As filed with the Securities and Exchange Commission on September 21, 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. 7 (X)
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 8 (X)
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 (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[x] on December 4, 1995 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 issuer`s most recent fiscal year was filed on December 29,
1994.
FRANKLIN BALANCE SHEET INVESTMENT FUND
Franklin MicroCap Value Fund (New Series)
CROSS REFERENCE SHEET
FORM N- 1A
Part A: Information Required in Prospectus
N- 1A Location in
Item No. Item Registration Statement
1. Cover Page Cover Page
2. Synopsis "Expense Table"
3. Condensed Financial "Performance"
Information
4. General Description of "About the Fund"; "Risk Factors";
Registrant "Investment Objective and Policies
of the Fund"; "General Information"
5. Management of the Fund "Management of the Fund"
6. Capital Stock and Other "Distributions to Shareholders";
Securities "Taxation of the Fund and Its
Shareholders"; "General Information"
7. Purchase of Securities "How to Buy Shares of the Fund";
Being Offered "Purchasing Shares of the Fund in
Connection with Retirement Plans
Involving Tax-Deferred
Investments"; "Other Programs and
Privileges Available to Fund
Shareholders"; "Exchange
Privilege"; "Valuation of Fund
Shares"
8. Redemption or Repurchase "Exchange Privilege"; "How to Sell
Shares of the Fund"; "Valuation of
Fund Shares"; "How to Get
Information Regarding an Investment
in the Fund"; "General Information"
9. Pending Legal Proceedings Not Applicable
FRANKLIN BALANCE SHEET INVESTMENT FUND
Franklin MicroCap Value Fund (New Series)
CROSS REFERENCE SHEET
FORM N- 1A
Part B: Information Required in
Statement of Additional Information
N- 1A Location in
Item No. Item Registration Statement
10. Cover Page Cover Page
11. Table of Contents Contents
12. General Information and Cover Page; About the Fund (see
History also the Prospectus "About the
Fund")
13. Investment Objectives and "The Fund's Investment Objective
Policies and Policies" (See also the
Prospectus "Investment Objective
and Policies of the Fund")
14. Management of the Fund "Officers and Trustees"
15. Control Persons and "Officers and Trustees"
Principal Holders of
Securities
16. Investment Advisory and "Investment Advisory and Other
Other Services Services" (See also the Prospectus
"Management of the Fund")
17. Brokerage Allocation "The Fund's Policies Regarding
Brokers Used on Portfolio
Transactions"
18. Capital Stock and Other See sections on "About the Fund"
Securities (See also the Prospectus "About the
Fund") and "General Information" in
the Prospectus
19. Purchase, Redemption and "Additional Information Regarding
Pricing of Securities Fund Shares" (See also the
Prospectus "How to Buy Shares of
the Fund"; "How to Sell Shares of
the Fund"; "Valuation of Fund
Shares")
20. Tax Status "General Information"; "Additional
Information Regarding Taxation"
21. Underwriters "The Fund's Underwriter"
22. Calculation of Performance "General Information"
Data
23. Financial Statements Not Applicable
FRANKLIN MICROCAP VALUE FUND
FRANKLIN VALUE INVESTORS TRUST
PROSPECTUS DECEMBER 4, 1995
777 MARINERS ISLAND BLVD., P.O. BOX 7777
SAN MATEO, CA 94403-7777 1-800/DIAL BEN
Franklin MicroCap 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 high total return, of which
capital appreciation and income are components. The Fund seeks to achieve its
objective by investing at least 65% of its total assets in securities of
companies with market capitalization under $100 million at the time of purchase
and which the Fund's investment manager believes represent intrinsic values not
reflected in the current market price of such securities. The Fund may invest in
domestic and foreign securities as described under "Investment Objective and
Policies of the Fund."
This Prospectus is intended to set forth in a clear and concise manner
information about the Fund that a prospective investor should know before
investing. After reading the Prospectus, it should be retained for future
reference; it contains information about the purchase and sale of shares and
other items which a prospective investor will find useful to have.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK; FURTHER, SUCH SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
A Statement of Additional Information ("SAI") concerning the Fund, dated
December 4, 1995, as may be amended from time to time, provides a further
discussion of certain areas in this Prospectus and other matters which may be of
interest to some investors. It has been filed with the Securities and Exchange
Commission ("SEC") and is incorporated herein by reference. A copy is available
without charge from the Fund or the Fund's principal underwriter,
Franklin/Templeton Distributors, Inc. ("Distributors"), at the address or
telephone number shown above.
THIS PROSPECTUS IS NOT AN OFFERING OF THE SECURITIES HEREIN DESCRIBED IN ANY
STATE IN WHICH THE OFFERING IS NOT AUTHORIZED. NO SALES REPRESENTATIVE, DEALER,
OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS. FURTHER
INFORMATION MAY BE OBTAINED FROM THE UNDERWRITER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
CONTENTS PAGE
Expense Table
About the Fund
Investment Objective and
Policies of the Fund
Management of the Fund
Distributions to Shareholders
Taxation of the Fund
and Its Shareholders
How to Buy Shares of the Fund
Purchasing Shares of the Fund
in Connection with Retirement Plans
Involving Tax-Deferred Investments
Other Programs and Privileges
Available to Fund Shareholders
Exchange Privilege
How to Sell Shares of the Fund
Telephone Transactions
Valuation of Fund Shares
How to Get Information Regarding
an Investment in the Fund
Performance
General Information
Account Registrations
Important Notice Regarding
Taxpayer IRS Certifications
Portfolio Operations
EXPENSE TABLE
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder will bear directly or indirectly in
connection with an investment in the Fund. 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.
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on
Purchases(as a percentage of offering
price) 4.50%
Deferred Sales Charge NONE*
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees 0.75%
12b-1 Fees 0.25%+
Other Expenses:
Registration Fees 0.10%
Reports to Shareholders 0.07%
Other Expenses 0.16%
-----
Total Other Expenses 0.33%
-----
Total Fund Operating Expenses 1.33%
*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 to Sell Shares of the Fund - Contingent
Deferred Sales Charge."
+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.
Investors should be aware that the above table is not intended to reflect in
precise detail the fees and expenses associated with an individual's own
investment in the Fund. Rather, the table has been provided only to assist
investors in gaining a more complete understanding of fees, charges and
expenses. For a more detailed discussion of these matters, investors should
refer to the appropriate sections of this Prospectus.
EXAMPLE
As required by SEC regulations, the following example illustrates the expenses,
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* $85
*Assumes that a contingent deferred sales charge will not apply.
THIS EXAMPLE IS BASED ON THE 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 shareholders as a result of their
investment in the Fund. See "Management of 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%.
ABOUT THE FUND
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 two series, each of which issues a separate series of the Trust's
shares and maintains a totally separate investment portfolio.
Shares of the Fund may be purchased (minimum initial investment of $2,500 and
$100 thereafter or for investments by retirement plans, $1,000 and $100,
respectively) at the current public offering price, which is equal to the Fund's
net asset value (see "Valuation of Fund Shares") plus a sales charge not
exceeding 4.5% of the offering price. See "How to Buy Shares of the Fund."
Effective at such time as the Fund's assets total $100 million, no new accounts,
other than retirement plan accounts, will be accepted. Shareholders of record at
that time, however, will be able to continue to add to their accounts through
new purchases, including purchases through reinvestment of dividends or capital
gain distributions. The Fund reserves the right to modify this policy at any
time.
INVESTMENT OBJECTIVE AND POLICIES OF THE FUND
The investment objective of the Fund is to seek high total return, of which
capital appreciation and income are components. Capital appreciation will be
sought primarily through investment in securities of companies with market
capitalization under $100 million at the time of purchase and which the Fund's
investment manager believes are undervalued in the marketplace. Accordingly, a
focus on balance sheet items will be an important element in the investment
manager's investment analysis. Income will also be sought when consistent with
the Fund's objective. The investment objective is a fundamental policy of the
Fund and may not be changed without shareholder approval. The policies used to
achieve the objective are not fundamental, unless otherwise noted, and are
subject to change without shareholder approval. As with any other investment,
there is no assurance that the Fund's objective will be achieved.
TYPES OF SECURITIES THE FUND MAY PURCHASE
Under normal market conditions, the Fund will invest at least 65% of its total
assets in the securities of companies with market capitalization under $100
million at the time of purchase which, in the opinion of the investment manager,
represent an opportunity for significant capital appreciation due to intrinsic
values not reflected in the current market price of such securities. The
securities of such companies, which may include common and preferred stocks and
securities convertible into common stocks, secured or unsecured bonds,
commercial paper and notes, will typically be purchased at prices below the book
value of the company. The investment manager, however, will take into account a
variety of other factors in order to determine whether to purchase, and once
purchased, whether to hold or sell such securities. In addition to book value,
the investment manager may consider the following factors among others: valuable
franchises or other intangibles; ownership of valuable trademarks or trade
names; control of distribution networks or of market share for particular
products; ownership of real estate the value of which is understated;
underutilized liquidity and other factors that would identify the issuer as a
potential takeover target or turnaround candidate. Investments in the securities
of companies with market capitalization under $100 million may involve special
risks. See "Risk Factors and Special Considerations - Small Companies" below.
The Fund may invest the remainder of its assets, up to 35%, in securities of
companies with similar characteristics but which have market capitalization over
$100 million.
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 which
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 or its agencies or
instrumentalities which mature in one year or less from the date of purchase,
including U.S. Treasury bills, notes and bonds, as well as certain agency
securities issued by the Government National Mortgage Association, the Federal
Housing Administration and other agencies which may carry guarantees backed by
the full faith and credit of the U.S. government; (2) securities of other U.S.
government agencies or instrumentalities, such as certain securities issued by
the Federal Home Loan Banks and the Student Loan Marketing Association, which
may not be backed by the full faith and credit of the U.S. government but which
are supported by the right of the issuer to borrow from the U.S. government or
by the credit of the issuer; (3) bank obligations, including negotiable or
non-negotiable certificates of deposit (subject to the 10% limitation on
illiquid securities discussed under "Illiquid Investments"), 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 and rated within the
two highest rating categories of 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 "Appendix"
in the SAI for a discussion of ratings.
The Fund will generally invest in common stocks, although it has no limit on the
percentage of its assets which may be invested in preferred stock or debt
obligations, including preferred or debt securities convertible into common
stocks. The mixture of common stocks, debt securities and preferred stocks will
vary from time to time based upon the investment manager's assessment as to
whether investments in each category will contribute to meeting the Fund's
investment objective.
LOWER RATED SECURITIES. The Fund may invest up to 25% of its total 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 represent intrinsic values not reflected in the current market prices
of such securities. Lower rated securities in which the Fund may invest include
securities rated D, the lowest rating category of S&P and Moody's. Lower rated
securities are considered by Moody's and 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 will generally
involve more credit risk than securities in the higher rating categories. Debt
obligations rated D are in default and the payment of interest and/or repayment
of principal is in arrears. Although the Fund reserves the right to invest up to
25% of its assets in lower rated securities, it currently intends to limit such
investments to no more than 5% of the Fund's total net assets at the time of
purchase. See "Risk Factors - High Yielding, Fixed-Income Securities" in the SAI
for further information concerning the risks of lower rated securities.
CONVERTIBLE SECURITIES. The Fund may invest in securities including corporate
bonds, notes and preferred stocks that are convertible into common stock or
other securities which provide an opportunity for equity participation. These
securities are convertible at a stated price within a specified period of time
and are generally senior to common stocks in a corporation's capital structure,
although they are usually subordinated to similar nonconvertible securities.
Convertible securities provide a fixed-income stream and the opportunity,
through their conversion feature, to participate in the capital appreciation
resulting from a market price advance in the convertible security's underlying
common stock. As with a fixed-income security, a convertible security tends to
increase in market value when interest rates decline and tends to decrease in
value when interest rates rise. The price of a convertible security is also
influenced by the market value of the security's underlying common stock and
tends to increase as the market value of the underlying stock rises, whereas it
tends to decrease as the market value of the underlying stock declines.
FOREIGN SECURITIES. There are no restrictions on the Fund's investment of assets
in foreign securities, providing such investments are consistent with the Fund's
investment objective and policies. The Fund will ordinarily purchase foreign
securities which are traded in the United States or purchase sponsored or
unsponsored American Depositary Receipts, which 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. The Fund may purchase the securities of
foreign issuers directly in foreign markets, and may purchase the securities of
issuers in developing nations. See "Risk Factors and Special Consideration -
Foreign Securities."
OTHER POLICIES OF THE FUND
OPTIONS. When seeking high current income to achieve its investment objective of
high total return, the Fund may write covered call options on securities it
owns, which are listed for trading on a national securities exchange, and
purchase listed call and put options on securities and securities indices for
portfolio hedging purposes.
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 (in the
case of a call option) or to sell a specified security (in the case of a 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 (or less than, in
the case of puts) the exercise price of the option. This amount of cash 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 price movements in
individual securities.
The Fund may write a call option only if the option is "covered." This means
that so long as the Fund is obligated as the writer of a call option, it will
own the underlying security subject to the call. The Fund will not engage in any
stock options or stock index options if the option premiums paid on its open
option positions exceed 20% of the value of the Fund's total assets.
The Fund's investment in options and certain securities transactions involving
actual or deemed short sales (discussed below) may be limited by the
requirements of the Internal Revenue Code of 1986, as amended (the "Code") for
qualification as a regulated investment company and are subject to special tax
rules that may affect the amount, timing, and character of distributions to
shareholders. These securities require the application of complex and special
tax rules and elections, more information about which is included in the SAI.
For more information on the Fund's investment in options, please see "Risk
Factors and Special Considerations - Options" below and "The Fund's
Investment Objective and Policies" in the SAI.
LOANS OF PORTFOLIO SECURITIES. Consistent with procedures approved by the Board
of Trustees and subject to the following conditions, the Fund may lend its
portfolio securities to qualified securities dealers or other institutional
investors, provided that such loans do not exceed 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 of Trustees and will be held pursuant to a written agreement.
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) from banks 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.
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. To complete such a transaction, the Fund must
borrow the security to make delivery to the buyer. The Fund then is obligated to
replace the security borrowed by purchasing it at the market price at the time
of replacement. The price at such time may be more or less than the price at
which the security was sold by the Fund. Until the security is replaced, the
Fund is required to pay to the lender any dividends or interest which accrue
during the period of the loan. To borrow the security, the Fund also may 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. The Fund will realize a gain if the
security declines in price between those 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 may be required to pay in connection with a short
sale.
No securities will be sold short if, after effect is given to any such short
sale, the total market value of all securities sold short would exceed 25% of
the value of the Fund's net assets. In addition, short sales of the securities
of any single issuer, which must be listed on a national exchange, may not
exceed 5% of the Fund's net assets or 5% of any class of such issuer's
securities.
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). This segregated account will be marked-to-market
daily, provided that at no time will the amount deposited in it plus the amount
deposited with the broker as collateral be less than the market value of the
securities at the time they were sold short.
In addition to the short sales discussed above, the Fund also may make short
sales "against the box," i.e., 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.
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.
The Fund is subject to a number of additional investment restrictions, some of
which may be changed only with the approval of shareholders, which limit its
activities to some extent. For a list of these restrictions and more information
concerning the policies discussed herein, please see the SAI.
RISK FACTORS AND SPECIAL CONSIDERATIONS
An investment in the Fund involves certain speculative considerations and may
involve a higher degree of risk than an investment in shares of more traditional
open-end, diversified investment companies. The Fund is designed for long-term
investors, not as a trading vehicle, and is not intended to present a complete
investment program. Investors should consider their individual investment
objectives, as well as their other investments, when deciding whether to
purchase shares of the Fund.
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, more than 25% of its total assets
would be invested in the securities of a single issuer, or with respect to 50%
of its total assets, more than 5% of such assets would be invested in the
securities of a single 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.
SMALL COMPANIES. The companies in which the Fund may invest may have relatively
small revenues, limited product lines, and may have a small share of the market
for their products or services. Small companies may lack depth of management,
they may be unable to generate internally funds necessary for growth or
potential development or to generate such funds through external financing or
favorable terms, or 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, and investments in such companies tend to be
volatile and are therefore more speculative than investments in larger
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 the Fund's shares
may be more volatile than the shares of a fund that invests in larger
capitalization stocks.
The Fund should not be considered suitable for investors who are unable or
unwilling to assume the risks of loss inherent in such a program, nor should
investment in the Fund be considered a balanced or complete investment program.
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 the securities of foreign issuers involve significant risks that
are not typically associated with investments in securities of U.S. issuers.
These risks, which may involve possible losses, 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 result in investment losses for the Fund. In addition, public
information may not be as available for a foreign company as it is for a U.S.
domiciled company, foreign companies are generally not subject to uniform
accounting, auditing and financial reporting standards comparable to those
applicable to U.S. companies, and 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 types of foreign
investments. Investments may be in securities of foreign issuers located in both
developed or developing countries, 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 have less volume and
liquidity, and may be more volatile than securities markets in the U.S. Under
certain market conditions, these investments may be less liquid than U.S.
securities.
Securities which may be 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 an illiquid asset 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.
The Fund may purchase securities in any foreign country, developed or
developing. Investors should consider carefully the substantial risks involved
in investing in securities issued by companies of foreign countries, risks that
are often heightened for investments in developing markets. For example, the
small size, inexperience and limited volume of trading of 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, as well
as 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 an options 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 the options
contract is based and movements in the securities in the Fund's portfolio.
Successful use of options contracts is further dependent on the investment
manager's ability to correctly predict movements in the securities markets and
no assurance can be given that its judgment will be correct. In addition, 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.
HOW SHAREHOLDERS PARTICIPATE IN
THE RESULTS OF THE FUND'S ACTIVITIES
The assets of the Fund are invested in portfolio securities. If the securities
owned by the Fund increase in value, the value of the shares of the Fund which
the shareholder owns will increase. If the securities owned by the Fund decrease
in value, the value of the shareholder's shares will also decline. In this way,
shareholders participate in any change in the value of the securities owned by
the Fund.
In addition to the factors which affect the value of individual securities, as
described in the preceding sections, a shareholder may anticipate that the value
of Fund shares will fluctuate with movements in the broader 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.
CONVERSION TO MULTIPLE CLASSES OR MASTER/FEEDER STRUCTURE
Many of the Franklin Templeton Funds (as that term is defined under "How to Buy
Shares of the Fund") offer two classes of shares (Class I and Class II). The
Board of Trustees (the "Board") reserves the right, without submitting the
matter to a vote of security holders, to convert the Fund to a multi-class
structure at a future date. This would permit the Fund to take advantage of
alternative methods of selling Fund shares through the issuance of multiple
classes of shares by the same series. The term "series" in the mutual fund
industry is used to refer to shares that represent interests in a separate
portfolio of investment securities with differing investment objectives.
"Classes" of shares represent sub-divisions of series with differing
preferences, rights and privileges as the Board may determine and, in most
circumstances, differing marketing attributes. The Board believes that offering
alternative pricing structures for investors may lead to increased sales of
shares. Upon implementation of a multiple class structure, at least two classes
of shares will invest in a single portfolio of securities. The difference
between the classes will involve primarily the amount of front-end sales charges
and distribution fees. Because the Fund's existing sales charge structure is
similar to that of Class I shares, shares of the Fund may be considered Class I
shares for redemption, exchange and other purposes.
The Board reserves the right to convert the Fund to a master/feeder structure at
a future date. Currently, the Fund invests directly in a portfolio of securities
primarily of companies with market capitalization less than $100 million.
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.
MANAGEMENT OF 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 various subsidiaries (the "Franklin Templeton Group"). Advisers acts
as investment manager or administrator to 34 U.S. registered investment
companies (114 separate series) with aggregate assets of over $77 billion.
Pursuant to the management agreement, the Manager supervises and implements the
Fund's investment activities and provides certain administrative services and
facilities which are necessary to conduct the Fund's business.
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; printing and
other expenses which are not expressly assumed by the Manager.
Under 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 fee is higher than the management fees
paid by most mutual funds because of the additional research required for
investments in companies with low market capitalization which are not widely
followed. The Board, however, believes the Fund's management fee to be
comparable to fees paid by other funds having a similar investment objective and
policies.
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 tries to obtain the best
execution on all such transactions. If it is felt that more than one broker is
able to provide the best execution, the Manager will consider the furnishing of
quotations and of other market services, research, statistical and other data
for the Manager and its affiliates, as well as the sale of shares of the Fund,
as factors in selecting a broker. Further information is included under "The
Fund's Policies Regarding Brokers Used on Portfolio Transactions" 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
The Fund has adopted a distribution plan (the "Plan") pursuant to Rule 12b-1
under the 1940 Act. Under the Plan, the Fund may pay Distributors or others who
have entered into a servicing agreement with the Fund, Distributors or its
affiliates a service fee to reimburse such parties for personal services
provided to shareholders of the Fund and/or the maintenance of shareholder
accounts. The maximum amount which the Fund may pay to Distributors or others
for such service fees is 0.25% per annum of the average daily net assets of the
Fund, payable on a quarterly basis. 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 SAI.
DISTRIBUTIONS TO SHAREHOLDERS
There are two types of distributions which the Fund may make to its
shareholders:
1. INCOME DIVIDENDS. The Fund receives income in the form of 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 net capital gains from the prior fiscal year. These
distributions, when made, will generally be fully taxable to the Fund's
shareholders. The Fund may make more than one distribution derived from net
short-term and net long-term capital gains in any year or adjust the timing of
these distributions for operational or other reasons.
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. 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, an investor must have acquired Fund
shares prior to the close of business on the record date. An investor
considering purchasing Fund shares shortly before the record date of a
distribution 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 the
shareholder's investment, it may be taxable as dividend income or capital gain.
DIVIDEND REINVESTMENT
Unless otherwise requested, income dividends and capital gain distributions, if
any, will be automatically reinvested in the shareholder's account in the form
of additional shares, valued at the closing net asset value (without a sales
charge) on the dividend reinvestment date. Dividend and capital gain
distributions are only eligible for reinvestment at net asset value in the Fund
or Class I shares of other Franklin Templeton Funds. Shareholders have the right
to change their election with respect to the receipt of distributions by
notifying the Fund, but any such change will be effective only as to
distributions for which the record date is seven or more business days after the
Fund has been notified. See the SAI for more information.
Many of the Fund's shareholders receive their distributions in the form of
additional shares. This is a convenient way to accumulate additional shares and
maintain or increase the shareholder's earnings base. Of course, any shares so
acquired remain at market risk.
DISTRIBUTIONS IN CASH
A shareholder may elect to receive income dividends, or both income dividends
and capital gain distributions, in cash. By completing the "Special Payment
Instructions for Distributions" section of the Shareholder Application included
with this Prospectus, a shareholder may direct the selected distributions to
another fund in the Franklin Group of Funds(R) or the Templeton Funds, to
another person, or directly to a checking account. If the bank at which the
account is maintained is a member of the Automated Clearing House, the payments
may be made automatically by electronic funds transfer. If this last option is
requested, the shareholder should allow at least 15 days for initial processing.
Dividends which may be paid in the interim will be sent to the address of
record. Additional information regarding automated fund transfers may be
obtained from Franklin's Shareholder Services Department.
TAXATION OF THE FUND AND ITS SHAREHOLDERS
The following discussion reflects some of the tax considerations that affect
mutual funds and their shareholders. Additional information on tax matters
relating to the Fund and its shareholders is included in the section entitled
"Additional Information Regarding Taxation" in the SAI.
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.
Corporate shareholders should note that dividends paid by the Fund from sources
other than the qualifying dividends it receives will not qualify for the
dividends-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.
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 TO BUY SHARES OF THE FUND
Shares of the Fund are continuously offered through securities dealers which
execute an agreement with Distributors, the principal underwriter of the Fund's
shares. The use of the term "securities dealer" shall include other financial
institutions which, pursuant to an agreement with Distributors (directly or
through affiliates), handle customer orders and accounts with the Fund. Such
reference, however, is for convenience only and does not indicate a legal
conclusion of capacity. The minimum initial investment is $2,500 and subsequent
investments must be $100 or more. These minimums may be waived when the shares
are purchased through plans established by the Franklin Templeton Group. For
investments by retirement plans, the investments are $1,000 and $100,
respectively. The Fund and Distributors reserve the right to refuse any order
for the purchase of shares.
LIMITED OFFERING
Effective at such time as the Fund's assets total $100 million, no new accounts,
other than retirement plan accounts, will be accepted. Shareholders of record at
that time, however, will be able to continue to add to their accounts through
new purchases, including purchases through reinvestment of dividends or capital
gain distributions.
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 the shareholder's securities dealer receives the order which
is promptly transmitted to the Fund, or (2) after receipt of an order by mail
from the shareholder directly in proper form (which generally means a completed
Shareholder Application accompanied by a negotiable check). 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 "Valuation of Fund Shares."
Set forth below is a table showing front-end sales charges or underwriting
commissions and dealer concessions.
TOTAL SALES CHARGE
DEALER CONCESSION
AS A PERCENTAGE OF
SIZE OF TRANSACTION AS A PERCENTAGE AS A PERCENTAGE OF OFFERING PRICE*,
AT OFFERING PRICE OF OFFERING PRICE NET AMOUNT INVESTED ***
Less than $100,000 4.50% 4.71% 4.00%
$100,000 but less 3.75% 3.90% 3.25%
than $250,000
$250,000 but less 2.75% 2.83% 2.50%
than $500,000
$500,000 but less 2.25% 2.30% 2.00%
than $1,000,000
$1,000,000 or more none none (see below)**
*Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages set forth above.
**The following commissions will be paid by Distributors, out of its own
resources, to securities dealers who initiate and are responsible for purchases
of $1 million or more: 1.00% 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 or
more. Dealer concession breakpoints are reset every 12 months for purposes of
additional purchases.
***At the discretion of Distributors, all sales charges may at times be allowed
to the securities dealer. If 90% or more of the sales commission is allowed,
such securities dealer may be deemed to be an underwriter as that term is
defined in the Securities Act of 1933, as amended.
No front-end sales charge applies on investments of $1 million or more, but a
contingent deferred sales charge of 1% is imposed on certain redemptions of all
or a portion of an investment of $1 million or more within the contingency
period. See "How to Sell Shares of the Fund - 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 the shareholder's
current purchase plus the cost or current value (whichever is higher) of a
shareholder's existing investment in one or more of the funds in the Franklin
Group of Funds(R) and the Templeton Group of Funds. Included for these
aggregation purposes are (a) the mutual funds in the Franklin Group of Funds
except Franklin Valuemark Funds and Franklin Government Securities Trust (the
"Franklin Funds"), (b) other investment products underwritten by Distributors or
its affiliates (although certain investments may not have the same schedule of
sales charges and/or may not be subject to reduction), and (c) the U.S.
registered mutual funds in the Templeton Group of Funds except Templeton Capital
Accumulator Fund, Inc., Templeton Variable Annuity Fund, and Templeton Variable
Products Series Fund (the "Templeton Funds"). (Franklin Funds and Templeton
Funds are collectively referred to as the "Franklin Templeton Funds.") Sales
charge reductions based upon aggregate holdings of (a), (b) and (c) above
("Franklin Templeton Investments") may be effective only after notification to
Distributors that the investment qualifies for a discount.
OTHER PAYMENTS TO SECURITIES DEALERS. 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" and 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.
Certain officers and trustees of the Fund are also affiliated with Distributors.
A detailed description is included 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, the
investor or the securities dealer should notify Distributors at the time of each
purchase of shares which qualifies for the reduction. In determining whether a
purchase qualifies for a discount, an investment in any of the Franklin
Templeton Investments may be combined with those of the investor's spouse,
children under the age of 21 and grandchildren under the age of 21. The value of
Class II shares owned by the investor 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. An investor 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 of Intent" or "Letter"). By
completing the Letter, the investor expresses an intention to invest during the
next 13 months a specified amount which, if made at one time, would qualify for
a reduced sales charge and grants to Distributors a security interest in the
reserved shares and irrevocably appoints Distributors as attorney-in-fact with
full power of substitution to surrender for redemption any or all shares for the
purpose of paying any additional sales charge due. Purchases under the Letter
will conform with the requirements of Rule 22d-1 under the 1940 Act. The
investor or the investor's securities dealer must inform Investor Services or
Distributors that this Letter is in effect each time a purchase is made.
AN INVESTOR ACKNOWLEDGES AND AGREES TO THE FOLLOWING PROVISIONS BY COMPLETING
THE LETTER OF INTENT SECTION OF THE SHAREHOLDER APPLICATION: Five percent (5%)
of the amount of the total intended purchase will be reserved in shares of the
Fund, registered in the investor's name, to assure that the full applicable
sales charge will be paid if the intended purchase is not completed. The
reserved shares will be included in the total shares owned as reflected on
periodic statements and income and capital gain distributions on the reserved
shares will be paid as directed by the investor. The reserved shares will not be
available for disposal by the investor until the Letter of Intent has been
completed or the higher sales charge paid. This policy regarding the reservation
of shares does not apply to certain employee benefit plans described under
"Purchases at Net Asset Value". For more information, see "Additional
Information Regarding Purchases" in the SAI.
Although the sales charges on Class II shares cannot be reduced through these
programs, the value of Class II shares owned by the investor may be included in
determining a reduced sales charge to be paid on Class I shares pursuant to the
Letter of Intent and Rights of Accumulation programs.
GROUP PURCHASES
An individual who is a member of a qualified group may also 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 an investor selects a payroll deduction plan, subsequent investments will be
automatic and will continue until such time as the investor notifies the Fund
and the investor's employer to discontinue further investments. Due to the
varying procedures used to prepare, process and forward the payroll deduction
information to the Fund, there may be a delay between the time of the payroll
deduction and the time the money reaches the Fund. The investment in the Fund
will be made at the offering price per share determined on the day that both the
check and payroll deduction data are received in required form by the Fund.
PURCHASES AT NET ASSET VALUE
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 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) insurance company
separate accounts for pension plan contracts; (4) accounts managed by the
Franklin Templeton Group; (5) shareholders of Templeton Institutional Funds,
Inc. reinvesting redemption proceeds from that fund under an employee benefit
plan qualified under Section 401 of the Code in shares of the Fund; (6) certain
unit investment trusts and unit holders of such trusts reinvesting their
distributions from the trusts in the Fund; (7) registered securities dealers and
their affiliates, for their investment account only, and (8) registered
personnel and employees of securities dealers and by their spouses and family
members, in accordance with the internal policies and procedures of the
employing securities dealer.
Shares of the Fund or Class I shares of another of the Franklin Templeton Funds
may be purchased at net asset value and without a contingent deferred sales
charge by persons who have received dividends and capital gains distribution in
cash from investments in the 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 "Distributions in
Cash" under "Distributions to Shareholders."
