTHER OBLIGATIONS AND SERVICES. The Manager shall make its officers and
employees available to the Board of Trustees and officers of the Trust for
consultation and discussions regarding the administration and management of the
Fund and its investment activities.
3. EXPENSES OF THE FUND. It is understood that the Fund will pay all of
its own expenses other than those expressly assumed by the Manager herein, which
expenses payable by the Fund shall include:
A. Fees and expenses paid to the Manager as provided herein;
B. Expenses of all audits by independent public accountants;
C. Expenses of transfer agent, registrar, custodian, dividend disbursing
agent and shareholder record-keeping services, including the expenses of issue,
repurchase or redemption of its shares;
D. Expenses of obtaining quotations for calculating the value of the Fund's
net assets;
E. Salaries and other compensations of executive officers of the Trust who
are not officers, directors, stockholders or employees of the Manager or its
affiliates;
F. Taxes levied against the Fund;
G. Brokerage fees and commissions in connection with the purchase and sale
of securities for the Fund;
H. Costs, including the interest expense, of borrowing
money;
I. Costs incident to meetings of the Board of Trustees and
shareholders of the Fund, reports to the Fund's shareholders, the filing of
reports with regulatory bodies and the maintenance of the Fund's and the
Trust's legal existence;
J. Legal fees, including the legal fees related to the
registration and continued qualification of the Fund's shares for sale;
K. Trustees' fees and expenses to trustees who are not
directors, officers, employees or stockholders of the Manager or any of its
affiliates;
L. Costs and expense of registering and maintaining the
registration of the Fund and its shares under federal and any applicable
state laws; including the printing and mailing of prospectuses to its
shareholders;
M. Trade association dues; and
N. The Fund's pro rata portion of fidelity bond, errors and
omissions, and trustees and officer liability insurance premiums.
4. COMPENSATION OF THE MANAGER. The Fund shall pay a management fee in
cash to the Manager based upon a percentage of the value of the Fund's net
assets, calculated as set forth below, as compensation for the services rendered
and obligations assumed by the Manager, during the preceding month, on the first
business day of the month in each year.
A. For purposes of calculating such fee, the value of the net assets
of the Fund shall be determined in the same manner as that Fund uses to compute
the value of its net assets in connection with the determination of the net
asset value of its shares, all as set forth more fully in the Fund's current
prospectus and statement of additional information. The rate of the management
fee payable by the Fund shall be calculated daily at the rate of 0.75% per annum
on the first $500 million of the average daily net assets of the Fund, 0.625%
per annum on the next $500 million of the average daily net assets of the Fund,
and 0.50% per annum on the average daily net assets of the Fund in excess of $1
billion.
B. The management fee payable by the Fund shall be reduced or
eliminated to the extent that Distributors has actually received cash payments
of tender offer solicitation fees less certain costs and expenses incurred in
connection therewith and to the extent necessary to comply with the limitations
on expenses which may be borne by the Fund as set forth in the laws, regulations
and administrative interpretations of those states in which the Fund's shares
are registered. The Manager may waive all or a portion of its fees provided for
hereunder and such waiver shall be treated as a reduction in purchase price of
its services. The Manager shall be contractually bound hereunder by the terms of
any publicly announced waiver of its fee, or any limitation of the Fund's
expenses, as if such waiver or limitation were full set forth herein.
C. If this Agreement is terminated prior to the end of any
month, the accrued management fee shall be paid to the date of termination.
5. ACTIVITIES OF THE MANAGER. The services of the Manager to the Fund
hereunder are not to be deemed exclusive, and the Manager and any of its
affiliates shall be free to render similar services to others. Subject to and in
accordance with the Agreement and Declaration of Trust and By-Laws of the Trust
and Section 10(a) of the 1940 Act, it is understood that trustees, officers,
agents and shareholders of the Trust are or may be interested in the Manager or
its affiliates as directors, officers, agents or stockholders; that directors,
officers, agents or stockholders of the Manager or its affiliates are or may be
interested in the Trust as trustees, officers, agents, shareholders or
otherwise; that the Manager or its affiliates may be interested in the Fund as
shareholders or otherwise; and that the effect of any such interests shall be
governed by said Agreement and Declaration of Trust, By-Laws and the 1940 Act.