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
Investor Services, 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. If an investment by an eligible governmental authority at net
asset value is made through a securities dealer who has executed a dealer
agreement with Distributors, Distributors or one of its affiliates may make a
payment, out of its own resources, to such securities dealer in an amount not to
exceed 0.25% of the amount invested. Contact 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 amount of purchase, which may be established by
Distributors. Currently, those criteria require that the amount invested or to
be invested during the subsequent 13-month period in this Fund or any of the
Franklin Templeton Investments must total at least $1,000,000. Orders for such
accounts will be accepted by mail accompanied by a check or by telephone or
other means of electronic data transfer directly from the bank or trust company,
with payment by federal funds received by the close of business on the next
business day following such order.
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.
Refer to the SAI for further information regarding net asset value purchases.
GENERAL
Securities laws of states in which the Fund's shares are offered for sale may
differ from the interpretations of federal law, and banks and financial
institutions selling Fund shares may be required to register as dealers pursuant
to state law.
PURCHASING SHARES OF THE FUND
IN CONNECTION WITH RETIREMENT PLANS
INVOLVING TAX-DEFERRED INVESTMENTS
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 the Trust Company may 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.
The Trust Company, an affiliate of Distributors, can serve as custodian or
trustee for retirement plans. Brochures for the 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 the Trust Company. To obtain a retirement plan brochure or
application, call 1-800/DIAL BEN (1-800/342-5236).
Please see "How to Sell Shares of the Fund" for specific information regarding
redemptions from retirement plan accounts. Specific forms are required to be
completed for distributions from the 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 advisers concerning investment decisions within their plans.
OTHER PROGRAMS AND PRIVILEGES
AVAILABLE TO FUND SHAREHOLDERS
CERTAIN OF THE PROGRAMS AND PRIVILEGES DESCRIBED IN THIS SECTION MAY NOT BE
AVAILABLE DIRECTLY FROM THE FUND TO SHAREHOLDERS WHOSE SHARES ARE HELD, OF
RECORD, BY A FINANCIAL INSTITUTION OR IN A "STREET NAME" ACCOUNT OR NETWORKED
ACCOUNT THROUGH THE NATIONAL SECURITIES CLEARING CORPORATION ("NSCC") (SEE THE
SECTION CAPTIONED "ACCOUNT REGISTRATIONS" IN THIS PROSPECTUS).
SHARE CERTIFICATES
Shares for an initial investment, as well as subsequent investments, including
the reinvestment of dividends and capital gain distributions, are generally
credited to an account in the name of an investor on the books of the Fund,
without the issuance of a share certificate. Maintaining shares in
uncertificated form (also known as "plan balance") minimizes the risk of loss or
theft of a share certificate. A lost, stolen or destroyed certificate cannot be
replaced without obtaining a sufficient indemnity bond. The cost of such a bond,
which is generally borne by the shareholder, can be 2% or more of the value of
the lost, stolen or destroyed certificate. A certificate will be issued if
requested by the shareholder or by the securities dealer.
CONFIRMATIONS
A confirmation statement will be sent to each shareholder quarterly to reflect
the dividends reinvested during that period and after each other transaction
which affects the shareholder's account. This statement will also show the total
number of shares owned by the shareholder, including the number of shares in
"plan balance" for the account of the shareholder.
AUTOMATIC INVESTMENT PLAN
Under the Automatic Investment Plan, a shareholder may be able to arrange to
make additional purchases of shares automatically on a monthly basis by
electronic funds transfer from a checking account, if the bank which maintains
the account is a member of the Automated Clearing House, or by preauthorized
checks drawn on the shareholder's bank account. A shareholder may, of course,
terminate the program at any time. The Automatic Investment Plan Application
included with this Prospectus contains the requirements applicable to this
program. In addition, shareholders may obtain more information concerning this
program from their securities dealers or from Distributors.
The market value of the Fund's shares is subject to fluctuation. Before
undertaking any plan for systematic investment, the investor should keep in mind
that such a program does not assure a profit or protect against a loss.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder may establish a Systematic Withdrawal Plan and receive regular
periodic payments from the account, provided that the net asset value of the
shares held by the shareholder is at least $5,000. There are no service charges
for establishing or maintaining a Systematic Withdrawal Plan. The minimum amount
which the shareholder may withdraw is $50 per withdrawal transaction, although
this is merely the minimum amount allowed under the plan and should not be
mistaken for a recommended amount. Retirement plans subject to mandatory
distribution requirements are not subject to the $50 minimum. The plan may be
established on a monthly, quarterly, semiannual or annual basis. If the
shareholder establishes a plan, any capital gain distributions and income
dividends paid by the Fund will be reinvested for the shareholder's account in
additional shares at net asset value. Payments will then be made from the
liquidation of shares at net asset value on the day of the transaction (which is
generally the first business day of the month in which the payment is scheduled)
with payment generally received by the shareholder three to five days after the
date of liquidation. By completing the "Special Payment Instructions for
Distributions" section of the Shareholder Application included with this
Prospectus, a shareholder may direct the selected withdrawals to another of the
Franklin Templeton Funds, to another person, or directly to a checking account.
If the bank at which the account is maintained is a member of the Automated
Clearing House, the payments may be made automatically by electronic funds
transfer. If this last option is requested, the shareholder should allow at
least 15 days for initial processing. Payments which may be paid in the interim
will be sent to the address of record. Liquidation of shares may reduce or
possibly exhaust the shares in the shareholder's account, to the extent
withdrawals exceed shares earned through dividends and distributions,
particularly in the event of a market decline. If the withdrawal amount exceeds
the total plan balance, the account will be closed and the remaining balance
will be sent to the shareholder. If the Fund's assets have reached $100 million,
the shareholder, other than a retirement plan, will not be able to reopen the
account or open a new account. As with other redemptions, a liquidation to make
a withdrawal payment is a sale for federal income tax purposes. Because the
amount withdrawn under the plan may be more than the shareholder's actual yield
or income, part of the payment may be a return of the shareholder's investment.
The maintenance of a Systematic Withdrawal Plan concurrently with purchases of
additional shares of the Fund would be disadvantageous because of the sales
charge on the additional purchases. Also, redemptions of shares may be subject
to a contingent deferred sales charge if the shares are redeemed within 12
months of the calendar month of the original purchase date. The shareholder
should ordinarily not make additional investments of less than $5,000 or three
times the annual withdrawals under the plan during the time such a plan is in
effect. The applicable contingent deferred sales charge is waived for share
redemptions of up to 1% monthly of an account's net asset value (12% annually,
6% semiannually, 3% quarterly). 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. A Systematic Withdrawal Plan
may be terminated on written notice by the shareholder or the Fund, and it will
terminate automatically if all shares are liquidated or withdrawn from the
account, or upon the Fund's receipt of notification of the death or incapacity
of the shareholder. Shareholders may change the amount (but not below the
specified minimum) and schedule of withdrawal payments, or suspend one such
payment by giving written notice to Investor Services at least seven business
days prior to the end of the month preceding a scheduled payment. Share
certificates may not be issued while a Systematic Withdrawal Plan is in effect.
INSTITUTIONAL ACCOUNTS
There may be additional methods of purchasing, redeeming or exchanging shares
of the Fund available to institutional accounts. For further information,
contact the Franklin Templeton Institutional Services Department at
1-800/321-8563.
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 mutual funds are
offered to the public with a sales charge. If a shareholder's investment
objective or outlook for the securities markets changes, Fund shares may be
exchanged for Class I shares of other Franklin Templeton Funds which are
eligible for sale in the shareholder's state of residence and in conformity with
such fund's stated eligibility requirements and investment minimums. Before
making an exchange, investors should review the prospectus of the fund they wish
to exchange from and the fund they wish to exchange into for all specific
requirements or limitations on exercising the exchange privilege, for example,
minimum holding periods or applicable sales charges. No exchanges between
different classes of shares are allowed and, therefore, shares of the Fund may
not be exchanged for Class II shares of other Franklin Templeton Funds.
Shareholders may choose to redeem shares of the Fund and purchase Class II
shares of other Franklin Templeton Funds but such purchase will be subject to
that fund's Class II front-end and contingent deferred sales charges for the
contingency period of 18 months. Although there are no exchanges between
different classes of shares, shareholders of a Class II Franklin Templeton Fund
may, however, elect to direct their dividends and capital gain distributions to
the Fund or another Class I Franklin Templeton Fund at net asset value.
Exchanges may be made in any of the following ways:
EXCHANGES BY MAIL
Send written instructions signed by all account owners and accompanied by any
outstanding share certificates properly endorsed. The transaction will be
effective upon receipt of the written instructions together with any outstanding
share certificates.
EXCHANGES BY TELEPHONE
SHAREHOLDERS, OR THEIR INVESTMENT REPRESENTATIVE OF RECORD, IF ANY, MAY EXCHANGE
SHARES OF THE FUND BY TELEPHONE BY CALLING INVESTOR SERVICES AT 1-800/632-2301
OR THE AUTOMATED FRANKLIN TELEFACTS(R) SYSTEM (DAY OR NIGHT) AT 1-800/247-1753.
IF THE SHAREHOLDER DOES NOT WISH THIS PRIVILEGE EXTENDED TO A PARTICULAR
ACCOUNT, THE FUND OR INVESTOR SERVICES SHOULD BE NOTIFIED.
The telephone exchange privilege allows a shareholder to effect exchanges from
the Fund into an identically registered account in one of the other available
Franklin Templeton Funds Class I shares. The telephone exchange privilege is
available only for uncertificated shares or those which have previously been
deposited in the shareholder's account. The Fund and Investor Services will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. Please refer to "Telephone Transactions - Verification
Procedures."
During periods of drastic economic or market changes, it is possible that the
telephone exchange privilege may be difficult to implement and the TeleFACTS
option may not be available. In this event, shareholders should follow the other
exchange procedures discussed in this section, including the procedures for
processing exchanges through securities dealers.
EXCHANGES THROUGH SECURITIES DEALERS
As is the case with all purchases and redemptions of the Fund's shares, Investor
Services will accept exchange orders from securities dealers who execute a
dealer or similar agreement with Distributors. See also "Exchanges By Telephone"
above. Such a dealer-ordered exchange will be effective only for uncertificated
shares on deposit in the shareholder's account or for which certificates have
previously been deposited. A securities dealer may charge a fee for handling an
exchange.
ADDITIONAL INFORMATION REGARDING EXCHANGES
If the account has shares subject to a contingent deferred sales charge, the
shares will be exchanged into the new account on a "first-in, first-out" basis.
The contingency period of 12 months during which a contingent deferred sales
charge may be assessed will be tolled (or stopped) for the period such shares
are exchanged into and held in a Franklin or Templeton money market fund. See
also "How to Sell Shares of the Fund - Contingent Deferred Sales Charge."
Exchanges are made on the basis of the net asset values 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 investment on
which no sales charge was paid originated from a fund on which the investor paid
or was subject to a front-end or contingent deferred sales charge. Exchanges of
shares of the Fund which were purchased with a lower sales charge to 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. When an investor requests the exchange of the total value of the Fund
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, the shareholder may realize a gain or loss for federal income tax
purposes. Backup withholding and information reporting may also apply.
Information regarding the possible tax consequences of such an exchange is
included in the tax section in this Prospectus and in the SAI.
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.
The exchange privilege may be modified or discontinued by the Fund at any time
upon 60 days' written notice to shareholders.
The Fund currently will not accept investments from Timing Accounts nor will the
Fund accept exchanges into the Fund from other Franklin Templeton Funds.
RETIREMENT ACCOUNTS
Franklin Templeton IRA and 403(b) retirement accounts may accomplish
exchanges directly. Certain restrictions may apply, however, to other types
of retirement plans. See "Restricted Accounts" under "Telephone Transactions."
HOW TO SELL SHARES OF THE FUND
A shareholder may at any time liquidate shares owned and receive from the Fund
the value of the shares. If a shareholder, other than a retirement plan,
completely redeems an account after such time as the Fund's assets have reached
$100 million, the account will be closed and the shareholder will not be allowed
to purchase additional shares of the Fund or to reopen the account.
Shares may be redeemed in any of the following ways:
REDEMPTIONS BY MAIL
Send a written request, signed by all registered owners, to Investor Services,
at the address shown on the back cover of this Prospectus, and any share
certificates which have been issued for the shares being redeemed, properly
endorsed and in order for transfer. The shareholder will then receive from the
Fund the value of the shares based upon the net asset value per share (less the
contingent deferred sales charge, if applicable) next computed after the written
request in proper form is received by Investor Services. Redemption requests
received after the time at which the net asset value is calculated (at the
scheduled closing of the New York Stock Exchange (the "Exchange") which is
generally 1:00 p.m. Pacific time) each day that the Exchange is open for
business will receive the price calculated on the following business day.
Shareholders are requested to provide a telephone number where they may be
reached during business hours, or in the evening if preferred. Investor
Services' ability to contact a shareholder promptly when necessary will speed
the processing of the redemption.
TO BE CONSIDERED IN PROPER FORM, SIGNATURES MUST BE GUARANTEED IF THE REDEMPTION
REQUEST INVOLVES ANY OF THE FOLLOWING:
(1) the proceeds of the redemption are over $50,000;
(2) the proceeds (in any amount) are to be paid to someone other than the
registered owners of the account;
(3) the proceeds (in any amount) are to be sent to any address other than the
shareholder's address of record, preauthorized bank account or brokerage firm
account;
(4) share certificates, if the redemption proceeds are in excess of $50,000;
or
(5) the Fund or Investor Services believes that a signature guarantee would
protect against potential claims based on the transfer instructions, including,
for example, when (a) the current address of one or more joint owners of an
account cannot be confirmed, (b) multiple owners have a dispute or give
inconsistent instructions to the Fund, (c) the Fund has been notified of an
adverse claim, (d) the instructions received by the Fund are given by an agent,
not the actual registered owner, (e) the Fund determines that joint owners who
are married to each other are separated or may be the subject of divorce
proceedings, or (f) the authority of a representative of a corporation,
partnership, association, or other entity has not been established to the
satisfaction of the Fund.
Signatures must be guaranteed by an "eligible guarantor institution" as defined
under Rule 17Ad-15 under the Securities Exchange Act of 1934. Generally,
eligible guarantor institutions include (1) national or state banks, savings
associations, savings and loan associations, trust companies, savings banks,
industrial loan companies and credit unions; (2) national securities exchanges,
registered securities associations and clearing agencies; (3) securities dealers
which are members of a national securities exchange or a clearing agency or
which have minimum net capital of $100,000; or (4) institutions that participate
in the Securities Transfer Agent Medallion Program ("STAMP") or other recognized
signature guarantee medallion program. A notarized signature will not be
sufficient for the request to be in proper form.
Where shares to be redeemed are represented by share certificates, the request
for redemption must be accompanied by the share certificate and a share
assignment form signed by the registered shareholders exactly as the account is
registered, with the signatures guaranteed as referenced above. Shareholders are
advised, for their own protection, to send the share certificate and assignment
form in separate envelopes if they are being mailed in for redemption.
Liquidation requests of corporate, partnership, trust and custodianship
accounts, and accounts under court jurisdiction require the following
documentation to be in proper form:
Corporation - (1) Signature guaranteed letter of instruction from the authorized
officer(s) of the corporation and (2) a corporate resolution.
Partnership - (1) Signature guaranteed letter of instruction from a general
partner and (2) pertinent pages from the partnership agreement identifying the
general partners or a certification for a partnership agreement.
Trust - (1) Signature guaranteed letter of instruction from the trustee(s) and
(2) a copy of the pertinent pages of the trust document listing the trustee(s)
or a Certification for Trust if the trustee(s) are not listed on the account
registration.
Custodial (other than a retirement account) - Signature guaranteed letter of
instruction from the custodian.
Accounts under court jurisdiction - Check court documents and the applicable
state law since these accounts have varying requirements, depending upon the
state of residence.
Payment for redeemed shares will be sent to the shareholder within seven days
after receipt of the request in proper form.
REDEMPTIONS BY TELEPHONE
Shareholders who complete the Franklin Templeton Telephone Redemption
Authorization Agreement (the "Agreement"), included with this Prospectus, may
redeem shares of the Fund by telephone, subject to the Restricted Account
exception noted under "Telephone Transactions - Restricted Accounts."
INFORMATION MAY ALSO BE OBTAINED BY WRITING TO THE FUND OR INVESTOR SERVICES AT
THE ADDRESS SHOWN ON THE COVER OR BY CALLING 1-800/632-2301. THE FUND AND
INVESTOR SERVICES WILL EMPLOY REASONABLE PROCEDURES TO CONFIRM THAT INSTRUCTIONS
GIVEN BY TELEPHONE ARE GENUINE. SHAREHOLDERS, HOWEVER, BEAR THE RISK OF LOSS IN
CERTAIN CASES AS DESCRIBED UNDER "TELEPHONE TRANSACTIONS - Verification
Procedures."
For shareholder accounts with the completed Agreement on file, redemptions of
uncertificated shares or shares which have previously been deposited with the
Fund or Investor Services may be made for up to $50,000 per day per Fund
account. Telephone redemption requests received before the scheduled closing of
the Exchange (generally 1:00 p.m. Pacific time) on any business day will be
processed that same day. The redemption check will be sent within seven days,
made payable to all the registered owners on the account, and will be sent only
to the address of record. Redemption requests by telephone will not be accepted
within 30 days following an address change by telephone. In that case, a
shareholder should follow the other redemption procedures set forth in this
Prospectus. Institutional accounts (certain corporations, bank trust
departments, government entities, and qualified retirement plans which qualify
to purchase shares at net asset value pursuant to the terms of this Prospectus)
which wish to execute redemptions in excess of $50,000 must complete an
Institutional Telephone Privileges Agreement which is available from the
Franklin Templeton Institutional Services Department by telephoning
1-800/321-8563.
REDEEMING SHARES THROUGH SECURITIES DEALERS
The Fund will accept redemption orders from securities dealers who have entered
into an agreement with Distributors. This is known as a repurchase. The only
difference between a normal redemption and a repurchase is that if the
shareholder redeems shares through a dealer, the redemption price will be the
net asset value next calculated after the shareholder's dealer receives the
order which is promptly transmitted to the Fund, rather than on the day the Fund
receives the shareholder's written request in proper form. The documents
described under "Redemptions By Mail" above, as well as a signed letter of
instruction, are required regardless of whether the shareholder redeems shares
directly or submits such shares to a securities dealer for repurchase. A
shareholder's 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 the shareholder's redemption will
be sent will begin when the Fund receives all documents required to complete
("settle") the repurchase in proper form. The redemption proceeds will not earn
dividends or interest during the time between receipt of the dealer's repurchase
order and the date the redemption is processed upon receipt of all documents
necessary to settle the repurchase. Thus, it is in a shareholder's best interest
to have the required documentation completed and forwarded to the Fund as soon
as possible. The shareholder's dealer may charge a fee for handling the order.
The SAI contains more information on the redemption of shares.
CONTINGENT DEFERRED SALES CHARGE
In order to recover commissions paid to securities dealers, 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 of those shares held less than the
contingency period; (ii) shares purchased with reinvested dividends and capital
gain distributions; (iii) other shares held longer than the contingency period;
and followed by (iv) any shares held less than the contingency period, on a
"first-in, first-out" basis. For tax purposes, a contingent deferred sales
charge is treated as either a reduction in redemption proceeds or an adjustment
to the cost basis of the shares redeemed.
The contingent deferred sales charge is waived for: exchanges; any account fees;
distributions to participants or their beneficiaries in Trust Company individual
retirement plan accounts due to death, disability or attainment of age 59 1/2;
tax-free returns of excess contributions from employee benefit plans;
distributions from employee benefit plans, including those due to termination or
plan transfer; redemptions through a Systematic Withdrawal Plan set up for
shares prior to February 1, 1995, and for Systematic Withdrawal Plans set up
thereafter, redemptions of up to 1% monthly of an account's net asset value (3%
quarterly, 6% semiannually or 12% annually); redemptions initiated by the Fund
due to a shareholder's account falling below the minimum specified account size;
and redemptions following the death of the shareholder or beneficial owner.
All investments made during a calendar month, regardless of when during the
month the investment occurred, will age one month on the last day of that month
and each subsequent month.
Requests for redemptions of a specified DOLLAR AMOUNT, unless otherwise
specified, will result in additional shares being redeemed to cover any
applicable contingent deferred sales charge, while requests for redemption of a
SPECIFIC NUMBER of shares will result in the applicable contingent deferred
sales charge being deducted from the total dollar amount redeemed.
ADDITIONAL INFORMATION REGARDING REDEMPTIONS
The Fund may delay the mailing of the redemption check, or a portion thereof,
until the clearance of the check used to purchase Fund shares, which may take up
to 15 days or more. Although the use of a certified or cashier's check will
generally reduce this delay, shares purchased with these checks will also be
held pending clearance. Shares purchased by federal funds wire are available for
immediate redemption. In addition, the right of redemption may be suspended or
the date of payment postponed if the Exchange is closed (other than customary
closing) or upon the determination of the SEC that trading on the Exchange is
restricted or an emergency exists, or if the SEC permits it, by order, for the
protection of shareholders. Of course, the amount received may be more or less
than the amount invested by the shareholder, depending on fluctuations in the
market value of securities owned by the Fund.
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, a shareholder or 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 shareholders do not earn interest or
any other income during the time such checks remain uncashed and neither the
Fund nor its affiliates will be liable for any loss to the shareholder caused by
the shareholder's failure to cash such checks.
"Cash" payments to or from the Fund may be made by check, draft or wire. The
Fund has no facility to receive, or pay out, cash in the form of currency.
For any information required about a proposed liquidation, a shareholder may
call Franklin's Shareholder Services Department or the securities dealer may
call Franklin's Dealer Services Department.
TELEPHONE TRANSACTIONS
Shareholders of the Fund and their investment representative of record, if any,
may be able to execute various transactions by calling Investor Services at
1-800/632-2301.
All shareholders will be able to 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, shareholders
who complete and file an Agreement as described under "How to Sell Shares of the
Fund - Redemptions By Telephone" will be able to redeem shares of the Fund.
VERIFICATION PROCEDURES
The Fund and Investor Services will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. These will include:
recording all telephone calls requesting account activity by telephone,
requiring that the caller provide certain personal and/or account information
requested by the telephone service agent at the time of the call for the purpose
of establishing the caller's identification, and sending a confirmation
statement on redemptions to the address of record each time account activity is
initiated by telephone. So long as the Fund and Investor Services follow
instructions communicated by telephone which were reasonably believed to be
genuine at the time of their receipt, neither they nor their affiliates will be
liable for any loss to the shareholder caused by an unauthorized transaction.
The Fund and Investor Services may be liable for any losses due to unauthorized
or fraudulent instructions in the event such reasonable procedures are not
followed. Shareholders are, of course, under no obligation to apply for or
accept telephone transaction privileges. In any instance where the Fund or
Investor Services is not reasonably satisfied that instructions received by
telephone are genuine, the requested transaction will not be executed, and
neither the Fund nor Investor Services will be liable for any losses which may
occur because of a delay in implementing a transaction.
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 distribution, redemption, or
dividend payment. 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. Changes to dividend options and requests for
certificates must also be made in writing.
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 privileges will be difficult to execute because of heavy
telephone volume. In such situations, shareholders may wish to contact their
investment representative for assistance, or to send written instructions to the
Fund as detailed elsewhere in this Prospectus.
Neither the Fund nor Investor Services will be liable for any losses resulting
from the inability of a shareholder to execute a telephone transaction.
The telephone transaction privilege may be modified or discontinued by the Fund
at any time upon 60 days' written notice to shareholders.
VALUATION OF FUND SHARES
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 at
the time. Assets in the Fund's portfolio are valued as described in the SAI
under "Additional Information Regarding Fund Shares - Calculation of Net Asset
Value."
HOW TO GET INFORMATION
REGARDING AN INVESTMENT IN THE FUND
Any questions or communications regarding a shareholder's account should be
directed to Investor Services at the address shown on the back cover of this
Prospectus.
From a touch-tone phone, Franklin and Templeton shareholders may access an
automated system (day or night) which offers the following features.
By calling the Franklin TeleFACTS(R) system at 1-800/247-1753, shareholders may
obtain Class I and Class II account information, current price and, if
available, yield or performance information specific to the Fund or any Franklin
Templeton Fund. In addition, Franklin Class I shareholders may process an
exchange, within the same class, into an identically registered Franklin account
and request duplicate confirmation or year-end statements, money fund checks, if
applicable, and deposit slips.
Fund information may be accessed by entering Fund Code [] followed by the #
sign. The system's automated operator will prompt the caller with easy to follow
step-by-step instructions from the main menu. Other features may be added in the
future.
To assist shareholders and securities dealers wishing to speak directly with a
representative, the following is a list of the various Franklin departments,
telephone numbers and hours of operation to call. The same numbers may be used
when calling from a rotary phone:
HOURS OF OPERATION (PACIFIC
TIME)
DEPARTMENT NAME TELEPHONE NO. (MONDAY THROUGH FRIDAY)
Shareholder Services 1-800/632-2301 5:30 a.m. to 5:00 p.m.
Dealer Services 1-800/524-4040 5:30 a.m. to 5:00 p.m.
Fund Information 1-800/DIAL BEN 5:30 a.m. to 8:00 p.m.,
8:30 a.m. to 5:00 p.m.(Saturday)
Retirement Plans 1-800/527-2020 5:30 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 5:30 a.m. to 5:00 p.m.
In order to ensure that the highest quality of service is being provided,
telephone calls placed to or by representatives in Franklin's or Templeton's
service departments may be accessed, recorded and monitored. These calls can be
determined by the presence of a regular beeping tone.
PERFORMANCE
Advertisements, sales literature and communications to shareholders may contain
several measures of the Fund's performance, including current yield, various
expressions of total return and current distribution rate. They may occasionally
cite statistics to reflect the Fund's volatility or risk.
Average annual total return figures, as prescribed by the SEC, represent the
average annual percentage change in value of $1,000 invested at the maximum
public offering price (offering price includes front-end 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.
Yield which is calculated according to a formula prescribed by the SEC (see 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
are reflected in the current distribution rate, which may be quoted to
shareholders. The current distribution rate is computed by dividing the total
amount of dividends per share paid by 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 yield, distribution rate or total return 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 Trust, including the auditors' report, and
Semi-Annual Reports containing unaudited financial statements are automatically
sent to shareholders. To reduce the volume of mail sent to 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 Trust at
the telephone number or address set forth on the cover page of this Prospectus.
Additional information on Fund performance is included in the Trust's Annual
Report to Shareholders and the SAI.
ORGANIZATION 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, with a
par value of $.01 per share, which may be issued in any number of series. 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. The Trust reserves the
right to issue additional classes of shares of the Fund or to add additional
series to the Trust.
Shares of each series have equal rights as to voting and vote separately as to
issues affecting that series, or the Trust, unless otherwise permitted by the
1940 Act. Voting rights are noncumulative, so that in any elections of trustees,
the holders of more than 50% of the shares of the Trust 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 for the series, 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 entitled 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.
REDEMPTIONS BY THE FUND
The Fund reserves the right to redeem, at net asset value, shares of any
shareholder whose account has a value of less than $1,250 ($500 for an IRA
account), but only where the value of such account has been reduced by the
shareholder's prior voluntary redemption of shares and has been inactive (except
for the reinvestment of distributions) for a period of at least six months,
provided advance notice is given to the shareholder. More information is
included in the SAI.
ACCOUNT REGISTRATIONS
An account registration should reflect the investor's intentions as to
ownership. Where there are two co-owners on the account, the account will be
registered as "Owner 1" AND "Owner 2"; the "or" designation is not used except
for money market fund accounts. If co-owners wish to have the ability to redeem
or convert on the signature of only one owner, a limited power of attorney may
be used.
Accounts should not be registered in the name of a minor, either as sole or
co-owner of the account. Transfer or redemption for such an account may require
court action to obtain release of the funds until the minor reaches the legal
age of majority. The account should be registered in the name of one "Adult" as
custodian for the benefit of the "Minor" under the Uniform Transfer or Gifts to
Minors Act.
A trust designation such as "trustee" or "in trust for" should only be used if
the account is being established pursuant to a legal, valid trust document. Use
of such a designation in the absence of a legal trust document may cause
difficulties and require court action for transfer or redemption of the funds.
Shares, whether in certificate form or not, registered as joint tenants or "Jt
Ten" shall mean "as joint tenants with rights of survivorship" and not "as
tenants in common."
Except as indicated, a shareholder may transfer an account in the Fund carried
in "street" or "nominee" name by the shareholder's securities dealer to a
comparably registered Fund account maintained by another securities dealer. Both
the delivering and receiving securities dealers must have executed dealer
agreements on file with Distributors. Unless a dealer agreement has been
executed and is on file with Distributors, the Fund will not process the
transfer and will so inform the shareholder's delivering securities dealer. To
effect the transfer, a shareholder should instruct the securities dealer to
transfer the account to a receiving securities dealer and sign any documents
required by the securities dealer(s) to evidence consent to the transfer. Under
current procedures, the account transfer may be processed by the delivering
securities dealer and the Fund after the Fund receives authorization in proper
form from the shareholder's delivering securities dealer. In the future it may
be possible to effect such transfers electronically through the services of the
NSCC.
The Fund may conclusively accept instructions from an owner or the owner's
nominee listed in publicly available nominee lists, regardless of whether the
account was initially registered in the name of or by the owner, the nominee, or
both. If a securities dealer or other representative is of record on an
investor's account, the investor will be deemed to have authorized the use of
electronic instructions on the account, including, without limitation, those
initiated through the services of the NSCC, to have adopted as instruction and
signature any such electronic instructions received by the Fund and the
Shareholder Services Agent, and to have authorized them to execute the
instructions without further inquiry. At the present time, such services which
are available include the NSCC's "Networking," "Fund/SERV," and "ACATS" systems.
Any questions regarding an intended registration should be answered by the
securities dealer handling the investment, or by calling Franklin's Fund
Information Department.
IMPORTANT NOTICE REGARDING
TAXPAYER IRS CERTIFICATIONS
Pursuant to the Code and U.S. Treasury regulations, the Fund may be required to
report to the Internal Revenue Service ("IRS") any taxable dividend, capital
gain distribution, or other reportable payment (including share redemption
proceeds) and withhold 31% of any such payments made to individuals and other
non-exempt shareholders who have not provided a correct taxpayer identification
number ("TIN") and made certain required certifications that appear in the
Shareholder Application. A shareholder may also be subject to backup withholding
if the IRS or a securities dealer notifies the Fund that the number furnished by
the shareholder is incorrect or that the shareholder is subject to backup
withholding for previous under-reporting of interest or dividend income.
The Fund reserves the right to (1) refuse to open an account for any person
failing to provide a TIN along with the required certifications and (2) close an
account by redeeming its shares in full at the then-current net asset value upon
receipt of notice from the IRS that the TIN certified as correct by the
shareholder is in fact incorrect or upon the failure of a shareholder who has
completed an "awaiting TIN" certification to provide the Fund with a certified
TIN within 60 days after opening the account.
PORTFOLIO OPERATIONS
The following persons have been primarily responsible for the day-to-day
management of the Fund's portfolio since its inception:
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.
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.
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.
FRANKLIN MICROCAP VALUE FUND
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
LEGAL COUNSEL
Stradley, Ronon, Stevens & Young
2600 One Commerce Square
Philadelphia, Pennsylvania 19103
INDEPENDENT AUDITORS
Coopers & Lybrand L.L.P.
333 Market Street
San Francisco, California 94105
CUSTODIAN
Bank of America
555 California Street, 4th Floor
San Francisco, California 94104
For an enlarged version of this prospectus, please call 1-800/DIAL BEN.
Your Representative Is:
[] P 12/95
FRANKLIN MICROCAP VALUE FUND
STATEMENT OF ADDITIONAL INFORMATION
DECEMBER 4, 1995
777 MARINERS ISLAND BLVD., P.O. BOX 7777
SAN MATEO, CA 94403-7777 1-800/DIAL BEN
CONTENTS PAGE
About the Fund
(See also the Prospectus
"About the Fund")
The Fund's Investment Objective
and Policies (See also the Prospectus
"Investment Objective and Policies
of the Fund")
Risk Factors
Officers and Trustees
Investment Advisory and Other Services
(See also the Prospectus
"Management of the Fund")
The Fund's Policies Regarding
Brokers Used on Portfolio Transactions
Additional Information Regarding
Fund Shares (See also the Prospectus
"How to Buy Shares of the Fund,"
"How to Sell Shares of the Fund," and
"Valuation of Shares of the Fund")
Additional Information
Regarding Taxation
The Fund's Underwriter
General Information
Appendix
Franklin MicroCap 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 high total return, of which
capital appreciation and income are components. The Fund seeks to achieve its
objective by investing at least 65% of its total assets in securities of
companies with market capitalization under $100 million at the time of purchase
and which the Fund's investment manager believes represent intrinsic values not
reflected in the current market price of such securities. The Fund may invest in
domestic and foreign securities.
A Prospectus for the Fund, dated December 4, 1995, as may be amended from time
to time, provides the basic information an investor should know before investing
in the Fund and may be obtained without charge from the Fund or from its
principal underwriter, Franklin/Templeton Distributors, Inc.
("Distributors"), at the address 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 INVESTORS WITH ADDITIONAL
INFORMATION REGARDING THE ACTIVITIES AND OPERATIONS OF THE FUND, AND SHOULD BE
READ IN CONJUNCTION WITH THE FUND'S PROSPECTUS.
ABOUT THE FUND
The Fund is a non-diversified, open-end series of the Trust, a management
investment company, commonly called a "mutual fund." The Trust was organized as
a Massachusetts business trust on September 11, 1989, and registered under the
Investment Company Act of 1940, as amended ("1940 Act").
THE FUND'S INVESTMENT
OBJECTIVE AND POLICIES
As noted in the Prospectus, the Fund seeks to provide high total return, of
which capital appreciation and income are components. This objective is a
fundamental policy and may not be changed without approval of shareholders. The
Fund seeks to accomplish its objective by investing primarily in securities of
companies with market capitalization under $100 million at the time of purchase
and which the Fund's investment manager believes represent intrinsic values not
reflected in the current market price of such securities.
The Fund's emphasis on securities believed to be undervalued by the market uses
a technique followed by certain very wealthy investors highlighted by the media
and a number of private partnerships with very high minimum investments. It
requires not only the resources to undertake exhaustive research of little
followed, out-of-favor securities, but also the patience and discipline to hold
these investments until their intrinsic values are ultimately recognized by
others in the marketplace. There can be no assurance that such technique will be
successful for the Fund or that the Fund will achieve its investment objective.
ADDITIONAL INFORMATION ON THE FUND'S INVESTMENT POLICES
The following information supplements and should be read in conjunction with the
section in the Fund's Prospectus entitled "Investment Objective and Policies of
the Fund."
LOANS OF PORTFOLIO SECURITIES. As stated in the Prospectus, the Fund may make
loans of its portfolio securities up to 25% of its total assets, in accordance
with guidelines adopted by the Fund's Board of Trustees. 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 collateral in short-term,
interest-bearing obligations or by receiving loan premiums from the borrower.
The Fund will continue 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. The Fund will not lend its portfolio securities if
such loans are not permitted by the laws or regulations of any state in which
its shares are qualified for sale. Loans will be subject to termination by the
Fund in the normal settlement time, currently five business days after notice,
or by the borrower on one day's notice. Borrowed securities must be returned
when the loan is terminated. Any gain or loss in the market price of the
borrowed securities which occurs during the term of the loan inures to the Fund
and its shareholders. The Fund may pay reasonable finders', borrowers',
administrative and custodial fees in connection with a loan of its securities.
ENHANCED CONVERTIBLE SECURITIES. The Fund may 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 on 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. If called
early, however, 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 classes of 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 company issued convertible preferred stock, 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 or 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
mandatorily convert into either cash or a specified number of shares of common
stock.
Similarly, there may be enhanced convertible debt obligations issued by the
operating company or by a different issuer, e.g., an investment bank company.
These securities may be identified by names such as ELKS (Equity Linked
Securities). Typically they share most of the salient characteristics of an
enhanced convertible preferred stock 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
which are also similar to those described above in which the Fund may invest,
consistent with its objective and policies.
FOREIGN SECURITIES. When purchasing foreign securities, the Fund will ordinarily
purchase securities which are traded in the United States or purchase sponsored
or unsponsored American Depositary Receipts ("ADRs"), which 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. A sponsored ADR is an
ADR in which establishment of the issuing facility is brought about by the
participation of the issuer and the depositary institution pursuant to a deposit
agreement which sets out the rights and responsibilities of the issuer, the
depositary and the ADR holder. Under the terms of most sponsored arrangements,
depositaries agree to distribute notices of shareholder meetings and voting
instructions, thereby ensuring that ADR holders will be able to exercise voting
rights through the depositary with respect to the deposited securities. An
unsponsored ADR has no sponsorship by the issuing facility and additionally,
more than one depositary institution may be involved in the issuance of the
unsponsored ADR. However, it typically clears through the Depository Trust
Company and therefore, there should be no additional delays in selling the
security or in obtaining dividends. Although not required, the depositary
normally requests a letter of non-objection from the issuer. In addition, the
depositary is not required to distribute notices of shareholder's meetings or
financial information to the purchaser. The Fund may also purchase the
securities of foreign issuers directly in foreign markets so long as, in the
investment manager's judgment, an established public trading market exists (that
is, there are a sufficient number of shares traded regularly relative to the
number of shares to be purchased by the Fund).
OPTIONS. As noted in the Prospectus, the Fund may write covered call options on
securities it owns, which are listed for trading on a national securities
exchange, and purchase listed call and put options on securities and securities
indices for portfolio hedging purposes.
Call options written by the Fund give the holder the right to buy the underlying
securities from the Fund at a stated exercise price. A call option written by
the Fund is "covered" if the Fund owns the underlying security which is subject
to the call. The premium paid by the purchaser of an option will reflect, 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.
The writer of an option may have no control over when the underlying securities
must be sold, in the case of a call option, since, with regard to certain
options, the writer may be assigned an exercise notice at any time prior to the
termination of the obligation. Whether or not an option expires unexercised, the
writer retains the amount of the premium. This amount, of course, 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 accomplished by buying an option of the
same series as the option previously written. The effect of the purchase is that
the writer's position will 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. Likewise, an investor who is the holder of an option may
liquidate its position by effecting a "closing sale transaction." This is
accomplished by 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 in the case of 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 will effect a closing transaction prior to or
concurrent with 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. A call option gives the
holder the right to buy the underlying securities from the option writer at a
stated exercise price. 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 the related transaction costs.
The Fund may also purchase put options. As the holder of a put option, the Fund
has the right to sell the underlying security at the exercise price at any time
during the option period. 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.
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 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. Have invested as of the last day of any fiscal quarter (i) more than 25% of
its total assets in the securities of any one issuer, or (ii) with respect to
50% of the Fund's total assets, more than 5% of its total assets in the
securities of any one issuer, except for securities issued or guaranteed by the
U.S. government, its agencies or instrumentalities.
2. 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.
3. Borrow money, except in the form of reverse repurchase agreements or from
banks in order to meet redemption requests that might otherwise require the
untimely disposition of portfolio securities 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.
4. Pledge, hypothecate, mortgage or otherwise encumber its assets, except to
secure borrowings for temporary or emergency purposes and permissible options,
short selling or other hedging transactions.
5. 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. (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.)
6. Invest directly in interests in real estate, oil, gas or other mineral
leases, exploration or development programs. (This restriction does not preclude
investments in marketable securities of issuers engaged in such activities.)
7. 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.
8. Purchase or sell commodities or commodity futures contracts or financial
futures contracts; or invest in put, call, straddle or spread options on
financial or other futures contracts or stock index futures contracts.
9. 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 Exchanges.
10. 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, to the knowledge of the
Fund, 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.
11. Purchase or hold 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 securities that are subject to legal or contractual restrictions on
resale ("restricted securities"), in securities that are not readily marketable
(including over-the-counter options) or in repurchase agreements maturing in
more than seven days.
12. Issue senior securities, as defined in the 1940 Act, except that this
restriction shall not be deemed to prohibit the Fund from (i) making any
permitted borrowings, mortgages or pledges or (ii) entering into repurchase
transactions.
13. Engage in the short sales of securities, except short sales "against the
box," if the cash or securities deposited in the segregated account with the
Fund's custodian to collateralize its short positions in the aggregate exceed
25% of the Fund's net assets.
14. 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, and except
where the Fund would not own, immediately after the acquisition, securities of
the investment companies which exceed in the aggregate i) more than 3% of the
issuer's outstanding voting stock, ii) more than 5% of the Fund's total assets
and iii) together with the securities of all other investment companies held by
the Fund, exceed, in the aggregate, more than 10% of the Fund's total assets;
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.
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
values of assets will not constitute a violation of that restriction, except as
otherwise noted.
RISK FACTORS
HIGH YIELDING, FIXED-INCOME SECURITIES. The Fund may invest up to 25% of its
total assets, at the time of investment, in lower rated, fixed-income securities
and unrated securities of comparable quality (known as "junk bonds"), although
the Fund's current investment strategy is to limit such investments to less than
5% of the Fund's total assets. The market values of lower rated, fixed-income
securities tend to reflect individual corporate developments to a greater extent
than do higher rated securities, which react primarily to fluctuations in the
general level of interest rates. Such lower rated securities also tend to be
more sensitive to economic conditions than higher rated securities. Bonds rated
BB or below by Standard & Poor's Corporation ("S&P") or Ba or below by Moody's
Investors Service ("Moody's") are considered, 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.
Companies that issue 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
corporate developments, 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.
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, if a call were exercised by the issuer during
periods of declining interest rates, the Fund would likely have to replace such
called securities with lower yielding securities, thus decreasing the net
investment income to the Fund and dividends to shareholders. 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 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 "Valuation of Fund Shares" in the
Prospectus.)
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. The Fund, however, 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 underwriter 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.
Factors adversely impacting the market value of high yielding securities will,
to the extent the Fund has invested in such securities, adversely impact the
Fund's net asset value. The Fund may also incur additional expenses to the
extent it is required to seek recovery upon a default in the payment of
principal or interest on its portfolio holdings. 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.
OPTIONS. The Fund's ability to hedge effectively all or a portion of its
securities through transactions in options on securities and securities indices
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 any 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 securities and
securities indices will be subject to the investment manager's ability to
predict correctly movements in the direction of the securities markets generally
or of a particular segment. This requires different skills and techniques than
predicting changes in the price of individual stocks.
Positions in stock index options and options of securities 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 option at any
specific time. Thus, it may not be possible to close such an option. The
inability to close options positions also could have an adverse impact on the
Fund's ability to effectively hedge its securities. The Fund will enter into an
option position only if there appears to be a liquid secondary market for such
option.
OFFICERS AND TRUSTEES
The Board of Trustees has the responsibility for the overall management of the
Fund, including general supervision and review of its investment activities. The
trustees, in turn, elect the officers of the 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, Trustee and Chief Executive Officer
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 (46)
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.
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.
NUMBER OF BOARDS
TOTAL FEES IN THE FRANKLIN
RECEIVED FROM GROUP OF FUNDS ON
TOTAL FEES THE FRANKLIN WHICH EACH
RECEIVED FROM GROUP OF FUNDS** SERVES***
NAME THE TRUST*
Frank T. Crohn $3,450 $14,700 3
Charles Rubens, II $3,450 $15,900 3
Leonard Rubin $3,450 $15,900 3
*For the fiscal year ended October 31, 1994.
**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. The Manager and other subsidiary companies of Resources currently
manage over $128 billion in assets worldwide for more than 3.8 million
shareholders, in addition to foundations and endowments, employee benefit plans
and individuals.
Pursuant to a management agreement, the Manager provides investment research and
portfolio management services, including the selection of securities for the
Fund to purchase, hold or sell and the selection of brokers through whom the
Fund's portfolio transactions are executed. The Manager's activities are subject
to the review and supervision of the Fund's Board of Trustees 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 and accrued 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 [], 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 Fund's Board of
Trustees or by a vote of the holders of a majority of the Fund's outstanding
voting securities, and in either event by a majority vote of the 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 Fund 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.
THE FUND'S POLICIES REGARDING BROKERS
USED ON PORTFOLIO TRANSACTION
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 Fund's Board of Trustees may give.
When placing a portfolio transaction, the Manager attempts to obtain the best
net price and execution of the transaction. On portfolio transactions which are
done on a securities exchange, the amount of commission paid by the Fund is
negotiated between the Manager and the broker executing the transaction. The
Manager seeks to obtain the lowest commission rate available from brokers which
are felt to be capable of efficient execution of the transactions. The
determination and evaluation of the reasonableness of the brokerage commissions
paid in connection with portfolio transactions are based to a large degree on
the professional opinions of the persons responsible for the placement and
review of such transactions. These opinions are formed on the basis of, among
other things, the experience of these individuals in the securities industry and
information available to them concerning the level of commissions being paid by
other institutional investors of comparable size. The Manager will ordinarily
place orders for the purchase and sale of over-the-counter securities on a
principal rather than agency basis with a principal market maker unless, in the
opinion of the Manager, a better price and execution can otherwise be obtained.
Purchases of portfolio securities from underwriters will include a commission or
concession paid by the issuer to the underwriter, and purchases from dealers
will include a spread between the bid and ask price. 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 Fund's officers are satisfied that the best execution is obtained, the sale
of Fund shares may also be considered as a factor in the selection of
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.
ADDITIONAL INFORMATION
REGARDING FUND SHARES
All checks, drafts, wires and other payment mediums used for purchasing or
redeeming shares of the Fund must be denominated in U.S. dollars. The Fund
reserves the right, in its sole discretion, to either (a) reject any order for
the purchase or sale of shares denominated in any other currency, or (b) honor
the transaction or make adjustments to a shareholder's account for the
transaction as of a date and with a foreign currency exchange factor determined
by the drawee bank.
In connection with exchanges (see the Prospectus "Exchange Privilege"), it
should be noted that since the proceeds from the sale of shares of an investment
company generally are not available until the fifth business day following the
redemption, the fund into which the Fund's shareholders are seeking to exchange
reserve the right to delay issuing shares pursuant to an exchange until said
fifth business day. The redemption of shares of the Fund to complete an exchange
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.
Dividend checks which are returned to the Fund marked "unable to forward" by the
postal service will be deemed to be a request by the shareholder to change the
dividend option and the proceeds will be reinvested in additional shares at net
asset value until new instructions are received.
The Fund may impose a $10 charge for each returned item, against any shareholder
account which, in connection with the purchase of Fund shares, submits a check
or a draft which is returned unpaid to the Fund.
The Fund may deduct from a shareholder's account the costs of its efforts to
locate a shareholder if mail is returned as undeliverable or the Fund is
otherwise unable to locate the shareholder or verify the current mailing
address. These costs may include a percentage of the account when a search
company charges a percentage fee in exchange for their location services.
Under agreements with certain banks in Taiwan, Republic of China, the Fund's
shares are available to such banks' discretionary trust funds at net asset
value. The banks may charge service fees to their customers who participate in
the discretionary trusts. Pursuant to agreements, a portion of such service fees
may be paid to Distributors, or an affiliate of Distributors, to help defray
expenses of maintaining a service office in Taiwan, including expenses related
to local literature fulfillment and communication facilities.
Shares of the Fund may be offered to investors in Taiwan through securities
firms known locally as Securities Investment Consulting Enterprises. In
conformity with local business practices in Taiwan, shares of the Fund will be
offered with the following schedule of sales charges:
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 closing 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 closing 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,
pursuant to an agreement with Distributors (directly or through affiliates),
handle customer orders and accounts with the Fund. Such reference, however, is
for convenience only and does not indicate a legal conclusion of capacity.
Orders for the redemption of shares are effected at net asset value subject to
the same conditions concerning time of receipt in proper form. It is the
securities dealer's responsibility to transmit the order in a timely fashion and
any loss to the customer resulting from failure to do so must be settled between
the customer and the securities dealer.
SPECIAL NET ASSET VALUE PURCHASES
As discussed in the Prospectus under "How to Buy Shares of the Fund - Purchases
at Net Asset Value," 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. 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
(i) purchases of most equity and taxable-income Franklin Templeton Funds made at
net asset value by certain designated retirement plans (excluding IRA and IRA
rollovers): 1.00% 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; and (ii) purchases of most
taxable income Franklin Templeton Funds made at net asset value by
non-designated retirement plans: 0.75% on sales of $1 million but less than $2
million, plus 0.60% on sales of $2 million but less than $3 million, plus 0.50%
on sales of $3 million but less than $50 million, plus 0.25% on sales of $50
million but less than $100 million, plus 0.15% on sales of $100 million or more.
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,
Distributors, or one of its affiliates, out of its own resources, may pay up to
1% of the amount invested.
LETTER OF INTENT
An investor 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 the investor wants to qualify for the reduced sales
charge, a signed Shareholder Application, with the Letter of Intent section
completed, may be filed with the Fund. After the Letter of Intent 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. The shareholder's holdings in the Franklin Templeton Funds acquired
more than 90 days before the Letter of Intent is filed will be counted towards
completion of the Letter of Intent but will not be entitled to a retroactive
downward adjustment in the sales charge. Any redemptions made by the
shareholder, 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 of Intent have been completed. If the Letter of
Intent 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. An investor who executes a Letter of Intent prior to a
change in the sales charge structure for the Fund will be entitled to complete
the Letter of Intent at the lower of the new sales charge structure or the sales
charge structure in effect at the time the Letter of Intent was filed with the
Fund.
As mentioned in the Prospectus, five percent (5%) of the amount of the total
intended purchase will be reserved in shares of the Fund registered in the
investor's name, unless the investor is a 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 the name of the investor or
delivered to the investor or the investor's order. If the total purchases, less
redemptions, exceed the amount specified under the Letter of Intent 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 of Intent (to reflect such further
quantity discount) on purchases made within 90 days before and on those made
after filing the Letter. The resulting difference in offering price will be
applied to the purchase of additional shares at the offering price applicable to
a single purchase or the dollar amount of the total purchases. If the total
purchases, less redemptions, are less than the amount specified under the
Letter, the investor will remit to Distributors an amount equal to the
difference in the dollar amount of sales charge actually paid and the amount of
sales charge which would have applied to the aggregate purchases if the total of
such purchases had been made at a single time. Upon such remittance the reserved
shares held for the investor's account will be deposited to an account in the
name of the investor or delivered to the investor or to the investor's order. If
within 20 days after written request such difference in sales charge is not
paid, the redemption of an appropriate number of reserved shares to realize such
difference will be made. In the event of a total redemption of the account prior
to fulfillment of the Letter of Intent, the additional sales charge due will be
deducted from the proceeds of the redemption, and the balance will be forwarded
to the investor.
If a Letter of Intent is executed on behalf of a benefit plan (such plans are
described under "Purchases at Net Asset Value" in the Prospectus), the level and
any reduction in sales charge for these designated benefit plans will be based
on actual plan participation and the projected investments in the Franklin
Templeton Funds under the Letter of Intent. 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 of Intent.
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 the shareholder is redeeming, in case of an emergency, or if
the payment of such a redemption in cash would be detrimental to the existing
shareholders of the Fund. In such circumstances, the securities distributed
would be valued at the price used to compute the Fund's net assets. Should the
Fund do so, a shareholder may incur brokerage fees in converting the securities
to cash. The Fund does not intend to redeem illiquid securities in kind;
however, should it happen, shareholders may not be able to timely recover their
investment and may also incur brokerage costs in selling such securities.
REDEMPTIONS BY THE FUND
Due to the relatively high cost of handling small investments, the Fund reserves
the right to redeem, involuntarily, at net asset value, the shares of any
shareholder whose account has a value of less than one-half of the initial
minimum investment required for that shareholder, but only where the value of
such account has been reduced by the shareholder's prior voluntary redemption of
shares. Until further notice, it is the present policy of the Fund not to
exercise this right with respect to any shareholder whose account has a value of
$1,250 or more ($500 or more for retirement plans). In any event, before the
Fund redeems such shares and sends the proceeds to the shareholder, it will
notify the shareholder that the value of the shares in the account is less than
the minimum amount and allow the shareholder 30 days to make an additional
investment in an amount which will increase the value of the account to at least
$2,500 ($1,000 for retirement plans).
CALCULATION OF NET ASSET VALUE
As noted in the Prospectus, the Fund generally 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. 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 of Trustees. With the approval of trustees, the Fund may
utilize a pricing service, bank or securities dealer to perform any of the above
described functions.
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 closing of the Exchange. The values of such securities used in
computing the net asset value of the Fund's shares are determined as of such
times. Occasionally, events affecting the values of such securities may occur
between the times at which they are determined and the scheduled closing 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 of Trustees.
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 schedule 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 of Trustees.
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 its shareholders regarding the
Fund's performance and its portfolio holdings. Shareholders who would like to
receive an interim quarterly report 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.
ADDITIONAL INFORMATION
REGARDING TAXATION
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 the Fund shares have been held (or deemed
held) for at least 46 days in a substantially unhedged manner. The
dividends-received deduction may also be reduced to the extent interest paid or
accrued by a corporate shareholder is directly attributable to its investment in
Fund shares. The entire dividend, including the portion which is treated as a
deduction, is includable in the tax base on which the 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 ninety (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 Group of Funds and the Templeton 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 investment in options and certain transactions involving actual or
deemed short sales are subject to many complex and special tax rules. For
example, over-the-counter options on debt securities and equity options,
including options on stock and on narrow-based stock indices, will be subject to
tax under Section 1234 of the Code, generally producing a long-term or
short-term capital gain or loss upon exercise, lapse or closing out of the
option or sale of the underlying stock or security. The Fund's treatment of
certain other options entered into by the Fund is generally governed by Section
1256 of the Code. These Section 1256 positions generally include listed options
on debt securities, options on broad-based stock indexes, and options on
securities indexes.
Absent a tax election to the contrary, each such Section 1256 position held by
the Fund will be marked-to-market (i.e., treated as if it were sold for fair
market value) on the last business day of the Fund's fiscal year, and all gain
or loss associated with fiscal year transactions and mark-to-market positions at
fiscal year end (except certain foreign currency gain or loss covered by Section
988 of the Code) will generally be treated as 60% long-term capital gain or loss
and 40% short-term capital gain or loss. The effect of Section 1256
mark-to-market rules may be to accelerate income or to convert what otherwise
would have been long-term capital gains into short-term capital gains or
short-term capital losses into long-term capital losses within the Fund. The
acceleration of income on Section 1256 positions may require the Fund to accrue
taxable income without the corresponding receipt of cash. In order to generate
cash to satisfy the distribution requirements of the Code, the Fund may be
required to dispose of portfolio securities that it otherwise would have
continued to hold or to use cash flows from other sources such as the sale of
Fund shares. In these ways, any or all of these rules may affect both the
amount, character and time of income distributed to shareholders by the Fund.
When the Fund holds an option or contract which substantially diminishes the
Fund's risk of loss with respect to another position of the Fund (as might occur
in some hedging transactions), this combination of positions could be treated as
a "straddle" for tax purposes, resulting in possible deferral of losses,
adjustments in the holding periods of Fund securities and conversion of
short-term capital losses into long-term capital losses.
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.
Gain realized by a Fund from transactions entered into after April 30, 1993 that
are deemed to constitute "conversion transactions" under the Code and which
would otherwise produce capital gain may be recharacterized as ordinary income
to the extent that such gain does not exceed an amount defined by the Code as
the "applicable imputed income amount." A conversion transaction is any
transaction in which substantially all of the Fund's expected return is
attributable to the time value of the Fund's net investment in such transaction
and any one of the following criteria are met: 1) there is an acquisition of
property with a substantially contemporaneous agreement to sell the same or
substantially identical property in the future; 2) the transaction is an
applicable straddle; 3) the transaction was marketed or sold to the Fund on the
basis that it would have the economic characteristics of a loan but would be
taxed as capital gain; or 4) the transaction is specified in Treasury
regulations to be promulgated in the future. The applicable imputed income
amount, which represents the deemed return on the conversion transaction based
upon the time value of money, is computed using a yield equal to 120 percent of
the applicable federal rate, reduced by any prior recharacterizations under this
provision or Section 263(g) of the Code concerning capitalized carrying costs.
THE FUND'S UNDERWRITER
Pursuant to an underwriting agreement in effect until [], 199[] 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 Fund's Board of Trustees or by a vote of the holders of a
majority of the Fund's outstanding voting securities, and in either event by a
majority vote of the Fund's 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 as a service fee to reimburse Distributors or
others for personal services to shareholders of the Fund and/or the maintenance
of shareholder accounts.
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.
The Plan has been approved in accordance with the provisions of Rule 12b-1. The
Plan is effective through [], 199[], and thereafter renewable annually by a vote
of the Trust's Board of Trustees, including a majority vote of the trustees who
are non-interested persons of the Trust and who have no direct or indirect
financial interest in the operation of the Plan, cast in person at a meeting
called for that purpose. It is also required that the selection and nomination
of such trustees be done by the non-interested trustees. The Plan and any
related agreement may be terminated at any time, without any penalty, by vote of
a majority of the non-interested trustees on not more than 60 days' written
notice, by Distributors on not more than 60 days' written notice, by any act
that constitutes an assignment of the management agreement with the Manager, or
by a vote of a majority of the Fund's outstanding shares. Distributors or any
dealer or other firm may also terminate their respective distribution or service
agreement at any time upon written notice.
The Plan and any related agreements may not be amended to increase materially
the amount to be spent for distribution expenses without approval by a majority
of the Fund's outstanding shares, and all material amendments to the Plan or any
related agreements shall be approved by a vote of the non-interested trustees,
cast in person at a meeting called for the purpose of voting on any such
amendment.
Distributors is required to report in writing to the Board of Trustees at least
quarterly on the amounts and purpose of any payment made under the Plan and any
related agreements, as well as to furnish the Board of Trustees with such other
information as may reasonably be requested in order to enable the Board of
Trustees to make an informed determination of whether the Plan should be
continued.
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.
In considering the quotations of total return by the Fund, investors should
remember that the 4.5% maximum front-end sales charge reflected in each
quotation is a one time fee (charged on all direct purchases) which will have
its greatest impact during the early stages of an investor's investment in the
Fund. The actual performance of an investment will be affected less by this
charge the longer an investor retains the investment in the Fund.
Quotation figures will be calculated according to the following 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 the 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 and 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, Merrily Lynch,
Pierce, Fenner & Smith, Lehman Brothers and Bloomberg LP
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. Investors should be
aware, however, that an investment in the Fund involves the risk of fluctuation
of principal value, a risk generally not present in an investment in a
certificate of deposit issued by a bank. For example, as the general level of
interest rates rise, the value of the Fund's fixed-income investments, as well
as the value of its shares which are based upon the value of such portfolio
investments, can be expected to decrease. Conversely, when interest rates
decrease, the value of the Fund's shares can be expected to increase.
Certificates of deposit are frequently insured by an agency of the U.S.
government. An investment in the Fund is not insured by any federal, state or
private entity.
In assessing such comparisons of performance an investor should keep in mind
that the composition of the investments in the reported indices and averages is
not identical to the Fund's portfolio, that the 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 investors achieve various investment goals such as
accumulating money for retirement, saving for a down payment on a home, college
cost and/or other long-term goals. The Franklin College Costs Planner may assist
an investor in determining how much money must be invested on a monthly basis in
order to have a projected amount available in the future to fund a child's
college education. (Projected college cost estimates are based upon current
costs published by the College Board.) The Franklin Retirement Planning Guide
leads an investor through the steps to start a retirement savings program. Of
course, an investment in the Fund cannot guarantee that such goals will be met.
MISCELLANEOUS 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 of Funds has
over $128 billion in assets under management for more than 3.8 million
shareholder accounts, in addition to foundations and endowments, employee
benefit plans, and individuals, and offers 162 U.S.-based mutual funds. The Fund
may identify itself by its NASDAQ 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.
The shareholders of a Massachusetts business trust could, under certain
circumstances, be held personally liable as partners for its obligations.
However, the Fund's Agreement and Declaration of Trust 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 a shareholder's account, the Fund has the right (but has no obligation)
to: (a) freeze the account and require the written agreement of all persons
deemed by the Fund to have a potential property interest in the account, prior
to executing instructions regarding the account; (b) interplead disputed funds
or accounts with a court of competent jurisdiction; or (c) surrender ownership
of all or a portion of the account to the Internal Revenue Service in response
to a Notice of Levy.
APPENDIX
DESCRIPTION OF MOODY'S INVESTORS SERVICE'S CORPORATE BOND RATINGS:
AAA - Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt-
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA - Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long- term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
BAA - Bonds which are rated Baa are considered as medium grade obligations,
i.e., 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 which are rated Ba are judged to have predominantly speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be 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 which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
CAA - Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
CA - Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S CORPORATE BOND RATINGS:
AAA - This is the highest rating assigned by Standard & Poor's 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 they
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.
FRANKLIN BALANCE SHEET INVESTMENT FUND
Franklin MicroCap Value Fund (New Series)
File Nos. 33-31326
811-5878
FORM N-1A
PART C
Other Information
Item 24 Financial Statements and Exhibits
a) To be filed by Amendment
b) Exhibits:
The following exhibits are attached herewith, with the exceptions of
Exhibits 8(ii) and 14(i), which are incorporated by reference to the
filings as noted.