6. LIABILITIES OF THE MANAGER.
A. In the absence of willful misfeasance, bad faith, gross
negligence, or reckless disregard of obligations or duties hereunder on the part
of the Manager, the Manager shall not be subject to liability to the Trust or
the Fund or to any shareholder of the Fund for any act or omission in the course
of, or connected with, rendering services hereunder or for any losses that may
be sustained in the purchase, holding or sale of any security by the Fund.
B. Notwithstanding the foregoing, the Manager agrees to reimburse
the Trust for any and all costs, expenses, and counsel and trustees' fees
reasonably incurred by the Trust in the preparation, printing and distribution
of proxy statements, amendments to its Registration Statement, holdings of
meetings of its shareholders or trustees, the conduct of factual investigations,
any legal or administrative proceedings (including any applications for
exemptions or determinations by the Securities and Exchange Commission) which
the Trust incurs as the result of action or inaction of the Manager or any of
its affiliates or any of their officers, directors, employees or stockholders
where the action or inaction necessitating such expenditures (i) is directly or
indirectly related to any transactions or proposed transaction in the stock or
control of the Manager or its affiliates (or litigation related to any pending
or proposed or future transaction in such shares or control) which shall have
been undertaken without the prior, express approval of the Trust's Board of
Trustees; or, (ii) is within the control of the Manager or any of its affiliates
or any of their officers, directors, employees or stockholders. The Manager
shall not be obligated pursuant to the provisions of this Subparagraph 6(B), to
reimburse the Trust for any expenditures related to the institution of an
administrative proceeding or civil litigation by the Trust or a shareholder
seeking to recover all or a portion of the proceeds derived by any stockholder
of the Manager or any of its affiliates from the sale of his shares of the
Manager, or similar matters. So long as this Agreement is in effect, the Manager
shall pay to the Trust the amount due for expenses subject to this Subparagraph
6(B) within 30 days after a bill or statement has been received by the Manager
therefor. This provision shall not be deemed to be a waiver of any claim the
Trust may have or may assert against the Manager or others for costs, expenses
or damages heretofore incurred by the Trust or for costs, expenses or damages
the Trust may hereafter incur which are not reimbursable to it hereunder.
C. No provision of this Agreement shall be construed to protect any
trustee or officer of the Trust, or director or officer of the Manager, from
liability in violation of Sections 17(h) and (i) of the 1940 Act.
7. RENEWAL AND TERMINATION.
A. This Agreement shall become effective on the date written below
and shall continue in effect for two (2) years thereafter, unless sooner
terminated as hereinafter provided and shall continue in effect thereafter for
periods not exceeding one (1) year so long as such continuation is approved at
least annually (i) by a vote of a majority of the outstanding voting securities
of each Fund or by a vote of the Board of Trustees of the Trust, and (ii) by a
vote of a majority of the Trustees of the Trust who are not parties to the
Agreement (other than as Trustees of the Trust), cast in person at a meeting
called for the purpose of voting on the Agreement.
B. This Agreement:
(i) may at any time be terminated without the payment of any
penalty either by vote of the Board of Trustees of the Trust or by vote of a
majority of the outstanding voting securities of the Fund on 60 days' written
notice to the Manager;
(ii) shall immediately terminate with respect to the
Fund in the event of its assignment; and
(iii) may be terminated by the Manager on 60 days'
written notice to the Fund.
C. As used in this Paragraph the terms "assignment," "interested
person" and "vote of a majority of the outstanding voting securities" shall have
the meanings set forth for any such terms in the 1940 Act.
D. Any notice under this Agreement shall be given in
writing addressed and delivered, or mailed post-paid, to the other party at
any office of such party.
8. SEVERABILITY. If any provision of this Agreement shall be held
or made invalid by a court decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby.
9. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of California.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
and effective on the ___ day of ____________, 1995.
FRANKLIN VALUE INVESTORS TRUST
By:
FRANKLIN ADVISERS, INC.
By:
November 29, 1995
Franklin Value Investors Trust
777 Mariners Island Blvd.
San Mateo, CA 94404
Gentlemen:
We propose to acquire 6,667 shares of beneficial interest (the
"Shares") of the Franklin MicroCap Value Fund (the "Fund"), a new series of
Franklin Value Investors Trust, at a purchase price of $15.00 per share for a
total of $100,000. We will purchase the Shares in a private offering prior
to the effectiveness of the Form N-1A registration statement filed by the
Fund under the Securities Act of 1933. The Shares are being purchased to
serve as the seed money for the Fund prior to the commencement of the public
offering of its shares.