(1) copies of the charter as now in effect;
(i) Agreement and Declaration of Trust dated September 11,
1989
(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
(5) copies of all investment advisory contracts relating to the
management of the assets of the Registrant;
(i) Management Agreement between Registrant and Franklin
Advisers, Inc. dated April 2, 1990
(ii) Form of Management Agreement on behalf of Franklin
Franklin Microcap Value Fund
(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
(ii) Forms of dealer agreements between Registrant and
Franklin/Templeton Distributors, Inc.
(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
(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
Incorporated herein by reference to:
Registrant: Franklin Equity Fund
Filing: Post Effective Amendment No. 79 to
Registration on Form N-1A
File No. 33-31326
Filing Date: September 1, 1992
(iii) Amendment to Custodian Agreement between Registrant
and Bank of America NT & SA dated April 12, 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
(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
dated November 17, 1989.
(14) copies of the model plan used in the establishment of any
retirement plan in conjunction with which Registrant offers
its securities, any instructions thereto and any other
documents making up the model plan. Such form(s) should
disclose the costs and fees charged in connection therewith;
(i) Franklin IRA Form
copy of model retirement plan is incorporated
herein by reference to:
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 Pursuant to
Rule 12b-1 dated July 1, 1993
(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 September 18, 1995
(ii) Certificate of Secretary dated September 18, 1995
Item 25 Persons Controlled by or under Common Control with Registrant
None
Item 26 Number of Holders of Securities
As of August 31, 1995 the number of record holders of the only
classs of securities of the Registrant was as follows:
Number of
Title of Class Record Holders
Franklin Balance Sheet
Investment Fund 22,220
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 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 Templeton Money Fund
Trust, 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 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
using Financial Statements which need not be certified, within four
to six months from the effective date of Registrant's 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, the Registrant has duly caused this Amendment to its
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of San Mateo and the State of
California, on the 20th day of September, 1995.
Franklin Balance Sheet Investment Fund
(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* President
William J. Lippman Chief Executive Officer
Dated: September 20, 1995
Martin L. Flanagan* Vice President and Principal
Martin L. Flanagan Accounting Officer
Dated: September 20, 1995
Diomedes Loo-Tam* Principal Accounting Officer
Diomedes Loo-Tam Dated: September 20, 1995
Franklin T. Crohn* Trustee
Franklin T. Crohn Dated: September 20, 1995
Charles Rubens, II Trustee
Charles Rubens, II Dated: September 20, 1995
Leonard Rubin* Trustee
Leonard Rubin Dated: September 20, 1995
*By /s/ Larry L. Greene
Larry L. Greene, Attorney-in-Fact
Pursuant to Powers of Attorney filed herewith
FRANKLIN BALANCE SHEET INVESTMENT FUND
(FRANKLIN MICROCAP VALUE FUND-NEW SERIES)
REGISTRATION STATEMENT
EXHIBITS INDEX
EXHIBIT NO. DESCRIPTION LOCATION
EX-99.B1(i) Agreement and Declaration of Attached
Trust dated September 11, 1989
EX-99.B2(i) By-Laws Attached
EX-99.B5(i) Management Agreement Attached
dated April 2, 1990
EX-99.B5(ii) Form of Management Agreement Attached
on behalf of Franklin
Microcap Value Fund
EX-99.B6(i) Distribution Agreement dated Attached
April 12, 1990
EX-99.B6(ii) Forms of Distribution Agreements Attached
between Registrant and Franklin
Distributors, Inc.
EX-99.B8(i) Custodian Agreement dated June Attached
12, 1991
EX-99.B8(ii) Copy of Custodian Agreement *
between Registrant and Citibank
Delaware
EX-99.B8(iii) Amendment to Custodian Agreement Attached
between Registrant and Bank of
America NT & SA dated April 12,
1995
EX-99.10(i) Opinion and Consent dated Attached
December 1, 1989
EX-99.13(i) Letter of Understanding relating Attached
to Initial Capital dated
November 17, 1989
EX-99.14(i) Franklin Ira Form copy of model *
Retirement Plan
EX-99.15(i) Amended and Restated Attached
Distribution Plan Pursuant to
Rule 12b-1 dated July 1, 1993
EX-99.17(i) Power of Attorney dated Attached
September 18, 1995
Ex-99.17(ii) Certificate of Secretary dated Attached
September 18, 1995
*Incorporated by Reference
AGREEMENT AND DECLARATION OF TRUST
of
FRANKLIN BALANCE SHEET INVESTMENT FUND
a Massachusetts Business Trust
Dated: September 11, 1989
TABLE OF CONTENTS
FRANKLIN BALANCE SHEET INVESTMENT FUND
AGREEMENT AND DECLARATION OF TRUST
Page No.
ARTICLE I Name and Definitions 1
1. Name 1
2. Definitions 1
(a) Trust 1
(b) Trust Property 1
(c) Trustees 1
(d) Shares 2
(e) Shareholder 2
(f) Person 2
(g) 1940 Act 2
(i) Declaration of Trust 2
(j) By-Laws 2
(k) Interested Person 2
(l) Investment Manager 2
(m) Series Company 2
(n) Series 2
ARTICLE II Purpose of Trust 2
ARTICLE III Shares 3
1. Division of Beneficial Interest 3
2. Ownership of Shares 3
3. Investments in the Trust 4
4. Status of Shares and Limitation of
Personal Liability 4
5. Power of Board of Trustees to Change
Provisions Relating to Shares 4
6. Establishment and Designation of Series 5
(a) Assets Belonging to Series 5
(b) Liabilities Belonging to Series 6
(c) Dividends, Distributions, Redemptions,
and Repurchases 6
(d) Voting 6
(e) Equality 6
(f) Fractions 6
(g) Exchange Privilege 6
(h) Combination of Series 7
(i) Elimination of Series 7
7. Indemnification of Shareholders 7
ARTICLE IV The Trustees 7
1. Number, Election and Tenure 7
2. Effect of Death, Resignation, etc.
of a Trustee 8
5. Payment of Expenses by Shareholders 11
6. Ownership of Assets of the Trust 11
7. Service Contracts 12
ARTICLE V Shareholders' Voting Powers and Meetings 13
1. Voting Powers 13
2. Voting Power and Meetings 14
3. Quorum and Required Vote 14
4. Action by Written Consent 15
5. Record Dates 15
6. Additional Provisions 15
ARTICLE VI Net Asset Value, Distributions,
and Redemptions 16
1. Determination of Net Asset Value, Net
Income and Distributions 16
2. Redemptions and Repurchases 16
3. Redemptions at the Option of the Trust 16
ARTICLE VII Compensation and Limitation of
Liability of Trustees 17
1. Compensation 17
2. Limitation of Liability 17
3. Indemnification 17
ARTICLE VIII Miscellaneous 18
1. Trustees, Shareholders, etc.
Not Personally Liable; Notice 18
2. Trustee's Good Faith Action, Expert
Advice, No Bond or Surety 19
3. Liability of Third Persons Dealing
with Trustees 19
4. Termination of Trust or Series 19
5. Merger and Consolidation 19
6. Filing of Copies, References, Headings 19
7. Applicable Law 20
8. Provisions in Conflict with Law or Regulations 20
9. Amendments 20
10. Trust Only 20
11. Use of the Name "Franklin" 21
AGREEMENT AND DECLARATION OF TRUST
OF
FRANKLIN BALANCE SHEET INVESTMENT FUND
THIS AGREEMENT AND DECLARATION OF TRUST is made and entered into as of
this 11th day of September 1989 by the Trustees named hereunder.
Whereas the Trustees desire and have agreed to manage all property coming
into their hands as trustees of a Massachusetts business trust in accordance
with the provisions hereinafter set forth,
NOW, THEREFORE, the Trustees hereby direct that this Agreement and
Declaration of Trust be filed with the Secretary of The Commonwealth of
Massachusetts and do hereby declare that they will hold all cash, securities and
other assets, which they may from time to time acquire in any manner as Trustees
hereunder, IN TRUST, and manage and dispose of the same upon the following terms
and conditions for the pro rata benefit of the holders of Shares in this Trust.
ARTICLE I
Name and Definitions
Section 1. Name. This Trust shall be known as the FRANKLIN BALANCE SHEET
INVESTMENT FUND and the Trustees shall conduct the business of the Trust under
that name or any other name as they may from time to time determine.
Section 2. Definitions. Whenever used herein, unless otherwise required by
the context or specifically provided:
(a) The "Trust" refers to the Massachusetts business trust established by
this Agreement and Declaration of Trust, as amended from time to time;
(b) The "Trust Property" means any and all property, real or personal,
tangible or intangible, which is owned or held by or for the account of the
Trust or the Trustees.
(c) "Trustees" refers to the persons who have signed this Agreement and
Declaration of Trust, so long as they continue in office in accordance with the
terms hereof, and all other persons who may from time to time be duly elected or
appointed to serve on the Board of Trustees in accordance with the provisions
hereof, and reference herein to a Trustee or the Trustees shall refer to such
person or persons in their capacity as trustees hereunder;
(d) "Shares" means the shares of beneficial interest into which the
beneficial interest in the Trust shall be divided from time to time and includes
fractions of Shares as well as whole Shares;
(e) "Shareholder" means a record owner of outstanding Shares;
(f) "Person" means and includes individuals, corporations, partnerships,
trusts, associations, joint ventures and other entities, whether or not legal
entities, and governments and agencies and political subdivisions thereof,
whether domestic or foreign;
(g) The "1940 Act" refers to the Investment Company Act of 1940 and the
Rules and Regulations thereunder, all as amended from time to time;
(h) The terms "Commission" and "Principal Underwriter" shall have the
meanings given them in the 1940 Act;
(i) "Declaration of Trust" shall mean this Agreement and Declaration of
Trust, as amended or restated from time to time;
(j) "By-Laws" shall mean the By-Laws of the Trust as amended from time to
time;
(k) The term "Interested Person" has the meaning given it in Section
2(a)(19) of the 1940 Act.
(1) "Investment Manager" means a party furnishing services to the Trust
pursuant to any contract described in Article IV, Section 7(a) hereof.
(m) "Series Company" refers to the form of registered open-end investment
company described in Section 18(f)(2) of the 1940 Act or in any successor
statutory provision; and
(n) "Series" refers to each Series of Shares established and designated
under or in accordance with the provisions of Article III.
ARTICLE II
Purpose of Trust
The purpose of the Trust is to conduct, operate and carry on the business
of a managed investment company registered under the 1940 Act through one or
more portfolios invested primarily in securities.
ARTICLE III
Shares
Section 1. Division of Beneficial Interest. The beneficial interest in the
Trust shall at all times be divided into an unlimited number of Shares, with a
par value of $ .01 per Share. The Trustees may authorize the division of Shares
into separate Series, and the different Series shall be established and
designated, and the variations in the relative rights and preferences as between
the different Series shall be fixed and determined, by the Trustees. If no
Series shall be established, the Shares shall have the rights and preferences
provided for herein or in Article III, Section 6 hereof to the extent relevant
and not otherwise provided for herein.
Subject to the provisions of Section 6 of this Article III, each Share
shall have voting rights as provided in Article V hereof, and holders of the
Shares of any Series shall be entitled to receive dividends, when and as
declared with respect thereto in the manner provided in Article VI, Section 1
hereof. No Shares shall have any priority or preference over any other Share of
the same Series with respect to dividends or distributions upon termination of
the Trust or of such Series made pursuant to Article VIII, Section 4 hereof. All
dividends and distributions shall be made ratably among all Shareholders of a
particular Series from the assets belonging to such Series according to the
number of Shares of such Series held of record by such Shareholder on the record
date for any dividend or distribution or on the date of termination, as the case
may be. Shareholders shall have no preemptive or other right to subscribe to any
additional Shares or other securities issued by the Trust or any Series. The
Trustees may from time to time divide or combine the Shares of any particular
Series into a greater or lesser number of Shares of that Series without thereby
changing the proportionate beneficial interest of the Shares of that Series in
the assets belonging to that Series or in any way affecting the rights of Shares
of any other Series.
Section 2. Ownership of Shares. The ownership of Shares shall be recorded
on the books of the Trust or a transfer or similar agent for the Trust, which
books shall be maintained separately for the Shares of each Series. No
certificates certifying the ownership of Shares shall be issued except as the
Board of Trustees may otherwise determine from time to time. The Trustees may
make such rules as they consider appropriate for the transfer of Shares of each
Series and similar matters. The record books of the Trust as kept by the Trust
or any transfer or similar agent, as the case may be, shall be conclusive as to
who are the Shareholders of each Series and as to the number of Shares of each
Series held from time to time by each.
Section 3. Investments in the Trust. The Trustees may accept investments
in the Trust from such Persons, at such times, on such terms, and for such
consideration as they from time to time authorize.
Section 4. Status of Shares and Limitation of Personal Liability. Shares
shall be deemed to be personal property giving only the rights provided in this
instrument. Every Shareholder by virtue of having become a Shareholder shall be
held to have expressly assented and agreed to the terms hereof and to have
become a party hereto. The death of a Shareholder during the existence of the
Trust shall not operate to terminate the Trust, nor entitle the representative
of any deceased Shareholder to an accounting or to take any action in court or
elsewhere against the Trust or the Trustees, but entitles such representative
only to the rights of said deceased Shareholder under this Trust. Ownership of
Shares shall not entitle the Shareholder to any title in or to the whole or any
part of the Trust Property or right to call for a partition or division of the
same or for an accounting, nor shall the ownership of Shares constitute the
Shareholders as partners. Neither the Trust nor the Trustees, nor any officer,
employee or agent of the Trust shall have any power to bind personally any
Shareholders, nor, except as specifically provided herein, to call upon any
Shareholder for the payment of any sum of money or assessment whatsoever other
than such as the Shareholder may at any time personally agree to pay.
Section 5. Power of Board of Trustees to Change Provisions Relating to
Shares. Notwithstanding any other provision of this Declaration of Trust and
without limiting the power of the Board of Trustees to amend the Declaration of
Trust as provided elsewhere herein, the Board of Trustees shall have the power
to amend this Declaration of Trust, at any time and from time to time, in such
manner as the Board of Trustees may determine in their sole discretion, without
the need for Shareholder action, so as to add to, delete, replace or otherwise
modify any provisions relating to the Shares contained in this Declaration of
Trust, provided that before adopting any such amendment without Shareholder
approval the Board of Trustees shall determine that it is consistent with the
fair and equitable treatment of all Shareholders or that Shareholder approval is
not otherwise required by the 1940 Act or other applicable law.
Without limiting the generality of the foregoing, the Board of Trustees
may, for the above-stated purposes, amend the Declaration of Trust to amend any
of the provisions set forth in paragraphs (a) through (i) of Section 6 of this
Article III.
Section 6. Establishment and Designation of Series. The establishment and
designation of any Series of Shares shall be effective upon the resolution by a
majority of the then Trustees, setting forth such establishment and designation
and the relative rights and preferences of such Series, or as otherwise provided
in such resolution.
Shares of each Series established pursuant to this Section 6, unless
otherwise provided in the resolution establishing such Series, shall have the
following relative rights and preferences:
(a) Assets Belonging to Series. All consideration received by the Trust
for the issue or sale of Shares of a particular Series, together with all assets
in which such consideration is invested or reinvested, all income, earnings,
profits, and proceeds thereof from whatever source derived, including, without
limitation, any proceeds derived from the sale, exchange or liquidation of such
assets, and any funds or payments derived from any reinvestment of such proceeds
in whatever form the same may be, shall irrevocably belong to that Series for
all purposes, subject only to the rights of creditors, and shall be so recorded
upon the books of account of the Trust. Such consideration, assets, income,
earnings, profits and proceeds thereof, from whatever source derived, including,
without limitation, any proceeds derived from the sale, exchange or liquidation
of such assets, and any funds or payments derived from any reinvestment of such
proceeds, in whatever form the same may be, are herein referred to as "assets
belonging to" that Series. In the event that there are any assets, income,
earnings, profits and proceeds thereof, funds or payments which are not readily
identifiable as belonging to any particular Series (collectively "General
Assets"), the Trustees shall allocate such General Assets to, between or among
any one or more of the Series in such manner and on such basis as they, in their
sole discretion, deem fair and equitable, and any General Asset so allocated to
a particular Series shall belong to that Series. Each such allocation by the
Trustees shall be conclusive and binding upon the Shareholders of all Series for
all purposes.
(b) Liabilities Belonging to Series. The assets belonging to each
particular Series shall be charged with the liabilities of the Trust in respect
to that Series and all expenses, costs, charges and reserves attributable to
that Series, and any general liabilities of the Trust which are not readily
identifiable as belonging to any particular Series shall be allocated and
charged by the Trustees to and among any one or more of the Series in such
manner and on such basis as the Trustees in their sole discretion deem fair and
equitable. The liabilities, expenses, costs, charges, and reserves so charged to
a Series are herein referred to as "liabilities belonging to" that Series. Each
allocation of liabilities, expenses, costs, charges and reserves by the Trustees
shall be conclusive and binding upon the holders of all Series for all purposes.
Under no circumstances shall the assets allocated or belonging to any particular
Series be charged with liabilities attributable to any other Series. All Persons
who have extended credit which has been allocated to a particular Series, or who
have a claim or contract which has been allocated to any particular Series,
shall look only to the assets of that particular Series for payment of such
credit, claim, or contract.
(c) Dividends, Distributions, Redemptions, and Repurchases. Notwithstanding any
other provisions of this Declaration of Trust, including, without limitation,
Article VI, no dividend or distribution (including, without limitation, any
distribution paid upon termination of the Trust or of any Series) with respect
to, nor any redemption or repurchase of, the Shares of any Series shall be
effected by the Trust other than from the assets belonging to such Series, nor,
except as specifically provided in Section 7 of this Article III, shall any
Shareholder of any particular Series otherwise have any right or claim against
the assets belonging to any other Series except to the extent that such
Shareholder has such a right or claim hereunder as a Shareholder of such other
Series. The Trustees shall have full discretion, to the extent not inconsistent
with the 1940 Act, to determine which items shall be treated as income and which
items as capital; and each such determination and allocation shall be conclusive
and binding upon the Shareholders.
(d) Voting. All Shares of the Trust entitled to vote on a matter shall
vote separately by Series. That is, the Shareholders of each Series shall have
the right to approve or disapprove matters affecting the Trust and each
respective Series as if the Series were separate companies. There are, however,
two exceptions to voting by separate Series. First, if the 1940 Act requires all
Shares of the Trust to be voted in the aggregate without differentiation between
the separate Series, then all the Trust's Shares shall be entitled to vote on a
one-vote-per-Share basis. Second, if any matter affects only the interests of
some but not all Series, then only the Shareholders of such affected Series
shall be entitled to vote on the matter.
(e) Equality. All the Shares of each particular Series shall represent an
equal proportionate interest in the assets belonging to that Series (subject to
the liabilities belonging to that Series), and each Share of any particular
Series shall be equal to each other Share of that Series.
(f) Fractions. Any fractional Share of a Series shall carry
proportionately all the rights and obligations of a whole share of that Series,
including rights with respect to voting, receipt of dividends and distributions,
redemption of Shares and termination of the Trust.
(g) Exchange Privilege. The Trustees shall have the authority to provide
that the holders of Shares of any Series shall have the right to exchange said
Shares for Shares of one or more other Series of Shares in accordance with such
requirements and procedures as may be established by the Trustees.
(h) Combination of Series. The Trustees shall have the authority, without
the approval of the Shareholders of any Series unless otherwise required by
applicable law, to combine the assets and liabilities belonging to any two or
more Series into assets and liabilities belonging to a single Series.
(i) Elimination of Series. At any time that there are no Shares
outstanding of any particular Series previously established and designated, the
Trustees may by resolution of a majority of the then Trustees abolish that
Series and rescind the establishment and designation thereof.
Section 7. Indemnification of Shareholders. In case any Shareholder or
former Shareholder shall be held to be personally liable solely by reason of his
or her being or having been a Shareholder and not because of his or her acts or
omissions or for some other reason, the Shareholder or former Shareholder (or
his or her heirs, executors, administrators, or other legal representatives or
in the case of a corporation or other entity, its corporate or other general
successor) shall be entitled out of the assets of the Trust to be held harmless
from and indemnified against all loss and expense arising from such liability.
ARTICLE IV
The Board of Trustees
Section 1. Number, Election and Tenure. The number of Trustees
constituting the Board of Trustees shall be fixed from time to time by a written
instrument signed or by resolution approved at a duly constituted meeting by a
majority of the Board of Trustees, provided, however, that the number of
Trustees shall in no event be less than one nor more than 15. The Board of
Trustees, by action of a majority of the then Trustees at a duly constituted
meeting, may fill vacancies in the Board of Trustees or remove Trustees with or
without cause. Each Trustee shall serve during the continued lifetime of the
Trust until he dies, resigns, is declared bankrupt or incompetent by a court of
appropriate jurisdiction, or is removed, or, if sooner, until the next meeting
of Shareholders called for the purpose of electing Trustees and until the
election and qualification of his successor. Any Trustee may resign at any time
by written instrument signed by him and delivered to any officer of the Trust or
to a meeting of the Trustees. Such resignation shall be effective upon receipt
unless specified to be effective at some other time. Except to the extent
expressly provided in a written agreement with the Trust, no Trustee resigning
and no Trustee removed shall have any right to any compensation for any period
following his resignation or removal, or any right to damages on account of such
removal. The Shareholders may fix the number of Trustees and elect Trustees at
any meeting of Shareholders called by the Trustees for that purpose.
Section 2. Effect of Death, Resignation, etc. of a Trustee. The death,
declination, resignation, retirement, removal, or incapacity of one or more
Trustees, or all of them, shall not operate to annul the Trust or to revoke any
existing agency created pursuant to the terms of this Declaration of Trust.
Whenever a vacancy in the Board of Trustees shall occur, until such vacancy is
filled as provided in Article IV, Section 1, the Trustees in office, regardless
of their number, shall have all the powers granted to the Trustees and shall
discharge all the duties imposed upon the Trustees by this Declaration of Trust.
As conclusive evidence of such vacancy, a written instrument certifying the
existence of such vacancy may be executed by an officer of the Trust or by a
majority of the Board of Trustees. In the event of the death, declination,
resignation, retirement, removal, or incapacity of all the then Trustees within
a short period of time and without the opportunity for at least one Trustee
being able to appoint additional Trustees to fill vacancies, the Trust's
investment adviser or investment advisers jointly, if there is more than one,
are empowered to appoint new Trustees subject to the provisions of Section 16(a)
of the 1940 Act.
Section 3. Powers. Subject to the provisions of this Declaration of Trust,
the business of the Trust shall be managed by the Board of Trustees, and such
Board shall have all powers necessary or convenient to carry out that
responsibility including the power to engage in securities transactions of all
kinds on behalf of the Trust. Without limiting the foregoing, the Trustees may:
adopt By-Laws not inconsistent with this Declaration of Trust providing for the
regulation and management of the affairs of the Trust and may amend and repeal
them to the extent that such By-Laws do not reserve that right to the
Shareholders; fill vacancies in or remove from their number, and may elect and
remove such officers and appoint and terminate such agents as they consider
appropriate; appoint from their own number and establish and terminate one or
more committees consisting of two or more Trustees which may exercise the powers
and authority of the Board of Trustees to the extent that the Trustees
determine; employ one or more custodians of the assets of the Trust and may
authorize such custodians to employ subcustodians and to deposit all or any part
of such assets in a system or systems for the central handling of securities or
with a Federal Reserve Bank, retain a transfer agent or a shareholder servicing
agent, or both; provide for the issuance and distribution of Shares by the Trust
directly or through one or more Principal Underwriters or otherwise; redeem,
repurchase and transfer Shares pursuant to applicable law; set record dates for
the determination of Shareholders with respect to various matters; declare and
pay dividends and distributions to Shareholders of each Series from the assets
of such Series; and in general delegate such authority as they consider
desirable to any officer of the Trust, to any committee of the Trustees and to
any agent or employee of the Trust or to any such custodian, transfer or
shareholder servicing agent, or Principal Underwriter. Any determination as to
what is in the interests of the Trust made by the Trustees in good faith shall
be conclusive. In construing the provisions of this Declaration of Trust, the
presumption shall be in favor of a grant of power to the Trustees.
Without limiting the foregoing, the Board of Trustees shall have power and
authority:
(a) To invest and reinvest cash, to hold cash uninvested, and to subscribe
for, invest in, reinvest in, purchase or otherwise acquire, own, hold, pledge,
sell, assign, transfer, exchange, distribute, write options on, lend or
otherwise deal in or dispose of contracts for the future acquisition or delivery
of fixed income or other securities, and securities of every nature and kind,
including, without limitation, all types of bonds, debentures, stocks,
negotiable or non-negotiable instruments, obligations, evidences of
indebtedness, certificates of deposit or indebtedness, commercial paper,
repurchase agreements, bankers' acceptances, and other securities of any kind,
issued, created, guaranteed, or sponsored by any and all Persons, including,
without limitation, states, territories, and possessions of the United States
and the District of Columbia and any political subdivision, agency, or
instrumentality thereof, any foreign government or any political subdivision of
the U.S. Government or any foreign government, or any international
instrumentality, or by any bank or savings institution, or by any corporation or
organization organized under the laws of the United States or of any state,
territory, or possession thereof, or by any corporation or organization
organized under any foreign law, or in "when issued" contracts for any such
securities, to change the investments of the assets of the Trust; and to
exercise any and all rights, powers, and privileges of ownership or interest in
respect of any and all such investments of every kind and description,
including, without limitation, the right to consent and otherwise act with
respect thereto, with power to designate one or more Persons, to exercise any of
said rights, powers, and privileges in respect of any of said instruments;
(b) To sell, exchange, lend, pledge, mortgage, hypothecate, lease, or
write options with respect to or otherwise deal in any property rights relating
to any or all of the assets of the Trust;
(c) To vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property; and to execute and deliver
proxies or powers of attorney to such person or persons as the Trustees shall
deem proper, granting to such person or persons such power and discretion with
relation to securities or property as the Trustees shall deem proper;
(d) To exercise powers and right of subscription or otherwise which in any
manner arise out of ownership of securities;
(e) To hold any security or property in a form not indicating any trust,
whether in bearer, unregistered or other negotiable form, or in its own name or
in the name of a custodian or subcustodian or a nominee or nominees or
otherwise;
(f) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or issuer of any security which is
held in the Trust; to consent to any contract, lease, mortgage, purchase or sale
of property by such corporation or issuer; and to pay calls or subscriptions
with respect to any security held in the Trust;
(g) To join with other security holders in acting through a committee,
depositary, voting trustee or otherwise, and in that connection to deposit any
security with, or transfer any security to, any such committee, depositary or
trustee, and to delegate to them such power and authority with relation to any
security (whether or not so deposited or transferred) as the Trustees shall deem
proper, and to agree to pay, and to pay, such portion of the expenses and
compensation of such committee, depositary or trustee as the Trustees shall deem
proper;
(h) To compromise, arbitrate or otherwise adjust claims in favor of or
against the Trust or any matter in controversy, including but not limited to
claims for taxes;
(i) To enter into joint ventures, general or limited partnerships and any
other combinations or associations;
(j) To borrow funds or other property in the name of the Trust exclusively
for Trust purposes;
(k) To endorse or guarantee the payment of any notes or other obligations
of any Person; to make contracts of guaranty or suretyship, or otherwise assume
liability for payment thereof;
(1) To purchase and pay for entirely out of Trust Property such insurance
as they may deem necessary or appropriate for the conduct of the business,
including, without limitation, insurance policies insuring the assets of the
Trust or payment of distributions and principal on its portfolio investments,
and insurance policies insuring the Shareholders, Trustees, officers, employees,
agents, investment advisers, principal underwriters, or independent contractors
of the Trust, individually against all claims and liabilities of every nature
arising by reason of holding, being or having held any such office or position,
or by reason of any action alleged to have been taken or omitted by any such
Person as Trustee, officer, employee, agent, investment adviser, principal
underwriter, or independent contractor, including any action taken or omitted
that may be determined to constitute negligence, whether or not the Trust would
have the power to indemnify such Person against liability; and
(m) To adopt, establish and carry out pension, profit-sharing, share
bonus, share purchase, savings, thrift and other retirement, incentive and
benefit plans, trusts and provisions, including the purchasing of life insurance
and annuity contracts as a means of providing such retirement and other
benefits, for any or all of the Trustees, officers, employees and agents of the
Trust.
The Trustees shall not be limited to investing in obligations maturing
before the possible termination of the Trust or one or more of its Series. The
Trustees shall not in any way be bound or limited by any present or future law
or custom in regard to investment by fiduciaries. The Trustees shall not be
required to obtain any court order to deal with any assets of the Trust or take
any other action hereunder.
Section 4. Payment of Expenses by the Trust. The Trustees are authorized
to pay or cause to be paid out of the principal or income of the Trust, or
partly out of the principal and partly out of income, as they deem fair, all
expenses, fees, charges, taxes and liabilities incurred or arising in connection
with the Trust, or in connection with the management thereof, including, but not
limited to, the Trustees' compensation and such expenses and charges for the
services of the Trust's officers, employees, investment adviser or manager,
principal underwriter, auditors, counsel, custodian, transfer agent, Shareholder
servicing agent, and such other agents or independent contractors and such other
expenses and charges as the Trustees may deem necessary or proper to incur.
Section 5. Payment of Expenses by Shareholders. The Trustees shall have
the power, as frequently as they may determine, to cause each Shareholder, or
each Shareholder of any particular Series, to pay directly, in advance or
arrears, for charges of the Trust's custodian or transfer, Shareholder servicing
or similar agent, an amount fixed from time to time by the Trustees, by setting
off such charges due from such Shareholder from declared but unpaid dividends
owed such Shareholder and/or by reducing the number of shares in the account of
such Shareholder by that number of full and/or fractional Shares which
represents the outstanding amount of such charges due from such Shareholder.
Section 6. Ownership of Assets of the Trust. Title to all of the assets of
the Trust shall at all times be considered as vested in the Trustees as joint
tenants except that the Trustees shall have power to cause legal title to any
Trust Property to be held by or in the name of one or more of the Trustees, or
in the name of the Trust, or in the name of any other Person as nominee, on such
terms as the Trustees may determine. The right, title and interest of the
Trustees in the Trust Property shall vest automatically in each Person who may
hereafter become a Trustee. Upon the resignation, removal or death of a Trustee
he shall automatically cease to have any right, title or interest in any of the
Trust Property, and the right, title and interest of such Trustee in the Trust
Property shall vest automatically in the remaining Trustees. Such vesting and
cessation of title shall be effective whether or not conveyancing documents have
been executed and delivered.
Section 7. Service Contracts.
(a) Subject to such requirements and restrictions as may be set forth in
the By-Laws, the Trustees may, at any time and from time to time, contract for
exclusive or nonexclusive advisory, management and/or administrative services
for the Trust or for any Series with any corporation, trust, association or
other organization; and any such contract may contain such other terms as the
Trustees may determine, including without limitation, authority for the
Investment Manager, Investment Adviser or Administrator to determine from time
to time without prior consultation with the Trustees what investments shall be
purchased, held, sold or exchanged and what portion; if any, of the assets of
the Trust shall be held uninvested and to make changes in the Trust's
investments, or such other activities as may specifically be delegated to such
party.
(b) The Trustees may also, at any time and from time to time, contract
with any corporation, trust, association or other organization, appointing it
exclusive or nonexclusive distributor or Principal Underwriter for the Shares of
one or more of the Series. Every such contract shall comply with such
requirements and restrictions as may be set forth in the By-Laws; and any such
contract may contain such other terms as the Trustees may determine.
(c) The Trustees are also empowered, at any time and from time to time, to
contract with any corporations, trusts, associations or other organizations,
appointing it or them the custodian, transfer agent and/or shareholder servicing
agent for the Trust or one or more of its Series. Every such contract shall
comply with such requirements and restrictions as may be set forth in the
By-Laws or stipulated by resolution of the Trustees.
(d) The Trustees are further empowered, at any time and from time to time,
to contract with any entity to provide such other services to the Trust or one
or more of the Series, as the Trustees determine to be in the best interests of
the Trust and the applicable Series.
(e) The fact that:
(i) any of the Shareholders, Trustees, or officers of the Trust is a
shareholder, director, officer, partner, trustee, employee, manager,
adviser, principal underwriter, distributor, or affiliate or agent of or
for any corporation, trust, association, or other organization, or for any
parent or affiliate of any organization with which an advisory, management
or administration contract, or principal underwriter's or distributor's
contract, or transfer, shareholder servicing or other type of service
contract may have been or may hereafter be made, or that any such
organization, or any parent or affiliate thereof, is a Shareholder or has
an interest in the Trust, or that
(ii) any corporation, trust, association or other organization with
which an advisory, management or administration contract or principal
underwriter's or distributor's contract, or transfer, shareholder
servicing or other type of service contract may have been or may hereafter
be made also has an advisory, management or administration contract, or
principal underwriter's or distributor's contract, or transfer,
shareholder servicing or other service contract with one or more other
corporations, trust, associations, or other organizations, or has other
business or interests,
shall not affect the validity of any such contract or disqualify any
Shareholder, Trustee or officer of the Trust from voting upon or executing the
same, or create any liability or accountability to the Trust or its
Shareholders, provided approval of each such contract is made pursuant to the
requirements of the 1940 Act.
ARTICLE V
Shareholders' Voting Powers and Meetings
Section 1. Voting Powers. Subject to the provisions of Article III,
Section 6(d), the Shareholders shall have power to vote only (i) for the
election of Trustees as provided in Article IV, Section 1, (ii) to the same
extent as the stockholders of a Massachusetts business corporation as to whether
or not a court action, proceeding or claim should or should not be brought or
maintained derivatively or as a class action on behalf of the Trust or the
Shareholders, (iii) with respect to the termination of the Trust or any Series
to the extent and as provided in Article VIII, Section 4, and (iv) with respect
to such additional matters relating to the Trust as may be required by this
Declaration of Trust, the By-Laws or any registration of the Trust with the
Commission (or any successor agency) or any state, or as the Trustees may
consider necessary or desirable. Each whole Share shall be entitled to one vote
as to any matter on which it is entitled to vote and each fractional Share shall
be entitled to a proportionate fractional vote. There shall be no cumulative
voting in the election of Trustees. Shares may be voted in person or by proxy. A
proxy with respect to Shares held in the name of two or more persons shall be
valid if executed by any one of them unless at or prior to exercise of the proxy
the Trust receives a specific written notice to the contrary from any one of
them. A proxy purporting to be executed by or on behalf of a Shareholder shall
be deemed valid unless challenged at or prior to its exercise and the burden of
proving invalidity shall rest on the challenger. At any time when no Shares of a
Series are outstanding, the Trustees may exercise all rights of Shareholders of
that Series with respect to matters affecting that Series, take any action
required by law, this Declaration of Trust or the By-Laws, to be taken by the
Shareholders.
Section 2. Voting Power and Meetings. Meetings of the Shareholders may be
called by the Trustees for the purpose of electing Trustees as provided in
Article IV, Section 1 and for such other purposes as may be prescribed by law,
by this Declaration of Trust or by the By-Laws. Meetings of the Shareholders may
also be called by the Trustees from time to time for the purpose of taking
action upon any other matter deemed by the Trustees to be necessary or
desirable. A meeting of Shareholders may be held at any place designated by the
Trustees. Written notice of any meeting of Shareholders shall be given or caused
to be given by the Trustees by mailing such notice at least seven (7) days
before such meeting, postage prepaid, stating the time and place of the meeting,
to each Shareholder at the Shareholder's address as it appears on the records of
the Trust. Whenever notice of a meeting is required to be given to a Shareholder
under this Declaration of Trust or the By-Laws, a written waiver thereof,
executed before or after the meeting by such Shareholder or his attorney
thereunto authorized and filed with the records of the meeting, shall be deemed
equivalent to such notice.
Section 3. Quorum and Required Vote. Except when a larger quorum is
required by applicable law, by the By-Laws or by this Declaration of Trust,
forty percent (40%) of the Shares entitled to vote shall constitute a quorum at
a Shareholders' meeting. When any one or more Series is to vote as a single
class separate from any other Shares which are to vote on the same matters as a
separate class or classes, forty percent (40%) of the Shares of each such Series
entitled to vote shall constitute a quorum at a Shareholder's meeting of that
Series. Any meeting of Shareholders may be adjourned from time to time by a
majority of the votes properly cast upon the question of adjourning a meeting to
another date and time, whether or not a quorum is present, and the meeting may
be held as adjourned within a reasonable time after the date set for the
original meeting without further notice. Subject to the provisions of Article
III, Section 6(d), when a quorum is present at any meeting, a majority of the
Shares voted shall decide any questions and a plurality shall elect a Trustee,
except when a larger vote is required by any provision of this Declaration of
Trust or the By-Laws or by applicable law.
Section 4. Action by Written Consent. Any action taken by Shareholders may
be taken without a meeting if Shareholders holding a majority of the Shares
entitled to vote on the matter (or such larger proportion thereof as shall be
required by any express provision of this Declaration of Trust or by the
By-Laws) and holding a majority (or such larger proportion as aforesaid) of the
Shares of any Series entitled to vote separately on the matter consent to the
action in writing and such written consents are filed with the records of the
meetings of Shareholders. Such consent shall be treated for all purposes as a
vote taken at a meeting of Shareholders.
Section 5. Record Dates. For the purpose of determining the Shareholders
of any Series who are entitled to vote or act at any meeting or any adjournment
thereof, the Trustees may from time to time fix a time, which shall be not more
than ninety (90) days before the date of any meeting of Shareholders, as the
record date for determining the Shareholders of such Series having the right to
notice of and to vote at such meeting and any adjournment thereof, and in such
case only Shareholders of record on such record date shall have such right,
notwithstanding any transfer of shares on the books of the Trust after the
record date. For the purpose of determining the Shareholders of any Series who
are entitled to receive payment of any dividend or of any other distribution,
the Trustees may from time to time fix a date, which shall be before the date
for the payment of such dividend or such other payment, as the record date for
determining the Shareholders of such Series having the right to receive such
dividend or distribution. Without fixing a record date the Trustees may for
voting and/or distribution purposes close the register or transfer books for one
or more Series for all or any part of the period between a record date and a
meeting of Shareholders or the payment of a distribution. Nothing in this
Section shall be construed as precluding the Trustees from setting different
record dates for different Series.
Section 6. Additional Provisions. The By-Laws may include further
provisions for Shareholders' votes and meetings and related matters.
ARTICLE VI
Net Asset Value, Distributions, and Redemptions
Section 1. Determination of Net Asset Value, Net Income, and
Distributions. Subject to Article III, Section 6 hereof, the Trustees, in their
absolute discretion, may prescribe and shall set forth in the By-Laws or in a
duly adopted vote of the Trustees such bases and time for determining the per
Share or net asset value of the Shares of any Series or net income attributable
to the Shares of any Series, or the declaration and payment of dividends and
distributions on the Shares of any Series, as they may deem necessary or
desirable.
Section 2. Redemptions and Repurchases. The Trust shall purchase such
Shares as are offered by any Shareholder for redemption, upon the presentation
of a proper instrument of transfer together with a request directed to the Trust
or a Person designated by the Trust that the Trust purchase such Shares or in
accordance with such other procedures for redemption as the Trustees may from
time to time authorize; and the Trust will pay therefor the net asset value
thereof, in accordance with the By-Laws and applicable law. Payment for said
Shares shall be made by the Trust to the Shareholder within seven days after the
date on which the request is made in proper form. The obligation set forth in
this Section 2 is subject to the provision that in the event that any time the
New York Stock Exchange is closed for other than weekends or holidays, or if
permitted by the Rules of the Commission during periods when trading on the
Exchange is restricted or during any emergency which makes it impracticable for
the Trust to dispose of the investments of the applicable Series or to determine
fairly the value of the net assets belonging to such Series or during any other
period permitted by order of the Commission for the protection of investors,
such obligations may be suspended or postponed by the Trustees.
The redemption price may in any case or cases be paid wholly or partly in
kind if the Trustees determine that such payment is advisable in the interest of
the remaining Shareholders of the Series for which the Shares are being
redeemed. Subject to the foregoing, the fair value, selection and quantity of
securities or other property so paid or delivered as all or part of the
redemption price may be determined by or under authority of the Trustees. In no
case shall the Trust be liable for any delay of any corporation or other Person
in transferring securities selected for delivery as all or part of any payment
in kind.
Section 3. Redemptions at the Option of the Trust. The Trust shall have
the right at its option and at any time to redeem Shares of any Shareholder at
the net asset value thereof as described in Section 1 of this Article VI: (i) if
at such time such Shareholder owns Shares of any Series having an aggregate net
asset value of less than an amount determined from time to time by the Trustees
prior to the acquisition of said Shares; or (ii) to the extent that such
Shareholder owns Shares of a particular Series equal to or in excess of a
percentage of the outstanding Shares of that Series determined from time to time
by the Trustees; or (iii) to the extent that such Shareholder owns Shares equal
to or in excess of a percentage, determined from time to time by the Trustees,
of the outstanding Shares of the Trust or of any Series.
ARTICLE VII
Compensation and Limitation of Liability of Trustees
Section 1. Compensation. The Trustees as such shall be entitled to
reasonable compensation from the Trust, and they may fix the amount of such
compensation. Nothing herein shall in any way prevent the employment of any
Trustee for advisory, management, legal, accounting, investment banking or other
services and payment for the same by the Trust.
Section 2. Limitation of Liability. The Trustees shall not be responsible
or liable in any event for any neglect or wrong-doing of any officer, agent,
employee, manager or Principal Underwriter of the Trust, nor shall any Trustee
be responsible for the act or omission of any other Trustee, but nothing herein
contained shall protect any Trustee against any liability to which he would
otherwise be subject by reason of wilful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.
Every note, bond, contract, instrument, certificate or undertaking and
every other act or thing whatsoever issued, executed or done by or on behalf of
the Trust or the Trustees or any of them in connection with the Trust shall be
conclusively deemed to have been issued, executed or done only in or with
respect to their or his capacity as Trustees or Trustee, and such Trustees or
Trustee shall not be personally liable thereon.
Section 3. Indemnification. The Trustees shall be entitled and empowered
to the fullest extent permitted by law to purchase with Trust assets insurance
for and to provide by resolution or in the By-Laws for indemnification out of
Trust assets for liability and for all expenses reasonably incurred or paid or
expected to be paid by a Trustee or officer in connection with any claim,
action, suit or proceeding in which he becomes involved by virtue of his
capacity or former capacity with the Trust. The provisions, including any
exceptions and limitations concerning indemnification, may be set forth in
detail in the By-Laws or in a resolution of the Board of Trustees.
ARTICLE VIII
Miscellaneous
Section 1. Trustees, Shareholders, etc. Not Personally Liable; Notice. All
Persons extending credit to, contracting with or having any claim against the
Trust or any Series shall look only to the assets of the Trust, or, to the
extent that the liability of the Trust may have been expressly limited by
contract to the assets of a particular Series, only to the assets belonging to
the relevant Series, for payment under such credit, contract or claim; and
neither the Shareholders nor the Trustees, nor any of the Trust's officers,
employees or agents, whether past, present or future, shall be personally liable
therefor. Nothing in this Declaration of Trust shall protect any Trustee against
any liability to which such Trustee would otherwise be subject by reason of
wilful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of the office of Trustee.
Every note, bond, contract, instrument, certificate or undertaking made or
issued on behalf of the Trust by the Board of Trustees, by any officers or
officer or otherwise may include a notice that this Declaration of Trust is on
file with the Secretary of The Commonwealth of Massachusetts and may recite that
the note, bond, contract, instrument, certificate, or undertaking was executed
or made by or on behalf of the Trust or by them as Trustee or Trustees or as
officers or officer or otherwise and not individually and that the obligations
of such instrument are not binding upon any of them or the Shareholders
individually but are binding only upon the assets and property of the Trust or
upon the assets belonging to the Series for the benefit of which the Trustees
have caused the note, bond, contract, instrument, certificate or undertaking to
be made or issued, and may contain such further recital as he or they may deem
appropriate, but the omission of any such recital shall not operate to bind any
Trustee or Trustees or officer or officers or Shareholders or any other person
individually.
Section 2. Trustee's Good Faith Action, Expert Advice, No Bond or Surety.
The exercise by the Trustees of their powers and discretions hereunder shall be
binding upon everyone interested. A Trustee shall be liable solely for his own
wilful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of the office of Trustee, and shall not be liable
for errors of judgment or mistakes of fact or law. The Trustees may take advice
of counsel or other experts with respect to the meaning and operation of this
Declaration of Trust, and shall be under no liability for any act or omission in
accordance with such advice nor for failing to follow such advice. The Trustees
shall not be required to give any bond as such, nor any surety if a bond is
required.
Section 3. Liability of Third Persons Dealing with Trustees. No Person
dealing with the Trustees shall be bound to make any inquiry concerning the
validity of any transaction made or to be made by the Trustees or to see to the
application of any payments made or property transferred to the Trust or upon
its order.
Section 4. Termination of Trust or Series. Unless terminated as provided
herein, the Trust shall continue without limitation of time. The Trust may be
terminated at any time by vote of at least two-thirds (66-2/3%) of the Shares of
each Series entitled to vote, voting separately by Series, or by the Trustees by
written notice to the Shareholders. Any Series may be terminated at any time by
vote of at least two-thirds (66-2/3%) of the Shares of that Series or by the
Trustees by written notice to the Shareholders of that Series.
Upon termination of the Trust (or any Series, as the case may be), after
paying or otherwise providing for all charges, taxes, expenses and liabilities
belonging, severally, to each Series (or the applicable Series, as the case may
be), whether due or accrued or anticipated as may be determined by the Trustees,
the Trust shall, in accordance with such procedures as the Trustees consider
appropriate, reduce the remaining assets belonging, severally, to each Series
(or the applicable Series, as the case may be), to distributable form in cash or
shares or other securities, or any combination thereof, and distribute the
proceeds belonging to each Series (or the applicable Series, as the case may
be), to the Shareholders of that Series, as a Series, ratably according to the
number of Shares of that Series held by the several Shareholders on the date of
termination.
Section 5. Merger and Consolidation. The Trustees may cause the Trust or
one or more of its Series to be merged into or consolidated with another Trust
or company or the Shares exchanged under or pursuant to any state or Federal
statute, if any, or otherwise to the extent permitted by law. Such merger or
consolidation or Share exchange must be authorized by vote of a majority of the
outstanding Shares of the Trust, as a whole, or any affected Series, as may be
applicable; provided that in all respects not governed by statute or applicable
law, the Trustees shall have power to prescribe the procedure necessary or
appropriate to accomplish a sale of assets, merger or consolidation.
Section 6. Filing of Copies, References, Headings. The original or a copy
of this instrument and of each amendment hereto shall be kept at the office of
the Trust where it may be inspected by any Shareholder. A copy of this
instrument and of each amendment hereto shall be filed by the Trust with the
Secretary of The Commonwealth of Massachusetts and with any other governmental
office where such filing may from time to time be required. Anyone dealing with
the Trust may rely on a certificate by an officer of the Trust as to whether or
not any such amendments have been made and as to any matters in connection with
the Trust hereunder; and, with the same effect as if it were the original, may
rely on a copy certified by an officer of the Trust to be a copy of this
instrument or of any such amendments. In this instrument and in any such
amendment, references to this instrument, and all expressions like "herein",
"hereof" and "hereunder", shall be deemed to refer to this instrument as amended
or affected by any such amendments. Headings are placed herein for convenience
of reference only and shall not be taken as a part hereof or control or affect
the meaning, construction or effect of this instrument. Whenever the singular
number is used herein, the same shall include the plural; and the neuter,
masculine and feminine genders shall include each other, as applicable. This
instrument may be executed in any number of counterparts each of which shall be
deemed an original.
Section 7. Applicable Law. This Agreement and Declaration of Trust is
created under and is to be governed by and construed and administered according
to the laws of The Commonwealth of Massachusetts. The Trust shall be of the type
commonly called a Massachusetts business trust, and without limiting the
provisions hereof, the Trust may exercise all powers which are ordinarily
exercised by such a trust.
Section 8. Provisions in Conflict with Law or Regulations.
(a) The provisions of the Declaration of Trust are severable, and if
the Trustees shall determine, with the advice of counsel, that any of such
provisions is in conflict with the 1940 Act, the regulated investment company
provisions of the Internal Revenue Code or with other applicable laws and
regulations, the conflicting provision shall be deemed never to have constituted
a part of the Declaration of Trust; provided, however, that such determination
shall not affect any of the remaining provisions of the Declaration of Trust or
render invalid or improper any action taken or omitted prior to such
determination.
(b) If any provision of the Declaration of Trust shall be held
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall attach only to such provision in such jurisdiction and
shall not in any manner affect such provision in any other jurisdiction or any
other provision of the Declaration of Trust in any jurisdiction.
Section 9. Amendments. This Declaration of Trust may be amended at any
time by an instrument in writing signed by a majority of the then Trustees.
Section 10. Trust Only. It is the intention of the Trustees to create only
the relationship of Trustee and beneficiary between the Trustees and each
Shareholder from time to time. It is not the intention of the Trustees to create
a general partnership, limited partnership, joint stock association,
corporation, bailment, or any form of legal relationship other than a trust.
Nothing in this Agreement and Declaration of Trust shall be construed to make
the Shareholders, either by themselves or with the Trustees, partners or members
of a joint stock association.
Section 11. Use of the Name "Franklin." Franklin Advisers, Inc., as the
proposed Manager of the Trust's assets, has consented to the use by the Trust of
the identifying word "Franklin" as part of the name of the Trust and in the name
of any Series of Shares. Such consent is conditioned upon the employment of the
Manager, or an affiliate of said Company, as Manager of the Trust and said
Series. The name or identifying words "Franklin" or any variation thereof may be
used from time to time in other connections and for other purposes by the
Manager or affiliated entities. The Manager has the right to require the Trust
to cease using "Franklin" in the name of the Trust and in the names of its
Series if the Trust and said Series cease employ, for any reason, the Manager,
or an affiliate of said Company, as the Manager or adviser of the Trust or such
Series. Future names adopted by the Trust for itself and its Series shall be the
property of the Manager and its affiliates, and the use of such names shall be
subject to the same conditions set forth in this Section insofar as such name or
identifying words require the consent of the Manager.
IN WITNESS WHEREOF, the Trustees named below do hereby set their hands as
of the 11th day of September 1989.
/s/ William J. Lippman /s/ Jeremiah J. Bresnahan, Jr.
WILLIAM J. LIPPMAN JEREMIAH J. BRESNAHAN, JR.
BY-LAWS
OF
FRANKLIN BALANCE SHEET INVESTMENT FUND
A Massachusetts Business Trust
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICE. The Board of Trustees shall fix and, from
time to time, may change the location of the principal executive office of the
Trust at any place within or outside The Commonwealth of Massachusetts.
Section 2. OTHER OFFICES. The Board of Trustees may at any time
establish branch or subordinate offices at any place or places where the
Trust intends to do business.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. PLACE OF MEETINGS. Meetings of shareholders shall be held at
any place within or outside The Commonwealth of Massachusetts designated by the
Board of Trustees. In the absence of any such designation, shareholders'
meetings shall be held at the principal executive office of the Trust.
Section 2. CALL OF MEETING. A meeting of the shareholders may be called
at any time by the Board of Trustees or by the chairman of the Board or by
the president.
Section 3. NOTICE OF SHAREHOLDERS' MEETING. All notices of meetings of
shareholders shall be sent or otherwise given in accordance with Section 4 of
this Article II not less than seven (7) nor more than seventy-five (75) days
before the date of the meeting. The notice shall specify (i) the place, date and
hour of the meeting, and (ii) the general nature of the business to be
transacted. The notice of any meeting at which trustees are to be elected also
shall include the name of any nominee or nominees whom at the time of the notice
are intended to be presented for election.
If action is proposed to be taken at any meeting for approval of (i) a
contract or transaction in which a trustee has a direct or indirect financial
interest, (ii) an amendment of the Declaration of Trust, (iii) a reorganization
of the Trust, or (iv) a voluntary dissolution of the Trust, the notice shall
also state the general nature of that proposal.
Section 4. MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE. Notice of any
meeting of shareholders shall be given either personally or by first-class mail
or telegraphic or other written communication, charges prepaid, addressed to the
shareholder at the address of that shareholder appearing on the books of the
Trust or its transfer agent or given by the shareholder to the Trust for the
purpose of notice. If no such address appears on the Trust's books or is given,
notice shall be deemed to have been given if sent to that shareholder by
first-class mail or telegraphic or other written communication to the Trust's
principal executive office, or if published at least once in a newspaper of
general circulation in the county where that office is located. Notice shall be
deemed to have been given at the time when delivered personally or deposited in
the mail or sent by telegram or other means of written communication.
If any notice addressed to a shareholder at the address of that
shareholder appearing on the books of the Trust is returned to the Trust by the
United States Postal Service marked to indicate that the Postal Service is
unable to deliver the notice to the shareholder at that address, all future
notices or reports shall be deemed to have been duly given without further
mailing if these shall be available to the shareholder on written demand of the
shareholder at the principal executive office of the Trust for a period of one
year from the date of the giving of the notice.
An affidavit of the mailing or other means of giving any notice of any
shareholder's meeting shall be executed by the secretary, assistant secretary or
any transfer agent of the Trust giving the notice and shall be filed and
maintained in the minute book of the Trust.
Section 5. ADJOURNED MEETING; NOTICE. Any shareholder's meeting, whether
or not a quorum is present, may be adjourned from time to time by the vote of
the majority of the shares represented at that meeting, either in person or by
proxy.
When any meeting of shareholders is adjourned to another time or place,
notice need not be given of the adjourned meeting at which the adjournment is
taken, unless a new record date of the adjourned meeting is fixed or unless the
adjournment is for more than sixty (60) days from the date set for the original
meeting, in which case the Board of Trustees shall set a new record date. Notice
of any such adjourned meeting shall be given to each shareholder of record
entitled to vote at the adjourned meeting in accordance with the provisions of
Sections 3 and 4 of this Article II. At any adjourned meeting, the Trust may
transact any business which might have been transacted at the original meeting.
Section 6. VOTING. The shareholders entitled to vote at any meeting of
shareholders shall be determined in accordance with the provisions of the
Declaration of Trust, as in effect at such time. The shareholders' vote may be
by voice vote or by ballot, provided, however, that any election for trustees
must be by ballot if demanded by any shareholder before the voting has begun. On
any matter other than elections of trustees, any shareholder may vote part of
the shares in favor of the proposal and refrain from voting the remaining shares
or vote them against the proposal, but if the shareholder fails to specify the
number of shares which the shareholder is voting affirmatively, it will be
conclusively presumed that the shareholder's approving vote is with respect to
the total shares that the shareholder is entitled to vote on such proposal.
Section 7. WAIVER OF NOTICE BY CONSENT OF ABSENT SHAREHOLDERS. The
transactions of the meeting of shareholders, however called and noticed and
wherever held, shall be as valid as though had at a meeting duly held after
regular call and notice if a quorum be present either in person or by proxy and
if either before or after the meeting, each person entitled to vote who was not
present in person or by proxy signs a written waiver of notice or a consent to a
holding of the meeting or an approval of the minutes. The waiver of notice or
consent need not specify either the business to be transacted or the purpose of
any meeting of shareholders.
Attendance by a person at a meeting shall also constitute a waiver of
notice of that meeting, except when the person objects at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened and except that attendance at a meeting is not a waiver of
any right to object to the consideration of matters not included in the notice
of the meeting if that objection is expressly made at the beginning of the
meeting.
Section 8. SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Any
action which may be taken at any meeting of shareholders may be taken without a
meeting and without prior notice if a consent in writing setting forth the
action so taken is signed by the holders of outstanding shares having not less
than the minimum number of votes that would be necessary to authorize or take
that action at a meeting at which all shares entitled to vote on that action
were present and voted. All such consents shall be filed with the Secretary of
the Trust and shall be maintained in the Trust's records. Any shareholder giving
a written consent or the shareholder's proxy holders or a transferee of the
shares or a personal representative of the shareholder or their respective proxy
holders may revoke the consent by a writing received by the Secretary of the
Trust before written consents of the number of shares required to authorize the
proposed action have been filed with the Secretary.
If the consents of all shareholders entitled to vote have not been
solicited in writing and if the unanimous written consent of all such
shareholders shall not have been received, the Secretary shall give prompt
notice of the action approved by the shareholders without a meeting. This notice
shall be given in the manner specified in Section 4 of this Article II. In the
case of approval of (i) contracts or transactions in which a trustee has a
direct or indirect financial interest, (ii) indemnification of agents of the
Trust, and (iii) a reorganization of the Trust, the notice shall be given at
least ten (10) days before the consummation of any action authorized by that
approval.
Section 9. RECORD DATE FOR SHAREHOLDER NOTICE, VOTING AND GIVING CONSENTS.
For purposes of determining the shareholders entitled to notice of any meeting
or to vote or entitled to give consent to action without a meeting, the Board of
Trustees may fix in advance a record date which shall not be more than ninety
(90) days nor less than seven (7) days before the date of any such meeting as
provided in the Declaration of Trust.
If the Board of Trustees does not so fix a record date:
(a) The record date for determining shareholders entitled to notice of or
to vote at a meeting of shareholders shall be at the close of business on the
business day next preceding the day on which notice is given or if notice is
waived, at the close of business on the business day next preceding the day on
which the meeting is held.
(b) The record date for determining shareholders entitled to give consent
to action in writing without a meeting, (i) when no prior action by the Board of
Trustees has been taken, shall be the day on which the first written consent is
given, or (ii) when prior action of the Board of Trustees has been taken, shall
be at the close of business on the day on which the Board of Trustees adopt the
resolution relating to that action or the seventy-fifth day before the date of
such other action, whichever is later.
Section 10. PROXIES. Every person entitled to vote for trustees or on any
other matter shall have the right to do so either in person or by one or more
agents authorized by a written proxy signed by the person and filed with the
Secretary of the Trust. A proxy shall be deemed signed if the shareholder's name
is placed on the proxy (whether by manual signature, typewriting, telegraphic
transmission or otherwise) by the shareholder or the shareholder's
attorney-in-fact. A validly executed proxy which does not state that it is
irrevocable shall continue in full force and effect unless (i) revoked by the
person executing it before the vote pursuant to that proxy by a writing
delivered to the Trust stating that the proxy is revoked or by a subsequent
proxy executed by or attendance at the meeting and voting in person by the
person executing that proxy; or (ii) written notice of the death or incapacity
of the maker of that proxy is received by the Trust before the vote pursuant to
that proxy is counted; provided however, that no proxy shall be valid after the
expiration of eleven (11) months from the date of the proxy unless otherwise
provided in the proxy. The revocability of a proxy that states on its face that
it is irrevocable shall be governed by the provisions of the General Corporation
Law of the State of California.
Section 11. INSPECTORS OF ELECTION. Before any meeting of shareholders, the
Board of Trustees may appoint any persons other than nominees for office to act
as inspectors of election at the meeting or its adjournment. If no inspectors of
election are so appointed, the chairman of the meeting may and on the request of
any shareholder or a shareholder's proxy shall, appoint inspectors of election
at the meeting. The number of inspectors shall be either one (1) or three (3).
If inspectors are appointed at a meeting on the request of one or more
shareholders or proxies, the holders of a majority of shares or their proxies
present at the meeting shall determine whether one (1) or three (3) inspectors
are to be appointed. If any person appointed as inspector fails to appear or
fails or refuses to act, the chairman of the meeting may and on the request of
any shareholder or a shareholder's proxy, shall appoint a person to fill the
vacancy.
These inspectors shall:
(a) Determine the number of shares outstanding and the voting power of
each, the shares represented at the meeting, the existence of a quorum and the
authenticity, validity and effect of proxies;
(b) Receive votes, ballots or consents;
(c) Hear and determine all challenges and questions in any way arising
in connection with the right to vote;
(d) Count and tabulate all votes or consents;
(e) Determine when the polls shall close;
(f) Determine the result; and
(g) Do any other acts that may be proper to conduct the election or vote
with fairness to all shareholders.
ARTICLE III
TRUSTEES
Section 1. POWERS. Subject to the applicable provisions of the Declaration
of Trust and these By-Laws relating to action required to be approved by the
shareholders or by the outstanding shares, the business and affairs of the Trust
shall be managed and all powers shall be exercised by or under the direction of
the Board of Trustees.
Section 2. NUMBER AND QUALIFICATION OF TRUSTEES. The exact number of
trustees shall be set forth in the Agreement and Declaration of Trust, until
changed by a duly adopted amendment to the Declaration of Trust.