In connection with such purchase, we represent that we, the purchaser,
intend to acquire the Shares for our own account as the sole beneficial owner
thereof and have no present intention of redeeming or reselling the Shares so
acquired.
We consent to the filing of this Investment Letter as an exhibit to the
form N-1A registration statement of the Fund.
Sincerely,
FRANKLIN RESOURCES, INC.
By: /s/ Harmon E. Burns
Harmon E. Burns
Executive Vice President
DISTRIBUTION PLAN
I. Investment Company: Franklin Value Investors Trust
II. Fund: Franklin MicroCap Value Fund
III. Maximum Per Annum Rule 12b-1 Fees (as a percentage of average daily net
assets of the Fund): 0.25%
Preamble to Distribution Plan
The following Distribution Plan (the "Plan") has been adopted pursuant to
Rule l2b-l under the Investment Company Act of 1940 (the "Act") by the
Investment Company named above ("Investment Company") for the use of the Fund
named above (the "Fund"). The Plan has been approved by a majority of the Board
of Trustees or Directors of the Investment Company (the "Board"), including a
majority of the Board members who are not interested persons of the Investment
Company and who have no direct or indirect financial interest in the operation
of the Plan (the "non-interested Board members"), cast in person at a meeting
called for the purpose of voting on such Plan.
In reviewing the Plan, the Board considered the schedule and nature of
payments and terms of the Management Agreement between the Investment Company,
on behalf of the Fund, and Franklin Advisers, Inc. (the "Manager") and the terms
of the Underwriting Agreement between the Investment Company and
Franklin/Templeton Distributors, Inc. ("Distributors"). The Board concluded that
the compensation of the Manager, under the Management Agreement was fair and not
excessive; however, the Board also recognized that uncertainty may exist from
time to time with respect to whether payments to be made by the Fund to the
Manager or to Distributors or others or by the Manager or Distributors to others
may be deemed to constitute distribution expenses. Accordingly, the Board
determined that the Plan should provide for such payments and that adoption of
the Plan would be prudent and in the best interests of the Fund and its
shareholders. Such approval included a determination that in the exercise of
their reasonable business judgment and in light of their fiduciary duties, there
is a reasonable likelihood that the Plan will benefit the Fund and its
shareholders.
Distribution Plan
l. The Fund shall primarily use the fees payable under this Plan to reimburse
Distributors, or others who have executed a servicing agreement with the Fund,
Distributors or its affiliates, which form of agreement has been approved from
time to time by the Board members, for providing personal services to
shareholders of the Fund and/or for maintenance of shareholder accounts. In
addition, the fees payable under this Plan may, from time to time, be used to
reimburse Distributors or others for expenses incurred by Distributors or others
in the promotion and distribution of the shares of the Fund, including, but not
limited to, the printing of prospectuses and reports used for sales purposes,
expenses of preparing and distributing of sales literature and related expenses,
advertisements, and other distribution-related expenses, including a prorated
portion of Distributors' overhead expenses attributable to the distribution of
Fund shares.
2. The maximum amount which may be reimbursed by the Fund to Distributors or
others pursuant to Paragraph 1 herein shall be 0.25% per annum of the average
daily net assets of the Fund. Said reimbursement shall be made quarterly by the
Fund to Distributors or others.
3. In addition to the payments which the Fund is authorized to make pursuant to
paragraphs 1 and 2 hereof, to the extent that the Fund, the Manager,
Distributors or other parties on behalf of the Fund, the Manager or Distributors
make payments that are deemed to be payments for the financing of any activity
primarily intended to result in the sale of shares issued by the Fund within the
context of Rule 12b-1 under the Act, then such payments shall be deemed to have
been made pursuant to the Plan.
In no event shall the aggregate asset-based sales charges which include
payments specified in paragraphs 1 and 2, plus any other payments deemed to be
made pursuant to the Plan under this paragraph, exceed the amount permitted to
be paid pursuant to the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., Article III, Section 26(d).
4. Distributors shall furnish to the Board, for its review, on a quarterly
basis, a written report of the monies reimbursed to it and to others under the
Plan, and shall furnish the Board with such other information as the Board may
reasonably request in connection with the payments made under the Plan in order
to enable the Board to make an informed determination of whether the Plan should
be continued.