Section 3. VACANCIES. Vacancies in the Board of Trustees may be filled by
a majority of the remaining trustees, though less than a quorum, or by a sole
remaining trustee, unless the Board of Trustees calls a meeting of shareholders
for the purposes of electing trustees. In the event that at any time less than a
majority of the trustees holding office at that time were so elected by the
holders of the outstanding voting securities of the Trust, the Board of Trustees
shall forthwith cause to be held as promptly as possible, and in any event
within sixty (60) days, a meeting of such holders for the purpose of electing
trustees to fill any existing vacancies in the Board of Trustees, unless such
period is extended by order of the United States Securities and Exchange
Commission.
Notwithstanding the above, whenever and for so long as the Trust is a
participant in or otherwise has in effect a Plan under which the Trust may be
deemed to bear expenses of distributing its shares as that practice is described
in Rule 12b-1 under the Investment Company Act of 1940, then the selection and
nomination of the trustees who are not interested persons of the Trust (as that
term is defined in the Investment Company Act of 1940) shall be, and is,
committed to the discretion of such disinterested trustees.
Section 4. PLACE OF MEETINGS AND MEETINGS BY TELEPHONE. All meetings of
the Board of Trustees may be held at any place within or outside The
Commonwealth of Massachusetts that has been designated from time to time by
resolution of the Board. In the absence of such a designation, regular meetings
shall be held at the principal executive office of the Trust. Any meeting,
regular or special, may be held by conference telephone or similar communication
equipment, so long as all trustees participating in the meeting can hear one
another and all such trustees shall be deemed to be present in person at the
meeting.
Section 5. REGULAR MEETINGS. Regular meetings of the Board of Trustees
shall be held without call at such time as shall from time to time be fixed by
the Board of Trustees. Such regular meetings may be held without notice.
Section 6. SPECIAL MEETINGS. Special meetings of the Board of Trustees
for any purpose or purposes may be called at any time by the chairman of the
board or the president or any vice president or the secretary or any two (2)
trustees.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each trustee or sent by first-class mail or
telegram, charges prepaid, addressed to each trustee at that trustee's address
as it is shown on the records of the Trust. In case the notice is mailed, it
shall be deposited in the United States mail at least seven (7) days before the
time of the holding of the meeting. In case the notice is delivered personally,
or by telephone, to the telegraph company, or by express mail or similar
service, it shall be given at least forty-eight (48) hours before the time of
the holding of the meeting. Any oral notice given personally or by telephone may
be communicated either to the trustee or to a person at the office of the
trustee who the person giving the notice has reason to believe will promptly
communicate it to the trustee. The notice need not specify the purpose of the
meeting or the place if the meeting is to be held at the principal executive
office of the Trust.
Section 7. QUORUM. A majority of the authorized number of trustees shall
constitute a quorum for the transaction of business, except to adjourn as
provided in Section 10 of this Article III. Every act or decision done or made
by a majority of the trustees present at a meeting duly held at which a quorum
is present shall be regarded as the act of the Board of Trustees, subject to the
provisions of the Declaration of Trust. A meeting at which a quorum is initially
present may continue to transact business notwithstanding the withdrawal of
trustees if any action taken is approved by a least a majority of the required
quorum for that meeting.
Section 8. WAIVER OF NOTICE. Notice of any meeting need not be given to
any trustee who either before or after the meeting signs a written waiver of
notice, a consent to holding the meeting, or an approval of the minutes. The
waiver of notice or consent need not specify the purpose of the meeting. All
such waivers, consents, and approvals shall be filed with the records of the
Trust or made a part of the minutes of the meeting. Notice of a meeting shall
also be deemed given to any trustee who attends the meeting without protesting
before or at its commencement the lack of notice to that trustee.
Section 9. ADJOURNMENT. A majority of the trustees present, whether or
not constituting a quorum, may adjourn any meeting to another time and place.
Section 10. NOTICE OF ADJOURNMENT. Notice of the time and place of holding
an adjourned meeting need not be given unless the meeting is adjourned for more
than forty-eight (48) hours, in which case notice of the time and place shall be
given before the time of the adjourned meeting in the manner specified in
Section 7 of this Article III to the trustees who were present at the time of
the adjournment.
Section 11. ACTION WITHOUT A MEETING. Any action required or permitted to
be taken by the Board of Trustees may be taken without a meeting if a majority
of the members of the Board of Trustees shall individually or collectively
consent in writing to that action. Such action by written consent shall have the
same force and effect as a majority vote of the Board of Trustees. Such written
consent or consents shall be filed with the minutes of the proceedings of the
Board of Trustees.
Section 12. FEES AND COMPENSATION OF TRUSTEES. Trustees and members of
committees may receive such compensation, if any, for their services and such
reimbursement of expenses as may be fixed or determined by resolution of the
Board of Trustees. This Section 12 shall not be construed to preclude any
trustee from serving the Trust in any other capacity as an officer, agent,
employee, or otherwise and receiving compensation for those services.
Section 13. DELEGATION OF POWER TO OTHER TRUSTEES. Any Trustee may, by
power of attorney, delegate his power for a period not exceeding six (6) months
at any one time to any other Trustee or Trustees; provided that in no case shall
fewer than two (2) Trustees personally exercise the powers granted to the
Trustees under this Declaration of Trust except as otherwise expressly provided
herein or by resolution of the Board of Trustees.
ARTICLE IV
COMMITTEES
Section 1. COMMITTEES OF TRUSTEES. The Board of Trustees may by resolution
adopted by a majority of the authorized number of trustees designate one or more
committees, each consisting of two (2) or more trustees, to serve at the
pleasure of the Board. The Board may designate one or more trustees as alternate
members of any committee who may replace any absent member at any meeting of the
committee. Any committee to the extent provided in the resolution of the Board,
shall have the authority of the Board, except with respect to:
(a) the approval of any action which under applicable law also requires
shareholders' approval or approval of the outstanding shares, or requires
approval by a majority of the entire Board or certain members of said Board;
(b) the filling of vacancies on the Board of Trustees or in any
committee;
(c) the fixing of compensation of the trustees for serving on the Board
of Trustees or on any committee;
(d) the amendment or repeal of the Declaration of Trust or of the
By-Laws or the adoption of new By-Laws;
(e) the amendment or repeal of any resolution of the Board of Trustees
which by its express terms is not so amendable or repealable;
(f) a distribution to the shareholders of the Trust, except at a rate
or in a periodic amount or within a designated range determined by the Board
of Trustees; or
(g) the appointment of any other committees of the Board of Trustees or
the members of these committees.
Section 2. MEETINGS AND ACTION OF COMMITTEES. Meetings and action of
committees shall be governed by and held and taken in accordance with the
provisions of Article III of these By-Laws, with such changes in the context
thereof as are necessary to substitute the committee and its members for the
Board of Trustees and its members, except that the time of regular meetings of
committees may be determined either by resolution of the Board of Trustees or by
resolution of the committee. Special meetings of committees may also be called
by resolution of the Board of Trustees, and notice of special meetings of
committees shall also be given to all alternate members who shall have the right
to attend all meetings of the committee. The Board of Trustees may adopt rules
for the government of any committee not inconsistent with the provisions of
these By-Laws.
ARTICLE V
OFFICERS
Section 1. OFFICERS. The officers of the Trust shall be a president, a
secretary, and a treasurer. The Trust may also have, at the discretion of the
Board of Trustees, a chairman of the board, one or more vice presidents, one or
more assistant secretaries, one or more assistant treasurers, and such other
officers as may be appointed in accordance with the provisions of Section 3 of
this Article V. Any number of offices may be held by the same person.
Section 2. ELECTION OF OFFICERS. The officers of the Trust, except such
officers as may appointed in accordance with the provisions of Section 3 or
Section 5 of this Article V, shall be chosen by the Board of Trustees, and each
shall serve at the pleasure of the Board of Trustees, subject to the rights, if
any, of an officer under any contract of employment.
Section 3. SUBORDINATE OFFICERS. The Board of Trustees may appoint and may
empower the president to appoint such other officers as the business of the
Trust may require, each of whom shall hold office for such period, have such
authority and perform such duties as are provided in these By-Laws or as the
Board of Trustees may from time to time determine.
Section 4. REMOVAL AND RESIGNATION OF OFFICERS. Subject to the rights, if
any, of an officer under any contract of employment, any officer may be removed,
either with or without cause, by the Board of Trustees at any regular or special
meeting of the Board of Trustees or except in the case of an officer upon whom
such power of removal may be conferred by the Board of Trustees.
Any officer may resign at any time by giving written notice to the Trust.
Any resignation shall take effect at the date of the receipt of that notice or
at any later time specified in that notice; and unless otherwise specified in
that notice, the acceptance of the resignation shall not be necessary to make it
effective. Any resignation is without prejudice to the rights, if any, of the
Trust under any contract to which the officer is a party.
Section 5. VACANCIES IN OFFICES. A vacancy in any office because of death,
resignation, removal, disqualification or other cause shall be filled in the
manner prescribed in these By-Laws for regular appointment to that office.
Section 6. CHAIRMAN OF THE BOARD. The chairman of the board, if such an
officer is elected, shall if present preside at meetings of the Board of
Trustees and exercise and perform such other powers and duties as may be from
time to time assigned to him by the Board of Trustees or prescribed by the
By-Laws.
Section 7. PRESIDENT. Subject to such supervisory powers, if any, as may
be given by the Board of Trustees to the chairman of the board, if there be such
an officer, the president shall be the chief executive officer of the Trust and
shall, subject to the control of the Board of Trustees, have general
supervision, direction and control of the business and the officers of the
Trust. He shall preside at all meetings of the shareholders and in the absence
of the chairman of the board or if there be none, at all meetings of the Board
of Trustees. He shall have the general powers and duties of management usually
vested in the office of president of a corporation and shall have such other
powers and duties as may be prescribed by the Board of Trustees or these
By-Laws.
Section 8. VICE PRESIDENTS. In the absence or disability of the president,
the vice presidents, if any, in order of their rank as fixed by the Board of
Trustees or if not ranked, a vice president designated by the Board of Trustees,
shall perform all the duties of the president and when so acting shall have all
powers of and be subject to all the restrictions upon the president. The vice
presidents shall have such other powers and perform such other duties as from
time to time may be prescribed for them respectively by the Board of Trustees or
by these By-Laws and the president or the chairman of the board.
Section 9. SECRETARY. The secretary shall keep or cause to be kept at the
principal executive office of the Trust or such other place as the Board of
Trustees may direct a book of minutes of all meetings and actions of trustees,
committees of trustees and shareholders with the time and place of holding,
whether regular or special, and if special, how authorized, the notice given,
the names of those present at trustees' meetings or committee meetings, the
number of shares present or represented at shareholders' meetings, and the
proceedings.
The secretary shall keep or cause to be kept at the principal executive
office of the Trust or at the office of the Trust's transfer agent or registrar,
as determined by resolution of the Board of Trustees, a share register or a
duplicate share register showing the names of all shareholders and their
addresses, the number and classes of shares held by each, the number and date of
certificates issued for the same and the number and date of cancellation of
every certificate surrendered for cancellation.
The secretary shall give or cause to be given notice of all meetings of
the shareholders and of the Board of Trustees required by these By-Laws or by
applicable law to be given and shall have such other powers and perform such
other duties as may be prescribed by the Board of Trustees or by these By-Laws.
Section 10. TREASURER. The treasurer shall be the chief financial officer
of the Trust and shall keep and maintain or cause to be kept and maintained
adequate and correct books and records of accounts of the properties and
business transactions of the Trust, including accounts of its assets,
liabilities, receipts, disbursements, gains, losses, capital, retained earnings
and shares. The books of account shall at all reasonable times be open to
inspection by any trustee.
The treasurer shall deposit all monies and other valuables in the name and
to the credit of the Trust with such depositaries as may be designated by the
Board of Trustees. He shall disburse the funds of the Trust as may be ordered by
the Board of Trustees, shall render to the president and trustees, whenever they
request it, an account of all of his transactions as chief financial officer and
of the financial condition of the Trust and shall have other powers and perform
such other duties as may be prescribed by the Board of Trustees or these
By-Laws.
ARTICLE VI
INDEMNIFICATION OF TRUSTEES, OFFICERS,
EMPLOYEES AND OTHER AGENTS
Section 1. AGENTS, PROCEEDINGS AND EXPENSES. For the purpose of this
Article, "agent" means any person who is or was a trustee, officer, employee or
other agent of this Trust or is or was serving at the request of this Trust as a
trustee, director, officer, employee or agent of another foreign or domestic
corporation, partnership, joint venture, trust or other enterprise or was a
trustee, director, officer, employee or agent of a foreign or domestic
corporation which was a predecessor of another enterprise at the request of such
predecessor entity; "proceeding" means any threatened, pending or completed
action or proceeding, whether civil, criminal, administrative or investigative;
and "expenses" includes without limitation attorney's fees and any expenses of
establishing a right to indemnification under this Article.
Section 2. ACTIONS OTHER THAN BY TRUST. This Trust shall indemnify any
person who was or is a party or is threatened to be made a party to any
proceeding (other than an action by or in the right of this Trust) by reason of
the fact that such person is or was an agent of this Trust, against expenses,
judgments, fines, settlements and other amounts actually and reasonably incurred
in connection with such proceeding if that person acted in good faith and in a
manner that person reasonably believed to be in the best interests of this Trust
and in the case of a criminal proceeding, had no reasonable cause to believe the
conduct of that person was unlawful. The termination of any proceeding by
judgment, order, settlement, conviction or upon a plea of nolo contendere or its
equivalent shall not of itself create a presumption that the person did not act
in good faith and in a manner which the person reasonably believed to be in the
best interests of this Trust or that the person had reasonable cause to believe
that the person's conduct was unlawful.
Section 3. ACTIONS BY THE TRUST. This Trust shall indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action by or in the right of this Trust to procure a judgment in
its favor by reason of the fact that that person is or was an agent of this
Trust, against expenses actually and reasonably incurred by that person in
connection with the defense or settlement of that action if that person acted in
good faith, in a manner that person believed to be in the best interests of this
Trust and with such care, including reasonable inquiry, as an ordinarily prudent
person in a like position would use under similar circumstances.
Section 4. EXCLUSION OF INDEMNIFICATION. Notwithstanding any provision to
the contrary contained herein, there shall be no right to indemnification for
any liability arising by reason of willful misfeasance, bad faith, gross
negligence, or the reckless disregard of the duties involved in the conduct of
the agent's office with this Trust.
No indemnification shall be made under Sections 2 or 3 of this Article:
(a) In respect of any claim, issue or matter as to which that person shall
have been adjudged to be liable in the performance of that person's duty to this
Trust, unless and only to the extent that the court in which that action was
brought shall determine upon application that in view of all the circumstances
of the case, that person was not liable by reason of the disabling conduct set
forth in the preceding paragraph and is fairly and reasonably entitled to
indemnity for the expenses which the court shall determine; or
(b) In respect of any claim, issue, or matter as to which that person
shall have been adjudged to be liable on the basis that personal benefit was
improperly received by him, whether or not the benefit resulted from an action
taken in the person's official capacity; or
(c) Of amounts paid in settling or otherwise disposing of a threatened or
pending action, with or without court approval, or of expenses incurred in
defending a threatened or pending action which is settled or otherwise disposed
of without court approval, unless the required approval set forth in Section 6
of this Article is obtained.
Section 5. SUCCESSFUL DEFENSE BY AGENT. To the extent that an agent of
this Trust has been successful on the merits in defense of any proceeding
referred to in Sections 2 or 3 of this Article or in defense of any claim, issue
or matter therein, before the court or other body before whom the proceeding was
brought, the agent shall be indemnified against expenses actually and reasonably
incurred by the agent in connection therewith, provided that the Board of
Trustees, including a majority who are disinterested, non-party trustees, also
determines that based upon a review of the facts, the agent was not liable by
reason of the disabling conduct referred to in Section 4 of this Article.
Section 6. REQUIRED APPROVAL. Except as provided in Section 5 of this
Article, any indemnification under this Article shall be made by this Trust only
if authorized in the specific case on a determination that indemnification of
the agent is proper in the circumstances because the agent has met the
applicable standard of conduct set forth in Sections 2 or 3 of this Article and
is not prohibited from indemnification because of the disabling conduct set
forth in Section 4 of this Article, by:
(a) A majority vote of a quorum consisting of trustees who are not parties
to the proceeding and are not interested persons of the Trust (as defined in the
Investment Company Act of 1940); or
(b) A written opinion by an independent legal counsel.
Section 7. ADVANCE OF EXPENSES. Expenses incurred in defending any
proceeding may be advanced by this Trust before the final disposition of the
proceeding on receipt of an undertaking by or on behalf of the agent to repay
the amount of the advance unless it shall be determined ultimately that the
agent is entitled to be indemnified as authorized in this Article, provided the
agent provides a security for his undertaking, or a majority of a quorum of the
disinterested, non-party trustees, or an independent legal counsel in a written
opinion, determine that based on a review of readily available facts, there is
reason to believe that said agent ultimately will be found entitled to
indemnification.
Section 8. OTHER CONTRACTUAL RIGHTS. Nothing contained in this Article
shall affect any right to indemnification to which persons other than trustees
and officers of this Trust or any subsidiary hereof may be entitled by contract
or otherwise.
Section 9. LIMITATIONS. No indemnification or advance shall be made
under this Article, except as provided in Sections 5 or 6 in any
circumstances where it appears:
(a) That it would be inconsistent with a provision of the Declaration of
Trust, a resolution of the shareholders, or an agreement in effect at the time
of accrual of the alleged cause of action asserted in the proceeding in which
the expenses were incurred or other amounts were paid which prohibits or
otherwise limits indemnification; or
(b) That it would be inconsistent with any condition expressly imposed by
a court in approving a settlement.
Section 10. INSURANCE. Upon and in the event of a determination by the
Board of Trustees of this Trust to purchase such insurance, this Trust shall
purchase and maintain insurance on behalf of any agent of this Trust against any
liability asserted against or incurred by the agent in such capacity or arising
out of the agent's status as such, but only to the extent that this Trust would
have the power to indemnify the agent against that liability under the
provisions of this Article.
Section 11. FIDUCIARIES OF EMPLOYEE BENEFIT PLAN. This Article does not
apply to any proceeding against any trustee, investment manager or other
fiduciary of an employee benefit plan in that person's capacity as such, even
though that person may also be an agent of this Trust as defined in Section 1 of
this Article. Nothing contained in this Article shall limit any right to
indemnification to which such a trustee, investment manager, or other fiduciary
may be entitled by contract or otherwise which shall be enforceable to the
extent permitted by applicable law other than this Article.
ARTICLE VII
RECORDS AND REPORTS
Section 1. MAINTENANCE AND INSPECTION OF SHARE REGISTER. This Trust shall
keep at its principal executive office or at the office of its transfer agent or
registrar, if either be appointed and as determined by resolution of the Board
of Trustees, a record of its shareholders, giving the names and addresses of all
shareholders and the number and series of shares held by each shareholder.
Section 2. MAINTENANCE AND INSPECTION OF BY-LAWS. The Trust shall keep at
its principal executive office the original or a copy of these By-Laws as
amended to date, which shall be open to inspection by the shareholders at all
reasonable times during office hours.
Section 3. MAINTENANCE AND INSPECTION OF OTHER RECORDS. The accounting
books and records and minutes of proceedings of the shareholders and the Board
of Trustees and any committee or committees of the Board of Trustees shall be
kept at such place or places designated by the Board of Trustees or in the
absence of such designation, at the principal executive office of the Trust. The
minutes shall be kept in written form and the accounting books and records shall
be kept either in written form or in any other form capable of being converted
into written form. The minutes and accounting books and records shall be open to
inspection upon the written demand of any shareholder or holder of a voting
trust certificate at any reasonable time during usual business hours for a
purpose reasonably related to the holder's interests as a shareholder or as the
holder of a voting trust certificate. The inspection may be made in person or by
an agent or attorney and shall include the right to copy and make extracts.
Section 4. INSPECTION BY TRUSTEES. Every trustee shall have the absolute
right at any reasonable time to inspect all books, records, and documents of
every kind and the physical properties of the Trust. This inspection by a
trustee may be made in person or by an agent or attorney and the right of
inspection includes the right to copy and make extracts of documents.
Section 5. FINANCIAL STATEMENTS. A copy of any financial statements and
any income statement of the Trust for each quarterly period of each fiscal year
and accompanying balance sheet of the Trust as of the end of each such period
that has been prepared by the Trust shall be kept on file in the principal
executive office of the Trust for at least twelve (12) months and each such
statement shall be exhibited at all reasonable times to any shareholder
demanding an examination of any such statement or a copy shall be mailed to any
such shareholder.
The quarterly income statements and balance sheets referred to in this
section shall be accompanied by the report, if any, of any independent
accountants engaged by the Trust or the certificate of an authorized officer of
the Trust that the financial statements were prepared without audit from the
books and records of the Trust.
ARTICLE VIII
GENERAL MATTERS
Section 1. CHECKS, DRAFTS, EVIDENCE OF INDEBTEDNESS. All checks, drafts,
or other orders for payment of money, notes or other evidences of indebtedness
issued in the name of or payable to the Trust shall be signed or endorsed by
such person or persons and in such manner as from time to time shall be
determined by resolution of the Board of Trustees.
Section 2. CONTRACTS AND INSTRUMENTS; HOW EXECUTED. The Board of Trustees,
except as otherwise provided in these By-Laws, may authorize any officer or
officers, agent or agents, to enter into any contract or execute any instrument
in the name of and on behalf of the Trust and this authority may be general or
confined to specific instances; and unless so authorized or ratified by the
Board of Trustees or within the agency power of an officer, no officer, agent,
or employee shall have any power or authority to bind the Trust by any contract
or engagement or to pledge its credit or to render it liable for any purpose or
for any amount.
Section 3. CERTIFICATES FOR SHARES. A certificate or certificates for
shares of beneficial interest in any series of the Trust may be issued to a
shareholder upon his request when such shares are fully paid. All certificates
shall be signed in the name of the Trust by the chairman of the board or the
president or vice president and by the treasurer or an assistant treasurer or
the secretary or any assistant secretary, certifying the number of shares and
the series of shares owned by the shareholders. Any or all of the signatures on
the certificate may be facsimile. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed on a
certificate shall have ceased to be that officer, transfer agent, or registrar
before that certificate is issued, it may be issued by the Trust with the same
effect as if that person were an officer, transfer agent or registrar at the
date of issue. Notwithstanding the foregoing, the Trust may adopt and use a
system of issuance, recordation and transfer of its shares by electronic or
other means.
Section 4. LOST CERTIFICATES. Except as provided in this Section 4, no new
certificates for shares shall be issued to replace an old certificate unless the
latter is surrendered to the Trust and cancelled at the same time. The Board of
Trustees may in case any share certificate or certificate for any other security
is lost, stolen, or destroyed, authorize the issuance of a replacement
certificate on such terms and conditions as the Board of Trustees may require,
including a provision for indemnification of the Trust secured by a bond or
other adequate security sufficient to protect the Trust against any claim that
may be made against it, including any expense or liability on account of the
alleged loss, theft, or destruction of the certificate or the issuance of the
replacement certificate.
Section 5. REPRESENTATION OF SHARES OF OTHER ENTITIES HELD BY TRUST. The
chairman of the board, the president or any vice president or any other person
authorized by resolution of the Board of Trustees or by any of the foregoing
designated officers, is authorized to vote or represent on behalf of the Trust
any and all shares of any corporation, partnership, trusts, or other entities,
foreign or domestic, standing in the name of the Trust. The authority granted
may be exercised in person or by a proxy duly executed by such designated
person.
Section 6. FISCAL YEAR. The fiscal year of the Trust shall be fixed and
refixed or changed from time to time by resolution of the Trustees. The fiscal
year of the Trust shall be the taxable year of each Series of the Trust.
ARTICLE IX
AMENDMENTS
Section 1. AMENDMENT BY SHAREHOLDERS. These By-Laws may be amended or
repealed by the affirmative vote or written consent of a majority of the
outstanding shares entitled to vote, except as otherwise provided by applicable
law or by the Declaration of Trust or these By-Laws.
Section 2. AMENDMENT BY TRUSTEES. Subject to the right of shareholders as
provided in Section 1 of this Article to adopt, amend or repeal By-Laws, and
except as otherwise provided by applicable law or by the Declaration of Trust,
these By-Laws may be adopted, amended, or repealed by the Board of Trustees.
FRANKLIN BALANCE SHEET INVESTMENT FUND
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT made between FRANKLIN BALANCE SHEET INVESTMENT
FUND, a Massachusetts Business Trust, hereinafter called the "Fund", and
FRANKLIN ADVISERS, INC., a California corporation, hereinafter called the
"Manager."
WHEREAS, the Fund has been organized and intends to operate as an
investment company registered under the Investment Company Act of 1940 (the
"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 Act and the Securities Act of 1933, all as
heretofore and hereafter amended and supplemented; and the Fund 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
any separate series of the Fund of the Fund hereafter organized; 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:
1. Employment of the Manager. The Fund 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 Fund, 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 in any way or otherwise be deemed an agent of the Fund.
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, and (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 or Contract
Holders investing in 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
Fund 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 Fund'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
their 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 regular reports to the Fund, at regular
meetings of its Board of Trustees and at such other times as may be reasonably
requested by the Fund's Board of Trustees, of (i) the decisions which it has
made with respect to the investment of the Fund's assets and the purchase and
sale of their 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 Fund's Board of Trustees may issue from time to time, shall
place, 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 accord with the standards
set forth below. Moreover, to the extent that it continues to be lawful to do so
and so long as the Board 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 Fund 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.
(c) When the Manager has determined that the Fund should
tender securities pursuant to a "tender offer solicitation," the Manager shall
designate Franklin Distributors, Inc. ("Distributors") as the "tendering dealer"
so long as it is legally permissible for the Manager to do so, and 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.
Distributors shall not 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 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 Fund, not
more frequently than quarterly, of how much total brokerage business has been
placed by the Manager 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
offering 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
Fund for consultation and discussions regarding the administration and
management of the Fund and their 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 their 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
Fund 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 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 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 their 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, payable monthly at the request of the
Manager.
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 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 following annual rates:
.625 of 1% of the value of net assets up to and including
$100,000,000;
.50 of 1% of the value of net assets over
$100,000,000 up to and including $250,000,000; and
.45 of 1% of the value of net assets over $250,000,000 up to
and including $10,000,000,000; and
.44 of 1% of the value of net assets over
$10,000,000,000 up to and including
$12,500,000,000; and
.42 of 1% of the value of net assets over
$12,500,000,000 up to and including
$15,000,000,000; and
.40 of 1% of the value of net assets over $15,000,000,000.
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 as set forth in paragraph 2.B.(c) of this Agreement. The
Manager may, from time to time, voluntarily reduce or waive any management fee
due to it hereunder.
C. To the extent that the gross operating costs and expenses of the
Fund (excluding any interest, taxes, brokerage commissions, amortization of
organization expense, expenses under the Distribution Plan, and, with the prior
written approval of any state securities commission requiring same, any
extraordinary expenses, such as litigation), exceed the most stringent expense
limitation requirements of the states in which shares of the Fund are qualified
for sale, the Manager shall reduce its fees by the amount of such excess.
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 Fund
and Section 10(a) of the Act, it is understood that trustees, officers, agents
and shareholders of the Fund 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 Fund 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 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 Fund or to
any shareholder of the Trust 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 Fund for any and all costs, expenses, and counsel and trustees' fees
reasonably incurred by the Fund in the preparation, printing and distribution of
proxy statements, amendments to its Registration Statement, holdings of meetings
of its shareholders or trustees, the conduct of factual investigations, any
legal or administrative proceedings (including any applications for exemptions
or determinations by the Securities and Exchange Commission) which the Fund
incurs as the result of action or inaction of the 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 Fund'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 Fund for any expenditures related to the institution of an
administrative proceeding or civil litigation by the Fund or a shareholder or
policyholder investing in the Fund 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 Fund 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 Fund may have or may assert against the
Manager or others for costs, expenses or damages heretofore incurred by the Fund
or for costs, expenses or damages the Fund may hereafter incur which are not
reimbursable to it hereunder.
C. No provision of this Agreement shall be construed to protect any
trustee or officer of the Fund, or director or officer of the Manager, from
liability in violation of Sections 17(h) and (i) of the 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. The Agreement is renewable
annually thereafter for successive periods not to exceed one (1) year (i) by a
vote of a majority of the outstanding voting securities of the Fund or by a vote
of the Board of Trustees of the Fund, and (ii) by a vote of a majority of the
Trustees of the Fund who are not parties to the Agreement (other than as
Trustees of the Fund), 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 Fund or by vote of a
majority of the outstanding voting securities of the Fund seeking to terminate
the Agreement, 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 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.
10. Limitation of Liability. The Manager acknowledges that it has
received notice of and accepts the limitations of the Fund's liability as set
forth in Article VIII of its Agreement and Declaration of Trust. The Manager
agrees that the Fund's obligations hereunder shall be limited to the assets of
the Fund, and that the Manager shall not seek satisfaction of any such
obligation from any shareholders of the Fund nor from any trustee, officer,
employee or agent of the Fund.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
and effective on the 2nd day of April 1990.
FRANKLIN BALANCE SHEET INVESTMENT FUND
/s/ Harmon E. Burns
By: Harmon E. Burns
Vice President
FRANKLIN ADVISERS, INC.
/s/ Rupert H. Johnson, Jr.
By: Rupert H. Johnson, Jr.
President
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 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 .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 bond 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 ____________.
FRANKLIN VALUE INVESTORS TRUST
By:
FRANKLIN ADVISERS, INC.
By:
FRANKLIN BALANCE SHEET INVESTMENT FUND
777 Mariners Island Blvd.
San Mateo, California 94404
Franklin Distributors, Inc.
777 Mariners Island Blvd.
San Mateo, California 94402
Re: Distribution Agreement
Gentlemen:
We are a Massachusetts business trust operating as an open-end management
investment company. As such, our company (referred to herein as the "Fund") is
registered under the Investment Company Act of 1940, (the "1940 Act"), and its
shares are registered under the Securities Act of 1933 (the "1933 Act"). We
desire to begin issuing our authorized but unissued shares of beneficial
interest (the "Shares") to authorized persons in accordance with applicable
Federal and State securities law.
You have informed us that your company is registered as a broker-dealer under
the provisions of the Securities Exchange Act of 1934 and that your company is a
member of the National Association of Securities Dealers, Inc. You have
indicated your desire to act as the exclusive selling agent and distributor for
the Shares. We have been authorized to execute and deliver this Agreement to you
by a resolution of our Board of Trustees passed at a meeting at which a majority
of our Trustees, including a majority who are not otherwise interested persons
of the Fund and who are not interested persons of our investment adviser, its
related organizations or with you or your related organizations, were present
and voted in favor of the said resolution approving this Agreement.
1. Appointment Of Underwriter. Upon the execution of this Agreement and in
consideration of the agreements on your part herein expressed and upon the terms
and conditions set forth herein, we hereby appoint you as the exclusive sales
agent for our Shares (except for sales made directly by the Fund without sales
charge) and agree that we will deliver such Shares as you may sell. You agree to
use your best efforts to promote the sale of Shares, but are not obligated to
sell any specific number of Shares.
2. Independent Contractor. You will undertake and discharge your
obligations hereunder as an independent contractor and shall have no authority
or power to obligate or bind us by your actions, conduct or contracts except
that you are authorized to accept orders for the purchase or repurchase of
Shares as our agent. You may appoint sub-agents or distribute through dealers or
otherwise as you may determine from time to time, but this Agreement shall not
be construed as authorizing any dealer or other person to accept orders for sale
or repurchase on our behalf or otherwise act as our agent for any purpose. You
may allow such sub-agents or dealers such commissions or discounts not exceeding
the total sales commission as you shall deem advisable so long as any such
commissions or discounts are set forth in our current prospectus to the extent
required by the applicable Federal and State securities laws.
3. Offering Price. The Shares shall be offered for sale at a price
equivalent to their respective net asset value plus a variable percentage of the
public offering price as sales commission. On each business day on which the New
York Stock Exchange is open for business, we will furnish you with the net asset
value of the Shares which shall be determined in accordance with our then
effective prospectus. All Shares will be sold in the manner set forth in our
then effective prospectus.
4. Sales Commission. You shall be entitled to charge a sales commission on
the sale of our Shares in the amount set forth in our then effective prospectus.
Such commission (subject to any quantity or other discounts or eliminations of
commission as set forth in our then current effective prospectus) shall be an
amount mutually agreed upon between us and equal to the difference between the
net asset value and the public offering price of our Shares.
5. Terms and Conditions of Sales. Shares shall be offered for sale only in
those jurisdictions where they have been properly registered or are exempt from
registration, and only to those groups of people which the Board of Trustees may
from time to time determine to be eligible to purchase such shares.
6. Payment of Shares. At or prior to the time of delivery of any of our
Shares you will pay or cause to be paid to our Custodian or its successor, for
our account, an amount in cash equal to the net asset value of such Shares. In
the event that you pay for Shares sold by you prior to your receipt of payment
from purchasers you are authorized to reimburse yourself for the net asset value
of such Shares from the offering price of such Shares when received by you.
7. Purchases for Your Own Account. You shall not purchase our Shares for
your own account for purposes of resale to the public, but your may purchase
Shares for your own investment account upon your written assurance that the
purchase is for investment purposes and that the Shares will not be resold
except through redemption by us.
8. Sale of Shares to Affiliates. You may sell our Shares at net asset
value to certain of your and our affiliated persons pursuant to the applicable
provisions of the Federal Securities Statutes and Rules or Regulations
thereunder (the "Rules and Regulations"), including Rule 22d-1 under the 1940
Act, as amended from time to time.
9. Allocation of Expenses. We will pay the expenses:
(a) Of the preparation of the audited and certified financial statements
of our company to be included in any Post-Effective Amendments
("Amendments") to our Registration Statement under the 1933 Act or
1940 Act, including the prospectus and statement of additional
information included therein;
(b) Of the preparation, including legal fees, and of printing all
Amendments or supplements filed with the S.E.C., including the
copies of the prospectus included in the Amendments and the first 10
copies of the definitive prospectus or supplements thereto, other
than those necessitated by your (including your "Parent's")
activities or Rules and Regulations related to your activities where
such Amendments or supplements result in expenses which we would not
otherwise have incurred;
(c) Of the preparation, printing and distribution of any reports or
communications which we send to our existing shareholders; and
(d) Of filing and other fees to Federal and State securities regulatory
authorities necessary to continue offering our Shares.
You will pay the expenses:
(a) Of printing the copies of the prospectus and any supplements thereto
and statement of additional information which are necessary to
continue to offer our Shares;
(b) Of the preparation, excluding legal fees, and printing of all
Amendments and supplements to our prospectus and statement of
additional information if the Amendment or supplement arises from
your (including your "Parent's") activities or Rules and Regulations
related to your activities and those expenses would not otherwise
have been incurred by us;
(c) Of printing additional copies, for use by you as sales literature,
or reports or other communications which we have prepared for
distribution to our existing shareholders; and
(d) Incurred by you in advertising, promoting and selling our Shares.
10. Furnishing or Information. We will furnish to you such information
with respect to the Fund and its Shares, in such form and signed by such of our
officers as you may reasonably request, and we warrant that the statements
therein contained when so signed will be true and correct. We will also furnish
you with such information and will take such action as you may reasonably
request in order to qualify our Shares for sale to the public under the Blue Sky
Laws of jurisdictions in which you may wish to offer them. We will furnish you
with annual audited financial statements of our books and accounts certified by
independent public accountants, with semi-annual financial statements prepared
by us, and, from time to time, with such additional information regarding our
financial condition as you may reasonably request.
11. Conduct of Business. Other than our currently effective prospectus,
you will not issue any sales material or statements except literature or
advertising which conforms to the requirements of Federal and State securities
laws and regulations and which have been filed, where necessary, with the
appropriate regulatory authorities. You will furnish us with copies of all such
materials prior to their use and no such material shall be published if we shall
reasonably and promptly object.
You shall comply with the applicable Federal and State laws and
regulations where our Shares are offered for sale and conduct your affairs with
us and with dealers, brokers or investors in accordance with the Rules of Fair
Practice of the National Association of Securities Dealers, Inc.
12. Redemption or Repurchase Within Seven Days. If Shares are tendered to
us for redemption or repurchase by us within seven business days after your
acceptance of the original purchase order for such Shares, you will immediately
refund to us the full sales commission (net of allowances to dealers or brokers)
allowed to you on the original sale, and will promptly, upon receipt thereof,
pay to us any refunds from dealers or brokers of the balance of sales
commissions reallowed by you. We shall notify you of such tender for redemption
within 10 days of the day on which notice of such tender for redemption is
received by us.
13. Other Activities. Your services pursuant to this Agreement shall not
be deemed to be exclusive, and you may render similar services and act as an
underwriter, distributor or dealer for other investment companies in the
offering of their shares.
14. Term of Agreement. This Agreement shall become effective on the date
of its execution, and shall remain in effect for a period of two (2) years. The
Agreement is renewable annually thereafter for successive periods not to exceed
one year (i) by a vote of a majority of the outstanding voting securities of the
Fund desiring to continue the Agreement or by a vote of the Board of Trustees of
the Fund, and (ii) by a vote of a majority of the Trustees of the Fund who are
not parties to the Agreement or interested persons of any parties to the
Agreement (other than as Trustees of the Fund), cast in person at a meeting
called for the purpose of voting on the Agreement.
This Agreement may at any time be terminated by the Fund without the
payment of any penalty, (i) either by vote of the Board of Trustees of the Fund
or by vote of a majority of the outstanding voting securities of the Fund, on
ninety days' written notice to you; or (ii) by you on ninety days' written
notice to the Fund; and shall immediately terminate in the event of its
assignment.
15. Suspension of Sales. We reserve the right at all times to suspend or
limit the public offering of the Shares upon two days' written notice to you.
16. Miscellaneous. This Agreement shall be subject to the laws of the
State of California and shall be interpreted and construed to further promote
the operation of the Fund as an open-end investment company. As used herein the
terms "Net Asset Value", "Offering Price", "Investment Company", "Open-End
Investment Company", Assignment", "Principal Underwriter", "Interested Person",
"Parents", "Affiliated Person", and "Majority of the Outstanding Voting
Securities" shall have the meanings set forth in the 1933 Act or the 1940 Act
and the Rules and Regulations thereunder.
Nothing herein shall be deemed to protect you against any liability to us or to
our securities holders to which you would otherwise be subject by reason or
wilful misfeasance, bad faith or gross negligence in the performance of your
duties hereunder, or by reason of your reckless disregard of your obligations
and duties hereunder.
You have acknowledged that you have received notice of and accept the
limitations of the Fund's liability set forth in Article VIII of its Agreement
and Declaration of Trust. You agree that the Fund's obligations hereunder shall
be limited to the Fund and to its assets, and that you shall not seek
satisfaction of any such obligation from the shareholders of the Fund nor from
any Trustee, officer, employee or agent of the Fund.
If the foregoing meets with your approval, please acknowledge your acceptance by
signing each of the enclosed copies, whereupon this will become a binding
agreement as of the date set forth below.
Very truly yours,
FRANKLIN BALANCE SHEET INVESTMENT FUND
/s/ Harmon E. Burns
By: Harmon E. Burns
Vice President
Accepted:
FRANKLIN DISTRIBUTORS, INC.
/s/ Rupert H. Johnson, Jr.
By: Rupert H. Johnson, Jr.
Senior Vice President
Dated: April 2, 1990
DEALER AGREEMENT
Effective: May 1, 1995
Dear Securities Dealer:
Franklin/Templeton Distributors, Inc. ("we" or "us") invites you to participate
in the distribution of shares of the Franklin and Templeton mutual funds (the
"Funds") for which we now or in the future serve as principal underwriter,
subject to the terms of this Agreement. We will notify you from time to time of
the Funds which are eligible for distribution and the terms of compensation
under this Agreement. This Agreement supersedes any prior dealer agreements
between us, as stated in paragraph 18, below.
1. Licensing.
(a) You represent that you are a member in good standing of the National
Association of Securities Dealers, Inc. ("NASD") and are presently licensed to
the extent necessary by the appropriate regulatory agency of each state in which
you will offer and sell shares of the Funds. You agree that termination or
suspension of such membership with the NASD, or of your license to do business
by any state or federal regulatory agency, at any time shall terminate or
suspend this Agreement forthwith and shall require you to notify us in writing
of such action. If you are not a member of the NASD but are a dealer subject to
the laws of a foreign country, you agree to conform to the rules of fair
practice of such association. This Agreement is in all respects subject to Rule
26 of the Rules of Fair Practice of the NASD which shall control any provision
to the contrary in this Agreement.
(b) You agree to notify us immediately in writing if at any time you are
not a member in good standing of the Securities Investor Protection Corporation
("SIPC").
2. Sales of Fund Shares. You may offer and sell shares of each Fund and class
only at the public offering price which shall be applicable to, and in effect at
the time of, each transaction. The procedures relating to all orders and the
handling of them shall be subject to the terms of the then current prospectus
and statement of additional information (hereafter, the "prospectus") and new
account application, including amendments, for each such Fund, and our written
instructions from time to time. This Agreement is not exclusive, and either
party may enter into similar agreements with third parties.
3. Duties of Dealer: In General. You agree:
(a) To act as principal, or as agent on behalf of your customers, in all
transactions in shares of the Funds except as provided in paragraph 4 hereof.
You shall not have any authority to act as agent for the issuer (the Funds), for
the Principal Underwriter, or for any other dealer in any respect, nor will you
represent to any third party that you have such authority or are acting in such
capacity.
(b) To purchase shares only from us or from your customers.
(c) To enter orders for the purchase of shares of the Funds only from us
and only for the purpose of covering purchase orders you have already received
from your customers or for your own bona fide investment.
(d) To maintain records of all sales and redemptions of shares made
through you and to furnish us with copies of such records on request.
(e) To distribute prospectuses and reports to your customers in compliance
with applicable legal requirements, except to the extent that we expressly
undertake to do so on your behalf.
(f) That you will not withhold placing customers' orders for shares so as
to profit yourself as a result of such withholding or place orders for shares in
amounts just below the point at which sales charges are reduced so as to benefit
from a higher sales charge applicable to an amount below the breakpoint.
(g) That if any shares confirmed to you hereunder are repurchased or
redeemed by any of the Funds within seven business days after such confirmation
of your original order, you shall forthwith refund to us the full concession
allowed to you on such orders. We shall forthwith pay to the appropriate Fund
our share, if any, of the "charge" on the original sale and shall also pay to
such Fund the refund from you as herein provided. We shall notify you of such
repurchase or redemption within a reasonable time after settlement. Termination
or cancellation of this Agreement shall not relieve you or us from the
requirements of this subparagraph.
(h) That if payment for the shares purchased is not received within the
time customary or the time required by law for such payment, the sale may be
canceled forthwith without any responsibility or liability on our part or on the
part of the Funds, or at our option, we may sell the shares which you ordered
back to the Funds, in which latter case we may hold you responsible for any loss
to the Funds or loss of profit suffered by us resulting from your failure to
make payment as aforesaid. We shall have no liability for any check or other
item returned unpaid to you after you have paid us on behalf of a purchaser. We
may refuse to liquidate the investment unless we receive the purchaser's signed
authorization for the liquidation.
(i) That you shall assume responsibility for any loss to the Funds caused
by a correction made subsequent to trade date, provided such correction was not
based on any error, omission or negligence on our part, and that you will
immediately pay such loss to the Funds upon notification.
(j) That if on a redemption which you have ordered, instructions in proper
form, including outstanding certificates, are not received within the time
customary or the time required by law, the redemption may be canceled forthwith
without any responsibility or liability on our part or on the part of any Fund,
or at our option, we may buy the shares redeemed on behalf of the Fund, in which
latter case we may hold you responsible for any loss to the Fund or loss of
profit suffered by us resulting from your failure to settle the redemption.
4. Duties of Dealer: Retirement Accounts. In connection with orders for the
purchase of shares on behalf of an Individual Retirement Account, Self-Employed
Retirement Plan or other retirement accounts, by mail, telephone, or wire, you
shall act as agent for the custodian or trustee of such plans (solely with
respect to the time of receipt of the application and payments), and you shall
not place such an order until you have received from your customer payment for
such purchase and, if such purchase represents the first contribution to such a
plan, the completed documents necessary to establish the plan. You agree to
indemnify us and Franklin Templeton Trust Company and/or Templeton Funds Trust
Company as applicable for any claim, loss, or liability resulting from incorrect
investment instructions received from you which cause a tax liability or other
tax penalty.
5. Conditional Orders; Certificates. We will not accept from you any conditional
orders for shares of any of the Funds. Delivery of certificates for shares
purchased shall be made by the Funds only against constructive receipt of the
purchase price, subject to deduction for your concession and our portion of the
sales charge, if any, on such sale. No certificates will be issued unless
specifically requested.
6. Dealer Compensation.
(a) On each purchase of shares by you from us, the total sales charges and
your dealer concessions shall be as stated in each Fund's then current
prospectus, subject to NASD rules and applicable state and federal laws. Such
sales charges and dealer concessions are subject to reductions under a variety
of circumstances as described in the Funds' prospectuses. For an investor to
obtain these reductions, we must be notified at the time of the sale that the
sale qualifies for the reduced charge. If you fail to notify us of the
applicability of a reduction in the sales charge at the time the trade is
placed, neither we nor any of the Funds will be liable for amounts necessary to
reimburse any investor for the reduction which should have been effected.
(b) In accordance with the Funds' prospectuses, we or our affiliates may,
but are not obligated to, make payments to dealers from our own resources as
compensation for certain sales which are made at net asset value and are not
subject to any contingent deferred sales charges ("Qualifying Sales"). If you
notify us of a Qualifying Sale, we may make a contingent advance payment up to
the maximum amount available for payment on the sale. If any of the shares
purchased in a Qualifying Sale are redeemed within twelve months of the end of
the month of purchase, we shall be entitled to recover any advance payment
attributable to the redeemed shares by reducing any account payable or other
monetary obligation we may owe to you or by making demand upon you for repayment
in cash. We reserve the right to withhold advances to any dealer, if for any
reason we believe that we may not be able to recover unearned advances from such
dealer. In addition, dealers will generally be required to enter into a
supplemental agreement with us with respect to such compensation and the
repayment obligation prior to receiving any payments.
7. Redemptions. Redemptions or repurchases of shares will be made at the net
asset value of such shares, less any applicable deferred sales or redemption
charges, in accordance with the applicable prospectuses. Except as permitted by
applicable law, you agree not to purchase any shares from your customers at a
price lower than the redemption or repurchase prices then computed by the Funds.
You shall, however, be permitted to sell shares for the account of the record
owner to the Funds at the repurchase price then currently in effect for such
shares and may charge the owner a fair commission for handling the transaction.
8. Exchanges. Telephone exchange orders will be effective only for shares in
plan balance (uncertificated shares) or for which share certificates have been
previously deposited and may be subject to any fees or other restrictions set
forth in the applicable prospectuses. You may charge the shareholder a fair
commission for handling an exchange transaction. Exchanges from a Fund sold with
no sales charge to a Fund which carries a sales charge, and exchanges from a
Fund sold with a sales charge to a Fund which carries a higher sales charge may
be subject to a sales charge in accordance with the terms of each Fund's
prospectus. You will be obligated to comply with any additional exchange
policies described in each Fund's prospectus, including without limitation any
policy restricting or prohibiting "Timing Accounts" as therein defined.
9. Transaction Processing. All orders are subject to acceptance by us and by the
Fund or its transfer agent, and become effective only upon confirmation by us.
If required by law, each transaction shall be confirmed in writing on a fully
disclosed basis and if confirmed by us, a copy of each confirmation shall be
sent simultaneously to you if you so request. All sales are made subject to
receipt of shares by us from the Funds. We reserve the right in our discretion,
without notice, to suspend the sale of shares or withdraw the offering of shares
entirely. Telephone orders will be effected at the price(s) next computed on the
day they are received from you if, as set forth in each Fund's current
prospectus, they are received prior to the time the price of its shares is
calculated. Orders received after that time will be effected at the price(s)
computed on the next business day. All orders must be accompanied by payment in
U.S. dollars. Orders payable by check must be drawn payable in U.S. dollars on a
U.S. bank, for the full amount of the investment.
10. Multiple Classes. We may from time to time provide to you written compliance
guidelines or standards relating to the sale or distribution of Funds offering
multiple classes of shares with different sales charges and distribution-related
operating expenses. In addition, you will be bound by any applicable rules or
regulations of government agencies or self-regulatory organizations generally
affecting the sale or distribution of mutual funds offering multiple classes of
shares.
11. Rule 12b-1 Plans. You are also invited to participate in all Plans
adopted by the Funds (the "Plan Funds") pursuant to Rule 12b-1 under the 1940
Act.
To the extent you provide administrative and other services, including, but not
limited to, furnishing personal and other services and assistance to your
customers who own shares of a Plan Fund, answering routine inquiries regarding a
Fund, assisting in changing account designations and addresses, maintaining such
accounts or such other services as a Fund may require, to the extent permitted
by applicable statutes, rules, or regulations, we shall pay you a Rule 12b-1
servicing fee. To the extent that you participate in the distribution of Fund
shares which are eligible for a Rule 12b-1 distribution fee, we shall also pay
you a Rule 12b-1 distribution fee. All Rule 12b-1 servicing and distribution
fees shall be based on the value of shares attributable to customers of your
firm and eligible for such payment, and shall be calculated on the basis and at
the rates set forth in the compensation schedule then in effect. Without prior
approval by a majority of the outstanding shares of a Fund, the aggregate annual
fees paid to you pursuant to each Plan shall not exceed the amounts stated as
the "annual maximums" in each Fund's prospectus, which amount shall be a
specified percent of the value of the Fund's net assets held in your customers'
accounts which are eligible for payment pursuant to this Agreement (determined
in the same manner as each Fund uses to compute its net assets as set forth in
its effective Prospectus).
You shall furnish us and each Fund with such information as shall reasonably be
requested by the Boards of Directors, Trustees or Managing General Partners
(hereinafter referred to as "Directors") of such Funds with respect to the fees
paid to you pursuant to the Schedule. We shall furnish to the Boards of
Directors of the Plan Funds, for their review on a quarterly basis, a written
report of the amounts expended under the Plans and the purposes for which such
expenditures were made.
The Plans and provisions of any agreement relating to such Plans must be
approved annually by a vote of the Plan Funds' Directors, including such persons
who are not interested persons of the Plan Funds and who have no financial
interest in the Plans or any related agreement ("Rule 12b-1 Directors"). The
Plans or the provisions of this Agreement relating to such Plans may be
terminated at any time by the vote of a majority of the Plan Funds' Boards of
Directors, including Rule 12b-1 Directors, or by a vote of a majority of the
outstanding shares of the Plan Funds, on sixty (60) days' written notice,
without payment of any penalty. The Plans or the provisions of this Agreement
may also be terminated by any act that terminates the Underwriting Agreement
between us and the Plan Funds, and/or the management or administration agreement
between Franklin Advisers, Inc. or Templeton Investment Counsel, Inc. or their
affiliates and the Plan Funds. In the event of the termination of the Plans for
any reason, the provisions of this Agreement relating to the Plans will also
terminate.
Continuation of the Plans and provisions of this Agreement relating to such
Plans are conditioned on Rule 12b-1 Directors being ultimately responsible for
selecting and nominating any new Rule 12b-1 Directors. Under Rule 12b-1,
Directors of any of the Plan Funds have a duty to request and evaluate, and
persons who are party to any agreement related to a Plan have a duty to furnish,
such information as may reasonably be necessary to an informed determination of
whether the Plan or any agreement should be implemented or continued. Under Rule
12b-1, Plan Funds are permitted to implement or continue Plans or the provisions
of this Agreement relating to such Plans from year-to-year only if, based on
certain legal considerations, the Boards of Directors are able to conclude that
the Plans will benefit the Plan Funds. Absent such yearly determination the
Plans and the provisions of this Agreement relating to the Plans must be
terminated as set forth above. In addition, any obligation assumed by a Fund
pursuant to this Agreement shall be limited in all cases to the assets of such
Fund and no person shall seek satisfaction thereof from shareholders of a Fund.
You agree to waive payment of any amounts payable to you by us under a Fund's
Plan of Distribution pursuant to Rule 12b-1 until such time as we are in receipt
of such fee from the Fund.
The provisions of the Rule 12b-1 Plans between the Plan Funds and us, insofar as
they relate to Plans, shall control over the provisions of this Agreement in the
event of any inconsistency.
12. Registration of Shares. Upon request, we shall notify you of the states or
other jurisdictions in which each Fund's shares are currently registered or
qualified for sale to the public. We shall have no obligation to register or
qualify, or to maintain registration or qualification of, Fund shares in any
state or other jurisdiction. We shall have no responsibility, under the laws
regulating the sale of securities in any U.S. or foreign jurisdiction, for the
qualification or status of persons selling Fund shares or for the manner of sale
of Fund shares. Except as stated in this paragraph, we shall not, in any event,
be liable or responsible for the issue, form, validity, enforceability and value
of such shares or for any matter in connection therewith, and no obligation not
expressly assumed by us in this Agreement shall be implied. Nothing in this
Agreement, however, shall be deemed to be a condition, stipulation or provision
binding any person acquiring any security to waive compliance with any provision
of the Securities Act of 1933, or of the rules and regulations of the Securities
and Exchange Commission, or to relieve the parties hereto from any liability
arising under the Securities Act of 1933.
13. Additional Registrations. If it is necessary to register or qualify the
shares in any foreign jurisdictions in which you intend to offer the shares of
any Funds, it will be your responsibility to arrange for and to pay the costs of
such registration or qualification; prior to any such registration or
qualification, you will notify us of your intent and of any limitations that
might be imposed on the Funds, and you agree not to proceed with such
registration or qualification without the written consent of the Funds and of
ourselves.
14. Fund Information. No person is authorized to give any information or make
any representations concerning shares of any Fund except those contained in the
Fund's current prospectus or in materials issued by us as information
supplemental to such prospectus. We will supply prospectuses, reasonable
quantities of supplemental sale literature, sales bulletins, and additional
information as issued. You agree not to use other advertising or sales material
relating to the Funds except that which (a) conforms to the requirements of any
applicable laws or regulations of any government or authorized agency in the
U.S. or any other country, having jurisdiction over the offering or sale of
shares of the Funds, and (b) is approved in writing by us in advance of such
use. Such approval may be withdrawn by us in whole or in part upon notice to
you, and you shall, upon receipt of such notice, immediately discontinue the use
of such sales literature, sales material and advertising. You are not authorized
to modify or translate any such materials without our prior written consent.
15. Indemnification. You further agree to indemnify, defend and hold harmless
the Principal Underwriter, the Funds, their officers, directors and employees
from any and all losses, claims, liabilities and expenses arising out of (1) any
alleged violation of any statute or regulation (including without limitation the
securities laws and regulations of the United States or any state or foreign
country) or any alleged tort or breach of contract, in or related to the offer
and sale by you of shares of the Funds pursuant to this Agreement (except to the
extent that our negligence or failure to follow correct instructions received
from you is the cause of such loss, claim, liability or expense), (2) any
redemption or exchange pursuant to telephone instructions received from you or
your agent or employees, or (3) the breach by you of any of the terms and
conditions of this Agreement.
16. Termination; Succession; Amendment. Each party to this Agreement may cancel
its participation in this Agreement by giving written notice to the other
parties. Such notice shall be deemed to have been given and to be effective on
the date on which it was either delivered personally to the other parties or any
officer or member thereof, or was mailed postpaid or delivered to a telegraph
office for transmission to the other parties' Chief Legal Officers at the
addresses shown herein or in the most recent NASD Manual. This Agreement shall
terminate immediately upon the appointment of a Trustee under the Securities
Investor Protection Act or any other act of insolvency by you. The termination
of this Agreement by any of the foregoing means shall have no effect upon
transactions entered into prior to the effective date of termination. A trade
placed by you subsequent to your voluntary termination of this Agreement will
not serve to reinstate the Agreement. Reinstatement, except in the case of a
temporary suspension of a dealer, will only be effective upon written
notification by us. Unless terminated, this Agreement shall be binding upon each
party's successors or assigns. This Agreement may be amended by us at any time
by written notice to you and your placing of an order or acceptance of payments
of any kind after the effective date and receipt of notice of any such Amendment
shall constitute your acceptance of such Amendment.
17. Setoff; Dispute Resolution. Should any of your concession accounts with us
have a debit balance, we may offset and recover the amount owed from any other
account you have with us, without notice or demand to you. In the event of a
dispute concerning any provision of this Agreement, either party may require the
dispute to be submitted to binding arbitration under the commercial arbitration
rules of the NASD or the American Arbitration Association. Judgment upon any
arbitration award may be entered by any state or federal court having
jurisdiction. This Agreement shall be construed in accordance with the laws of
the State of California, not including any provision which would require the
general application of the law of another jurisdiction.
18. Acceptance; Cumulative Effect. This Agreement is cumulative and supersedes
any agreement previously in effect. It shall be binding upon the parties hereto
when signed by us and accepted by you. If you have a current dealer agreement
with us, your first trade or acceptance of payments from us after receipt of
this Agreement, as it may be amended pursuant to paragraph 16, above, shall
constitute your acceptance of its terms. Otherwise, your signature below shall
constitute your acceptance of its terms.
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
By:
Greg Johnson, President
777 Mariners Island Blvd. San Mateo, CA 94404 Attention: Chief Legal Officer
(for legal notices only) 415/312-2000
700 Central Avenue St. Petersburg, Florida 33701-3628 813/823-8712
Dealer: If you have NOT previously signed a Dealer Agreement with us, please
complete and sign this section and return the original to us.
DEALER NAME
By:
(Signature)
Name:
Title:
Address:
Telephone:
NASD CRD #
Franklin Templeton Dealer #
(Internal Use Only)
95.89/104 (05/95)
MUTUAL FUND PURCHASE AND SALES AGREEMENT
FOR ACCOUNTS OF BANK AND TRUST COMPANY CUSTOMERS
Effective: July 1, 1995
1. INTRODUCTION
The parties to this Agreement are a bank or trust company ("Bank") and
Franklin/Templeton Distributors, Inc. ("FTDI"). This Agreement sets forth the
terms and conditions under which FTDI will execute purchases and redemptions of
shares of the Franklin or Templeton mutual funds for which FTDI now or in the
future serves as principal underwriter ("Funds"), at the request of the Bank
upon the order and for the account of Bank's customers ("Customers"). In this
Agreement, "Customer" shall include the beneficial owners of an account and any
agent or attorney-in-fact duly authorized or appointed to act on the owners'
behalf with respect to the account. FTDI will notify Bank from time to time of
the Funds which are eligible for distribution and the terms of compensation
under this Agreement. This Agreement is not exclusive, and either party may
enter into similar agreements with third parties. This Agreement supersedes any
prior agreements between the parties, as stated in paragraph 6(j), below.
2. REPRESENTATIONS AND WARRANTIES OF BANK
Bank warrants and represents to FTDI and the Funds that:
a) Bank is a "bank" as defined in Section 3(a)(6) of the Securities and
Exchange Act of 1934, as amended (the "34 Act"):
"The term 'bank' means (A) a banking institution organized under the laws
of the United States, (B) a member bank of the Federal Reserve System, (C) any
other banking institution, whether incorporated or not, doing business under the
law of any State or of the United States, a substantial portion of the business
of which consists of receiving deposits or exercising a fiduciary power similar
to those permitted to national banks under the authority of the Comptroller of
the Currency pursuant to the first section of Public Law 87-722 (12 U.S.C. 92a),
and which is supervised and examined by State or Federal authority having
supervision over banks, and which is not operated for the purpose of evading the
provisions of this title, and (D) a receiver, conservator, or other liquidating
agent of any institution or firm included in clauses (A), (B) or (C) of this
paragraph."
b) Bank is authorized to enter into this Agreement, and Bank's performance of
its obligations and receipt of consideration under this Agreement will not
violate any law, regulation, charter, agreement, or regulatory restriction to
which Bank is subject.
c) Bank has received all regulatory agency approvals and taken all legal and
other steps necessary for offering the services Bank will provide to Customers
in connection with this Agreement.
3. REPRESENTATIONS AND WARRANTIES OF THE PRINCIPAL UNDERWRITER
FTDI warrants and represents to Bank that:
a) FTDI is a broker/dealer registered under the '34 Act.
b) FTDI is the principal underwriter of the Funds.
4. COVENANTS OF BANK
For each Transaction under this Agreement, Bank will:
a) be authorized to engage in the Transaction;
b) act as agent for the Customer;
c) act solely at the request of and for the account of the Customer;
d) not submit an order unless Bank has already received the order from the
Customer;
e) not submit a purchase order unless Bank has already delivered to the
Customer a copy of the then current prospectus for the Fund(s) whose shares
are to be purchased;
f) not withhold placing any Customer's order for the purpose of profiting
from the delay;
g) have no beneficial ownership of the securities in any purchase Transaction
(the Customer will have the full beneficial ownership), unless Bank is the
Customer (in which case, Bank will not engage in the Transaction unless the
Transaction is legally permissible for Bank); and
h) not accept or withhold any Fee otherwise allowed under Sections 5(d) and (e)
of this Agreement, if prohibited by the Employee Retirement Income Security Act
("ERISA") or trust or similar laws to which Bank is subject, in the case of
purchases or redemptions (hereinafter, "Transactions") of Fund shares involving
retirement plans, trusts, or similar accounts.
i) maintain records of all sales and redemptions of shares made through
Bank and to furnish FTDI with copies of such records on request.
j) distribute prospectuses, statements of additional information and reports to
Bank's customers in compliance with applicable legal requirements, except to the
extent that FTDI expressly undertakes to do so on behalf of Bank.