5. The Plan shall continue in effect for a period of more than one year only so
long as such continuance is specifically approved at least annually by the Board
including the non-interested Board members, cast in person at a meeting called
for the purpose of voting on the Plan.
6. The Plan, and any agreements entered into pursuant to this Plan, may be
terminated at any time, without penalty, by vote of a majority of the
outstanding voting securities of the Fund, or by vote of the majority of the
non-interested Board members, on not more than sixty (60) days' written notice,
or by Distributors on not more than sixty (60) days' written notice and shall
terminate automatically in the event of any act that constitutes an assignment
of the Management Agreement between the Investment Company and the Manager or
the Underwriting Agreement between the Investment Company and Distributors.
7. The Plan, and any agreements entered into pursuant to this Plan, may not be
amended to increase materially the amount to be spent for distribution pursuant
to Paragraph 2 hereof without approval by a majority of the Fund's outstanding
voting securities.
8. All material amendments to the Plan, or any agreements entered into pursuant
to this Plan, shall be approved by the non-interested Board members cast in
person at a meeting called for the purpose of voting on any such amendment.
9. So long as the Plan is in effect, the selection and nomination of the
Investment Company's non-interested Board members shall be committed to the
discretion of such non-interested Board members.
10. This Plan shall take effect on the 12th day of December, 1995.
This Plan and the terms and provisions thereof are hereby accepted and
agreed to by the Investment Company, on behalf of the Fund, and Distributors as
evidenced by their execution hereof.
FRANKLIN VALUE INVESTORS TRUST
on behalf of Franklin MicroCap Value Fund
By:_________________________
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
By:__________________________
FRANKLIN INVESTORS SECURITIES TRUST
on behalf of FRANKLIN VALUE FUND
Preamble to Distribution Plan
The following Distribution Plan (the "Plan") has been adopted pursuant
to Rule 12b-1 under the Investment Company Act of 1940 (the "Act") by
Franklin Investors Securities Trust ("Trust") for the use of its series named
Franklin Value Fund (the "Fund"), which Plan shall take effect on the date
the shares of the Fund are first offered (the "Effective Date of the Plan").
The Plan has been approved by a majority of the Board of Trustees of the
Trust (the "Board"), including a majority of the trustees who are not
interested persons of the Trust and who have no direct or indirect financial
interest in the operation of the Plan (the "non-interested trustees"), cast
in person at a meeting called for the purpose of voting on such Plan.
In reviewing the Plan, the Board considered the schedule and nature of
payments and terms of the Management Agreement between the Trust on behalf of
the Fund and Franklin Advisers, Inc. ("Advisers") and the terms of the
Underwriting Agreement between the Trust on behalf of the Fund and
Franklin/Templeton Distributors, Inc. ("Distributors"). The Board concluded
that the compensation of Advisers, under the Management Agreement, and of
Distributors, under the Underwriting Agreement, was fair and not excessive;
however, the Board also recognized that uncertainty may exist from time to
time with respect to whether payments to be made by the Fund to Advisers,
Distributors, or others or by Advisers or Distributors to others may be
deemed to constitute distribution expenses of the Fund. Accordingly, the
Board determined that the Plan should provide for such payments and that
adoption of the Plan would be prudent and in the best interest of the Fund
and its shareholders. Such approval included a determination that in the
exercise of their reasonable business judgment and in light of their
fiduciary duties, there is a reasonable likelihood that the Plan will benefit
the Fund and its shareholders.
DISTRIBUTION PLAN
1. The Fund shall reimburse Distributors or others for all expenses
incurred by Distributors or others in the promotion and distribution of the
shares of the Fund, as well as for shareholder services provided for existing
shareholders of the Fund. These expenses may include, but are not limited
to, the expenses of the printing of prospectuses and reports used for sales
purposes, preparing and distributing sales literature and related expenses,
advertisements, recordkeeping services for employee benefit plan
shareholders, and other distribution-related expenses, including a prorated
portion of Distributors' overhead expenses attributable to the distribution
of Fund shares. These expenses may also include any distribution or service
fees paid to securities dealers or their firms or others. Agreements for the
payment of service fees to securities dealers or their firms or others shall
be in a form which has been approved from time to time by the Board,
including the non-interested trustees.
2. The maximum amount which may be reimbursed by the Fund to Distributors
or others pursuant to Paragraph 1 herein shall be 0.35% per annum of the
average daily net assets of the Fund. Said reimbursement shall be made
quarterly by the Fund to Distributors or others.
3. In addition to the payments which the Fund is authorized to make
pursuant to paragraphs 1 and 2 hereof, to the extent that the Fund, Advisers,
Distributors or other parties on behalf of the Fund, Advisers or Distributors
make payments that are deemed to be payments by the Fund for the financing of
any activity primarily intended to result in the sale of shares issued by the
Fund within the context of Rule 12b-1 under the Act, then such payments shall
be deemed to have been made pursuant to the Plan.
In no event shall the aggregate asset-based sales charges which include
payments specified in paragraphs 1 and 2, plus any other payments deemed to
be made pursuant to the Plan under this paragraph, exceed the amount
permitted to be paid pursuant to the Rules of Fair Practice of the National
Association of Securities Dealers, Inc., Article III, Section 26(d).
4. Distributors shall furnish to the Board, for its review, on a quarterly
basis, a written report of the monies reimbursed to it and to others under
the Plan, and shall furnish the Board with such other information as the
Board may reasonably request in connection with the payments made under the
Plan in order to enable the Board to make an informed determination of
whether the Plan should be continued.
5. The Plan shall continue in effect for a period of more than one year
only so long as such continuance is specifically approved at least annually
by a vote of the Board, including the non-interested trustees, cast in person
at a meeting called for the purpose of voting on the Plan.
6. The Plan, and any agreements entered into pursuant to this Plan, may be
terminated at any time, without penalty, by vote of a majority of the
outstanding voting securities of the Fund or by vote of a majority of the
non-interested trustees, on not more than sixty (60) days' written notice, or
by Distributors on not more than sixty (60) days' written notice, and shall
terminate automatically in the event of any act that constitutes an
assignment of the Management Agreement between the Trust on behalf of the
Fund and Advisers.
7. The Plan, and any agreements entered into pursuant to this Plan, may
not be amended to increase materially the amount to be spent for distribution
pursuant to Paragraph 2 hereof without approval by a majority of the Fund's
outstanding voting securities.
8. All material amendments to the Plan, or any agreements entered into
pursuant to this Plan, shall be approved by a vote of the non-interested
trustees cast in person at a meeting called for the purpose of voting on any
such amendment.
9. So long as the Plan is in effect, the selection and nomination of the
Trust's non-interested trustees shall be committed to the discretion of such
non-interested trustees.
This Plan and the terms and provisions thereof are hereby accepted and agreed
to by the Trust and Distributors as evidenced by their execution hereof.
FRANKLIN VALUE INVESTORS TRUST
on behalf of the Franklin Value Fund
By:
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
By:
FRANKLIN INVESTORS SECURITIES TRUST
on behalf of FRANKLIN VALUE FUND
Preamble to Distribution Plan
The following Distribution Plan (the "Plan") has been adopted pursuant
to Rule 12b-1 under the Investment Company Act of 1940 (the "Act") by
Franklin Investors Securities Trust ("Trust") for the use of its series named
Franklin Value Fund (the "Fund"), which Plan shall take effect on the date
the shares of the Fund are first offered (the "Effective Date of the Plan").
The Plan has been approved by a majority of the Board of Trustees of the
Trust (the "Board"), including a majority of the trustees who are not
interested persons of the Trust and who have no direct or indirect financial
interest in the operation of the Plan (the "non-interested trustees"), cast
in person at a meeting called for the purpose of voting on such Plan.
In reviewing the Plan, the Board considered the schedule and nature of
payments and terms of the Management Agreement between the Trust on behalf of
the Fund and Franklin Advisers, Inc. ("Advisers") and the terms of the
Underwriting Agreement between the Trust on behalf of the Fund and
Franklin/Templeton Distributors, Inc. ("Distributors"). The Board concluded
that the compensation of Advisers, under the Management Agreement, and of
Distributors, under the Underwriting Agreement, was fair and not excessive;
however, the Board also recognized that uncertainty may exist from time to
time with respect to whether payments to be made by the Fund to Advisers,
Distributors, or others or by Advisers or Distributors to others may be
deemed to constitute distribution expenses of the Fund. Accordingly, the
Board determined that the Plan should provide for such payments and that
adoption of the Plan would be prudent and in the best interest of the Fund
and its shareholders. Such approval included a determination that in the
exercise of their reasonable business judgment and in light of their
fiduciary duties, there is a reasonable likelihood that the Plan will benefit
the Fund and its shareholders.
DISTRIBUTION PLAN
1. The Fund shall reimburse Distributors or others for all expenses
incurred by Distributors or others in the promotion and distribution of the
shares of the Fund, as well as for shareholder services provided for existing
shareholders of the Fund. These expenses may include, but are not limited
to, the expenses of the printing of prospectuses and reports used for sales
purposes, preparing and distributing sales literature and related expenses,
advertisements, recordkeeping services for employee benefit plan
shareholders, and other distribution-related expenses, including a prorated
portion of Distributors' overhead expenses attributable to the distribution
of Fund shares. These expenses may also include any distribution or service
fees paid to securities dealers or their firms or others. Agreements for the
payment of service fees to securities dealers or their firms or others shall
be in a form which has been approved from time to time by the Board,
including the non-interested trustees.
2. The maximum amount which may be reimbursed by the Fund to Distributors
or others pursuant to Paragraph 1 herein shall be 0.35% per annum of the
average daily net assets of the Fund. Said reimbursement shall be made
quarterly by the Fund to Distributors or others.
3. In addition to the payments which the Fund is authorized to make
pursuant to paragraphs 1 and 2 hereof, to the extent that the Fund, Advisers,
Distributors or other parties on behalf of the Fund, Advisers or Distributors
make payments that are deemed to be payments by the Fund for the financing of
any activity primarily intended to result in the sale of shares issued by the
Fund within the context of Rule 12b-1 under the Act, then such payments shall
be deemed to have been made pursuant to the Plan.
In no event shall the aggregate asset-based sales charges which include
payments specified in paragraphs 1 and 2, plus any other payments deemed to
be made pursuant to the Plan under this paragraph, exceed the amount
permitted to be paid pursuant to the Rules of Fair Practice of the National
Association of Securities Dealers, Inc., Article III, Section 26(d).
4. Distributors shall furnish to the Board, for its review, on a quarterly
basis, a written report of the monies reimbursed to it and to others under
the Plan, and shall furnish the Board with such other information as the
Board may reasonably request in connection with the payments made under the
Plan in order to enable the Board to make an informed determination of
whether the Plan should be continued.
5. The Plan shall continue in effect for a period of more than one year
only so long as such continuance is specifically approved at least annually
by a vote of the Board, including the non-interested trustees, cast in person
at a meeting called for the purpose of voting on the Plan.
6. The Plan, and any agreements entered into pursuant to this Plan, may be
terminated at any time, without penalty, by vote of a majority of the
outstanding voting securities of the Fund or by vote of a majority of the
non-interested trustees, on not more than sixty (60) days' written notice, or
by Distributors on not more than sixty (60) days' written notice, and shall
terminate automatically in the event of any act that constitutes an
assignment of the Management Agreement between the Trust on behalf of the
Fund and Advisers.
7. The Plan, and any agreements entered into pursuant to this Plan, may
not be amended to increase materially the amount to be spent for distribution
pursuant to Paragraph 2 hereof without approval by a majority of the Fund's
outstanding voting securities.
8. All material amendments to the Plan, or any agreements entered into
pursuant to this Plan, shall be approved by a vote of the non-interested
trustees cast in person at a meeting called for the purpose of voting on any
such amendment.
9. So long as the Plan is in effect, the selection and nomination of the
Trust's non-interested trustees shall be committed to the discretion of such
non-interested trustees.
This Plan and the terms and provisions thereof are hereby accepted and agreed
to by the Trust and Distributors as evidenced by their execution hereof.
FRANKLIN VALUE INVESTORS TRUST
on behalf of the Franklin Value Fund
By:
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
By:
CERTIFICATE OF SECRETARY
I, Deborah R. Gatzek, certify that I am Secretary of Franklin Value
Investors Trust (the "Trust").
As Secretary of the Trust, I further certify that the following
resolution was adopted by a majority of the Trustees of the Trust.
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, Karen L. Skidmore, Larry L. Greene
and Mark H. Plafker as attorneys-in-fact for the purpose of
filing documents with the Securities and Exchange Commission, be
executed by each Trustee and designated officer.
I declare under penalty of perjury that the matters set forth in this
certificate are true and correct of my own knowledge.
Dated: December 11, 1995 /s/ Deborah R. Gatzek
Deborah R. Gatzek
Secretary