While this Agreement is in effect, Bank will:
k) not purchase any shares from any person at a price lower than the
redemption price then quoted by the applicable Fund;
l) repay FTDI the full Fee received by Bank under Sections 5(d) and (e) of this
Agreement, for any shares purchased under this Agreement which are repurchased
by the Fund within 7 business days after the purchase; in turn, FTDI shall pay
to the Fund the amount repaid by Bank and will notify Bank of any such
repurchase within a reasonable time;
m) in connection with orders for the purchase of shares on behalf of an
Individual Retirement Account, Self-Employed Retirement Plan or other retirement
accounts, by mail, telephone, or wire, Bank shall act as agent for the custodian
or trustee of such plans (solely with respect to the time of receipt of the
application and payments) and shall not place such an order until Bank has
received from its customer payment for such purchase and, if such purchase
represents the first contribution to such a plan, the completed documents
necessary to establish the plan. Bank agrees to indemnify FTDI and Franklin
Templeton Trust Company and/or Templeton Funds Trust Company as applicable for
any claim, loss, or liability resulting from incorrect investment instructions
received from Bank which cause a tax liability or other tax penalty.
n) be responsible for compliance with all laws and regulations, including
those of the applicable federal and state bank regulatory authorities, with
regard to Bank and Bank's Customers; and
o) immediately notify FTDI in writing at the address given below, should
Bank cease to be a bank as set forth in Section 2(a) of this Agreement.
5. TERMS AND CONDITIONS FOR TRANSACTIONS
a) Price
Transaction orders received from Bank will be accepted only at the public
offering price and in compliance with procedures applicable to each order as set
forth in the then current prospectus and statement of additional information
(hereinafter, collectively, "prospectus") for the applicable Fund. All orders
must be accompanied by payment in U.S. dollars. Orders payable by check must be
drawn payable in U.S. dollars on a U.S. bank, for the full amount of the
investment. All sales are made subject to receipt of shares by FTDI from the
Funds. FTDI reserves the right in its discretion, without notice, to suspend the
sale of shares or withdraw the offering of shares entirely.
b) Orders and Confirmations
All purchase orders are subject to acceptance or rejection by FTDI and by
the Fund or its transfer agent at their sole discretion, and become effective
only upon confirmation by FTDI. Transaction orders shall be made using the
procedures and forms required by FTDI from time to time. Orders received on any
business day after the time for calculating the price of Fund shares as set
forth in each Fund's current prospectus will be effected at the price determined
on the next business day. A written confirming statement will be sent to Bank
and to Customer upon settlement of each Transaction.
c) Multiple Class Guidelines
FTDI may from time to time provide to Bank written compliance guidelines or
standards relating to the sale or distribution of Funds offering multiple
classes of shares with different sales charges and distribution-related
operating expenses. In addition, Bank will be bound by any applicable rules or
regulations of government agencies or self-regulatory organizations generally
affecting the sale or distribution of mutual funds offering multiple classes of
shares.
d) Payments by Bank for Purchases
On the settlement date for each purchase, Bank shall either (i) remit the
full purchase price by wire transfer to an account designated by FTDI, or (ii)
following FTDI's procedures, wire the purchase price less the Fee allowed by
Section 5(e) of this Agreement. Twice monthly, FTDI will pay Bank Fees not
previously paid to or withheld by Bank. Each calendar month, FTDI, as
applicable, will prepare and mail an activity statement summarizing all
Transactions.
e) Fees and Payments
Where permitted by the prospectus for each Fund, a charge, concession, or
fee ("Fee") may be paid to Bank, related to services provided by Bank in
connection with Transactions. The amount of the Fee, if any, is set by the
relevant prospectus. Adjustments in the Fee are available for certain purchases,
and Bank is solely responsible for notifying FTDI when any purchase order is
qualified for such an adjustment. If Bank fails to notify FTDI of the
applicability of a reduction in the sales charge at the time the trade is
placed, neither FTDI nor any of the Funds will be liable for amounts necessary
to reimburse any investor for the reduction which should have been effected.
In accordance with the Funds' prospectuses, FTDI or its affiliates may, but
are not obligated to, make payments from their own resources to banks or dealers
as compensation for certain sales which are made at net asset value and are not
subject to any contingent deferred sales charges ("Qualifying Sales"). If Bank
notifies FTDI of a Qualifying Sale, FTDI may make a contingent advance payment
up to the maximum amount available for payment on the sale. If any of the shares
purchased in a Qualifying Sale are redeemed within twelve months of the end of
the month of purchase, FTDI shall be entitled to recover any advance payment
attributable to the redeemed shares by reducing any account payable or other
monetary obligation FTDI may owe to Bank or by making demand upon Bank for
repayment in cash. FTDI reserves the right to withhold advances to any bank or
dealer, if for any reason it believes that it may not be able to recover
unearned advances from such bank or dealer. In addition, banks and dealers will
generally be required to enter into a supplemental agreement with FTDI with
respect to such compensation and the repayment obligation prior to receiving any
payments.
f) Rule 12b-1 Plans
Bank is also invited to participate in all Plans adopted by the Funds (the
"Plan Funds") pursuant to Rule 12b-1 under the 1940 Act.
To the extent Bank provides administrative and other services, including,
but not limited to, furnishing personal and other services and assistance to
Bank's customers who own shares of a Plan Fund, answering routine inquiries
regarding a Fund, assisting in changing account designations and addresses,
maintaining such accounts or such other services as a Fund may require, to the
extent permitted by applicable statutes, rules, or regulations, FTDI shall pay
Bank Rule 12b-1 fees. All Rule 12b-1 fees shall be based on the value of shares
attributable to customers of Bank and eligible for such payment, and shall be
calculated on the basis and at the rates set forth in the compensation schedule
then in effect. Without prior approval by a majority of the outstanding shares
of a Fund, the aggregate annual fees paid to Bank pursuant to each Plan shall
not exceed the amounts stated as the "annual maximums" in each Fund's
prospectus, which amount shall be a specified percent of the value of the Fund's
net assets held in Bank's customers' accounts which are eligible for payment
pursuant to this Agreement (determined in the same manner as each Fund uses to
compute its net assets as set forth in its effective Prospectus).
Bank shall furnish FTDI and each Fund with such information as shall
reasonably be requested by the Board of Directors, Trustees or Managing General
Partners (hereinafter referred to as "Directors") of such Funds with respect to
the fees paid to Bank pursuant to the Schedule. FTDI shall furnish to the Boards
of Directors of the Plan Funds, for their review on a quarterly basis, a written
report of the amounts expended under the Plans and the purposes for which such
expenditures were made.
The Plans and provisions of any agreement relating to such Plans must be
approved annually by a vote of the Plan Funds' Directors, including such persons
who are not interested persons of the Plan Funds and who have no financial
interest in the Plans or any related agreement ("Rule 12b-1 Directors"). The
Plans or the provisions of this Agreement relating to such Plans may be
terminated at any time by the vote of a majority of the Plan Funds' Boards of
Directors, including Rule 12b-1 Directors, or by a vote of a majority of the
outstanding shares of the Plan Funds, on sixty (60) days' written notice,
without payment of any penalty. The Plans or the provisions of this Agreement
may also be terminated by any act that terminates the Underwriting Agreement
between FTDI and the Plan Funds, and/or the management or administration
agreement between Franklin Advisers, Inc. or Templeton Investment Counsel, Inc.
or their affiliates and the Plan Funds. In the event of the termination of the
Plans for any reason, the provisions of this Agreement relating to the Plans
will also terminate.
Continuation of the Plans and provisions of this Agreement relating to such
Plans are conditioned on Rule 12b-1 Directors being ultimately responsible for
selecting and nominating any new Rule 12b-1 Directors. Under Rule 12b-1,
Directors of any of the Plan Funds have a duty to request and evaluate, and
persons who are party to any agreement related to a Plan have a duty to furnish,
such information as may reasonably be necessary to an informed determination of
whether the Plan or any agreement should be implemented or continued. Under Rule
12b-1, Plan Funds are permitted to implement or continue Plans or the provisions
of this Agreement relating to such Plans from year-to-year only if, based on
certain legal considerations, the Boards of Directors are able to conclude that
the Plans will benefit the Plan Funds. Absent such yearly determination, the
Plans and the provisions of this Agreement relating to the Plans must be
terminated as set forth above. In addition, any obligation assumed by a Fund
pursuant to this Agreement shall be limited in all cases to the assets of such
Fund and no person shall seek satisfaction thereof from shareholders of a Fund.
Bank agrees to waive payment of any amounts payable to Bank by FTDI under a
Fund's Plan of Distribution pursuant to Rule 12b-1 until such time as FTDI is in
receipt of such fee from the Fund.
The provisions of the Rule 12b-1 Plans between the Plan Funds and FTDI,
insofar as they relate to Plans, shall control over the provisions of this
Agreement in the event of any inconsistency.
g) Other Distribution Services
From time to time, FTDI may offer telephone and other augmented services in
connection with Transactions under this Agreement. If Bank uses any such
service, Bank will be subject to the procedures applicable to the service,
whether or not Bank has executed any agreement required for the service.
h) Conditional Orders; Certificates
FTDI will not accept any conditional Transaction orders. Delivery of
certificates or confirmations for shares purchased shall be made by the Fund
conditional upon receipt of the purchase price, subject to deduction of any Fee.
No certificates will be issued unless specifically requested.
i) Cancellation of Orders
If payment for shares purchased is not received within the time customary
or the time required by law for such payment, the sale may be canceled without
notice or demand, and neither FTDI nor the Fund(s) shall have any responsibility
or liability for such a cancellation; alternatively, the unpaid shares may be
sold back to the Fund, and Bank shall be liable for any resulting loss to FTDI
or to the Fund(s). FTDI shall have no liability for any check or other item
returned unpaid to Bank after Bank has paid FTDI on behalf of a purchaser. FTDI
may refuse to liquidate the investment unless it receives the purchaser's signed
authorization for the liquidation.
j) Order Corrections
Bank shall assume responsibility for any loss to a Fund(s) caused by a
correction made subsequent to trade date, provided such correction was not based
on any error, omission or negligence on FTDI's part, and Bank will immediately
pay such loss to the Fund(s) upon notification.
k) Redemptions; Cancellation
Redemptions or repurchases of shares will be made at the net asset value of
such shares, less any applicable deferred sales or redemption charges, in
accordance with the applicable prospectuses. As agent, Bank may sell shares for
the account of the record owner to the Funds at the repurchase price then
currently in effect for such shares and may charge the owner a fair fee for
handling the transaction. If on a redemption which Bank has ordered,
instructions in proper form, including outstanding certificates, are not
received within the time customary or the time required by law, the redemption
may be canceled forthwith without any responsibility or liability on the part of
FTDI or any Fund, or at its option FTDI may buy the shares redeemed on behalf of
the Fund, in which latter case it may hold Bank responsible for any loss to the
Fund or loss of profit suffered by FTDI resulting from Bank's failure to settle
the redemption.
l) Exchanges
Telephone exchange orders will be effective only for shares in plan balance
(uncertificated shares) or for which share certificates have been previously
deposited and may be subject to any fees or other restrictions set forth in the
applicable prospectuses. Bank may charge the shareholder a fair fee for handling
an exchange transaction. Exchanges from a Fund sold with no sales charge to a
Fund which carries a sales charge, and exchanges from a Fund sold with a sales
charge to a Fund which carries a higher sales charge may be subject to a sales
charge in accordance with the terms of each Fund's prospectus. Bank will be
obligated to comply with any additional exchange policies described in each
Fund's prospectus, including without limitation any policy restricting or
prohibiting "Timing Accounts" as therein defined.
m) Qualification of Shares; Indemnification
Upon request, FTDI shall notify Bank of the states or other jurisdictions
in which each Fund's shares are currently registered or qualified for sale to
the public. FTDI shall have no obligation to register or qualify, or to maintain
registration or qualification of, Fund shares in any state or other
jurisdiction. FTDI shall have no responsibility, under the laws regulating the
sale of securities in any U.S. or foreign jurisdiction, for the qualification or
status of persons selling Fund shares or for the manner of sale of Fund shares.
Except as stated in this paragraph, FTDI shall not, in any event, be liable or
responsible for the issue, form, validity, enforceability and value of such
shares or for any matter in connection therewith, and no obligation not
expressly assumed by FTDI in this Agreement shall be implied. If it is necessary
to register or qualify shares of any Fund in any foreign jurisdictions in which
Bank intends to offer such shares, it will be Bank's responsibility to arrange
for and to pay the costs of such registration or qualification; prior to any
such registration or qualification Bank will notify FTDI of its intent and of
any limitations that might be imposed on the Funds and Bank agrees not to
proceed with such registration or qualification without the written consent of
the Funds and of FTDI.
Bank further agrees to indemnify, defend and hold harmless the Principal
Underwriter, the Funds, their officers, directors and employees from any and all
losses, claims, liabilities and expenses, arising out of (1) any alleged
violation of any statute or regulation (including without limitation the
securities laws and regulations of the United States or any state or foreign
country) or any alleged tort or breach of contract, in or related to the offer
and sale by Bank of shares of the Funds pursuant to this Agreement (except to
the extent that FTDI's negligence or failure to follow correct instructions
received from Bank is the cause of such loss, claim, liability or expense), (2)
any redemption or exchange pursuant to telephone instructions received from Bank
or its agents or employees, or (3) the breach by Bank of any of the terms and
conditions of this Agreement.
However, nothing in this Agreement shall be deemed to be a condition,
stipulation, or provision binding any person acquiring any security to waive
compliance with any provision of the Securities Act of 1933, or of the rules and
regulations of the Securities and Exchange Commission, or to relieve the parties
hereto from any liability arising under the Securities Act of 1933.
n) Prospectus and Sales Materials; Limit on Advertising
No person is authorized to give any information or make any representations
concerning shares of any Fund except those contained in the Fund's current
prospectus or in materials issued by FTDI as information supplemental to such
prospectus. FTDI will supply prospectuses, reasonable quantities of supplemental
sale literature, sales bulletins, and additional information as issued. Bank
agrees not to use other advertising or sales material relating to the Funds
except that which (a) conforms to the requirements of any applicable laws or
regulations of any government or authorized agency in the U.S. or any other
country, having jurisdiction over the offering or sale of shares of the Funds,
and (b) is approved in writing by FTDI in advance of such use. Such approval may
be withdrawn by FTDI in whole or in part upon notice to Bank, and Bank shall,
upon receipt of such notice, immediately discontinue the use of such sales
literature, sales material and advertising. Bank is not authorized to modify or
translate any such materials without the prior written consent of FTDI.
o) Customer Information
(1) Definition. For purposes of this paragraph 5(h)(iv), 'Customer
Information' means customer names and other identifying information pertaining
to Bank's mutual fund customers which is furnished by Bank to FTDI in the
ordinary course of business under this Agreement. Customer Information shall not
include any information obtained from other sources.
(2) Permitted Uses. FTDI may use Customer Information to fulfill its
obligations under this Agreement, the Distribution Agreements between the Funds
and FTDI, the Funds' prospectuses, or other duties imposed by law. In addition,
FTDI or its affiliates may use Customer Information in communications to
shareholders to market the Funds or other investment products or services,
including without limitation variable annuities, variable life insurance, and
retirement plans and related services. FTDI may also use Customer Information if
it obtains Bank's prior written consent.
(3) Prohibited Uses. Except as stated above, FTDI shall not disclose
Customer Information to third parties, and shall not use Customer Information in
connection with any advertising, marketing or solicitation of any products or
services, provided that Bank offers or soon expect to offer comparable products
or services to mutual fund customers and have so notified FTDI.
(4) Survival; Termination. The agreements described in this paragraph
5(h)(iv) shall survive the termination of this Agreement, but shall terminate as
to any account upon FTDI's receipt of valid notification of either the
termination of that account with Bank or the transfer of that account to another
bank or dealer.
6. GENERAL
a) Successors and Assignments
This Agreement binds Bank and FTDI and their respective heirs, successors
and assigns. Bank may not assign its right and duties under this Agreement
without the advance, written authorization of FTDI.
b) Paragraph Headings
The paragraph headings of this Agreement are for convenience only, and
shall not be deemed to define, limit, or describe the scope or intent of this
Agreement.
c) Severability
Should any provision of this Agreement be determined to be invalid or
unenforceable under any law, rule, or regulation, that determination shall not
affect the validity or enforceability of any other provision of this Agreement.
d) Waivers
There shall be no waiver of any provision of this Agreement except a
written waiver signed by Bank and FTDI. No written waiver shall be deemed a
continuing waiver or a waiver of any other provision, unless the waiver
expresses such intention.
e) Sole Agreement
This Agreement is the entire agreement of Bank and FTDI and supersedes all
oral negotiations and prior writings.
f) Governing Law
This Agreement shall be construed in accordance with the laws of the State
of California, not including any provision which would require the general
application of the law of another jurisdiction, and shall be binding upon the
parties hereto when signed by FTDI and accepted by Bank, either by Bank's
signature in the space provided below or by Bank's first trade entered after
receipt of this Agreement.
g) Arbitration
Should any of Bank's concession accounts with FTDI have a debit balance,
FTDI may offset and recover the amount owed from any other account Bank has with
FTDI, without notice or demand to Bank. Either party may submit any dispute
under this Agreement to binding arbitration under the commercial arbitration
rules of the American Arbitration Association. Judgment upon any arbitration
award may be entered by any state or federal court having jurisdiction.
h) Amendments
FTDI may amend this Agreement at any time by depositing a written notice of
the amendment in the U.S. mail, first class postage pre-paid, addressed to
Bank's address given below. Bank's placement of any Transaction order or
acceptance of any payments after the effective date and receipt of notice of any
such amendment shall constitute Bank's acceptance of the amendment.
i) Term and Termination
This Agreement shall continue in effect until terminated. FTDI or Bank may
terminate this Agreement at any time by written notice to the other, but such
termination shall not affect the payment or repayment of Fees on Transactions
prior to the termination date. Termination also will not affect the indemnities
given under this Agreement.
j) Acceptance; Cumulative Effect
This Agreement is cumulative and supersedes any agreement previously in
effect. It shall be binding upon the parties hereto when signed by FTDI and
accepted by Bank. If Bank has a current agreement with FTDI, Bank's first trade
or acceptance of payments from FTDI after receipt of this Agreement, as it may
be amended pursuant to paragraph 6(h), above, shall constitute Bank's acceptance
of the terms of this Agreement. Otherwise, Bank's signature below shall
constitute Bank's acceptance of these terms.
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
By:
Greg Johnson, President
777 Mariners Island Blvd. San Mateo, CA 94404 Attention: Chief Legal Officer
(for legal notices only)
415/312-2000
700 Central Avenue St. Petersburg, Florida 33701-3628
813/823-8712
To the Bank or Trust Company: If you have not previously signed an agreement
with us for the sale of mutual fund shares to your customers, please complete
and sign this section and return the original to us.
BANK or TRUST COMPANY
(Firm's name)
By:
(Signature)
Name:
Title:Address:
Telephone:
CUSTODY AGREEMENT
THIS CUSTODY AGREEMENT ("Agreement") is made and entered into
as of June 12, 1991, by and between Franklin Balance Sheet Investment Fund, a
Massachusetts business trust (the "Fund"), and Bank of America National Trust
and Savings Association, a banking association organized under the laws of the
United States (the "Custodian").
RECITALS
A. The Fund is an investment company registered under the
Investment Company Act of 1940, as amended (the "Investment Company Act") that
invests and reinvests, in Domestic Securities and Foreign Securities.
B. The Custodian is, and has represented to the Fund that the
Custodian is, a "bank" as that term is defined in Section 2(a)(5) of the
Investment Company Act of 1940, as amended and is eligible to receive and
maintain custody of investment company assets pursuant to Section 17(f) and Rule
17f-2 thereunder.
C. The Fund and the Custodian desire to provide for the
retention of the Custodian as the custodian of the assets of the Fund, and such
subsequent series as the parties hereto may determine from time-to-time, on the
terms and subject to the provisions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein, and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties hereto agree
as follows:
Section 1. DEFINITIONS
For purposes of this Agreement, the following terms shall have
the respective meanings specified below:
"Agreement" shall mean this Custody Agreement.
"Board of Directors" shall mean the Board of Directors of the
Fund.
"Business Day" with respect to any Domestic Security means any
day, other than a Saturday or Sunday, that is not a day on which banking
institutions are authorized or required by law to be closed in The City of New
York and, with respect to Foreign Securities, a London Business Day. "London
Business Day" shall mean any day on which dealings and deposits in U.S. dollars
are transacted in the London interbank market.
"Custodian" shall mean Bank of America National Trust and Savings
Association.
"Domestic Securities" shall have the meaning provided in
Subsection 2.1 hereof.
"Executive Committee" shall mean the executive committee of the
Board of Directors.
"Foreign Custodian" shall have the meaning provided in Section
4.1 hereof.
"Foreign Securities" shall have the meaning provided in Section
2.1 hereof.
"Foreign Securities Depository" shall have the meaning provided
in Section 4.1 hereof.
"Fund" shall mean the Franklin Balance Sheet Investment Fund and
any separate series of the Fund hereinafter organized.
"Guidelines" shall have the meaning provided in Subsection 3.5(a)
hereof.
"Investment Company Act" shall mean the Investment Company Act of
1940, as amended.
"Securities" shall have the meaning provided in Section 2.1
hereof.
"Securities System" shall have the meaning provided in Section
3.1 hereof.
"Securities System Account" shall have the meaning provided in
Subsection 3.8(a) hereof.
"Shares" shall mean shares of beneficial interest of the Fund.
"Subcustodian" shall have the meaning provided in Subsection 3.7
hereof, but shall not include any Foreign Custodian.
"Transfer Agent" shall mean the duly appointed and acting
transfer agent for the Fund.
"U.S." shall mean United States.
"Writing" shall mean a communication in writing, a communication
by telex, the Custodian's Global Custody Instruction SystemTM, facsimile
transmission, bankwire or other teleprocess or electronic instruction system
acceptable to the Custodian.
Section 2. APPOINTMENT OF CUSTODIAN; DELIVERY OF ASSETS
2.1 Appointment of Custodian. The Fund hereby appoints and
designates the Custodian as the custodian of the assets of the Fund including
cash, securities the Fund desires to be held within the United States ("Domestic
Securities") and securities it desires to be held outside the United States
("Foreign Securities"). Domestic Securities and Foreign Securities are sometimes
referred to herein, collectively, as "Securities." The Custodian hereby accepts
such appointment and designation and agrees that it shall maintain custody of
the assets of the Fund delivered to it hereunder in the manner provided for
herein.
2.2 Delivery of Assets. The Fund agrees to deliver to the
Custodian Securities and cash owned by the Fund, payments of income, principal
or capital distributions received by the Fund with respect to Securities owned
by the Fund from time to time, and the consideration received by it for such
Shares or other securities of the Fund as may be issued and sold from time to
time. The Custodian shall have no responsibility whatsoever for any property or
assets of the Fund held or received by the Fund and not delivered to the
Custodian pursuant to and in accordance with the terms hereof. All Securities
accepted by the Custodian on behalf of the Fund under the terms of this
Agreement shall be in "street name" or other good delivery form as determined by
the Custodian.
2.3 Subcustodians. Upon receipt of Proper Instructions and a
certified copy of a resolution of the Board of Directors or of the Executive
Committee certified by the Secretary or an Assistant Secretary of the Fund, the
Custodian may from time to time appoint one or more Subcustodians or Foreign
Custodians to hold assets of the Fund in accordance with the provisions of this
Agreement.
2.4 No Duty to Manage. The Custodian, a Subcustodian or a
Foreign Custodian shall not have any duty or responsibility to manage or
recommend investments of the assets of the Fund held by them or to initiate any
purchase, sale or other investment transaction in the absence of Proper
Instructions or except as otherwise specifically provided herein.
Section 3. DUTIES OF THE CUSTODIAN WITH RESPECT TO ASSETS OF THE
FUND HELD BY THE CUSTODIAN
3.1 Holding Securities. The Custodian shall hold and
physically segregate from any property owned by the Custodian, for the account
of the Fund, all non-cash property delivered by the Fund to the Custodian
hereunder other than Securities which, pursuant to Subsection 3.8 hereof, are
held through a registered clearing agency, a registered securities depository,
the Federal Reserve's book-entry securities system (referred to herein,
individually, as a "Securities System"), or held by a Subcustodian, Foreign
Custodian or in a Foreign Securities Depository.
3.2 Delivery of Securities. Except as otherwise provided in
Subsection 3.5 hereof, the Custodian, upon receipt of Proper Instructions, shall
release and deliver Securities owned by the Fund and held by the Custodian in
the following cases or as otherwise directed in Proper Instructions:
(a) except as otherwise provided herein,
upon sale of such Securities for the account of the Fund and
receipt by the Custodian, a Subcustodian or a Foreign
Custodian of payment therefor;
(b) upon the receipt of payment by the
Custodian, a Subcustodian or a Foreign Custodian in connection
with any repurchase agreement related to such Securities
entered into by the Fund;
(c) in the case of a sale effected through
a Securities System, in accordance with the provisions
of Subsection 3.8 hereof;
(d) to a tender agent or other authorized
agent in connection with (i) a tender or other similar offer
for Securities owned by the Fund, or (ii) a tender offer or
repurchase by the Fund of its own Shares;
(e) to the issuer thereof or its agent when
such Securities are called, redeemed, retired or otherwise
become payable; provided, that in any such case, the cash or
other consideration is to be delivered to the Custodian, a
Subcustodian or a Foreign Custodian;
(f) to the issuer thereof, or its agent, for
transfer into the name or nominee name of the Fund, the name
or nominee name of the Custodian, the name or nominee name of
any Subcustodian or Foreign Custodian; or for exchange for a
different number of bonds, certificates or other evidence
representing the same aggregate face amount or number of
units; provided that, in any such case, the new Securities are
to be delivered to the Custodian, a Subcustodian or Foreign
Custodian;
(g) to the broker selling the same for
examination in accordance with the "street delivery" custom;
(h) for exchange or conversion pursuant to
any plan of merger, consolidation, recapitalization, or
reorganization of the issuer of such Securities, or pursuant
to a conversion of such Securities; provided that, in any such
case, the new Securities and cash, if any, are to be delivered
to the Custodian or a Subcustodian;
(i) in the case of warrants, rights or
similar securities, the surrender thereof in connection with
the exercise of such warrants, rights or similar Securities or
the surrender of interim receipts or temporary Securities for
definitive Securities; provided that, in any such case, the
new Securities and cash, if any, are to be delivered to the
Custodian, a subcustodian or a Foreign Custodian;
(j) for delivery in connection with any
loans of Securities made by the Fund, but only against receipt
by the Custodian, a Subcustodian or a Foreign Custodian of
adequate collateral as determined by the Fund (and identified
in Proper Instructions communicated to the Custodian), which
may be in the form of cash or obligations issued by the United
States government, its agencies or instrumentalities, except
that in connection with any loans for which collateral is to
be credited to the account of the Custodian, a Subcustodian or
a Foreign Custodian in the Federal Reserve's book-entry
securities system, the Custodian will not be held liable or
responsible for the delivery of Securities owned by the Fund
prior to the receipt of such collateral;
(k) for delivery as security in connection
with any borrowings by the Fund requiring a pledge of assets
by the Fund, but only against receipt by the Custodian, a
Subcustodian or a Foreign Custodian of amounts borrowed;
(l) for delivery in accordance with the
provisions of any agreement among the Fund, the Custodian, a
Subcustodian or a Foreign Custodian and a broker-dealer
relating to compliance with the rules of registered clearing
corporations and of any registered national securities
exchange, or of any similar organization or organizations,
regarding escrow or other arrangements in connection with
transactions by the Fund;
(m) for delivery in accordance with the
provisions of any agreement among the Fund, the Custodian, a
Subcustodian or a Foreign Custodian and a futures commission
merchant, relating to compliance with the rules of the
Commodity Futures Trading Commission and/or any contract
market, or any similar organization or organizations,
regarding account deposits in connection with transactions by
the Fund;
(n) upon the receipt of instructions from
the Transfer Agent for delivery to the Transfer Agent or to
the holders of Shares in connection with distributions in kind
in satisfaction of requests by holders of Shares for
repurchase or redemption; and
(o) for any other proper purpose, but only
upon receipt of Proper Instructions, and a certified copy of a
resolution of the Directors or of the Executive Committee
certified by the Secretary or an Assistant Secretary of the
Fund, specifying the securities to be delivered, setting forth
the purpose for which such delivery is to be made, declaring
such purpose to be a proper purpose, and naming the person or
persons to whom delivery of such securities shall be made.
3.3 Registration of Securities. Securities held by the Custodian, a
Subcustodian or a Foreign Custodian (other than bearer Securities) shall be
registered in the name or nominee name of the Fund, in the name or nominee name
of the Custodian or in the name or nominee name of any Subcustodian or Foreign
Custodian. The Fund agrees to hold the Custodian, any such nominee, Subcustodian
or Foreign Custodian harmless from any liability as a holder of record of such
Securities.
3.4 Bank Accounts. The Custodian shall open and maintain a
separate bank account or accounts for the Fund, subject only to draft or order
by the Custodian acting pursuant to the terms of this Agreement, and shall hold
in such account or accounts, subject to the provisions hereof, all cash received
by it hereunder from or for the account of the Fund, other than cash maintained
by the Fund in a bank account established and used in accordance with Rule 17f-3
under the Investment Company Act. Funds held by the Custodian for the Fund may
be deposited by it to its credit as Custodian in the banking departments of the
Custodian, a Subcustodian or a Foreign Custodian. It is understood and agreed by
the Custodian and the Fund that the rate of interest, if any, payable on such
funds (including foreign currency deposits) that are deposited with the
Custodian may not be a market rate of interest and that the rate of interest
payable by the Custodian to the Fund shall be agreed upon by the Custodian and
the Fund from time to time. Such funds shall be deposited by the Custodian in
its capacity as Custodian and shall be withdrawable by the Custodian only in
that capacity.
3.5 Collection of Income; Trade Settlement; Crediting of
Accounts. The Custodian shall collect income payable with respect to Securities
owned by the Fund, settle Securities trades for the account of the Fund and
credit and debit the Fund's account with the Custodian in connection therewith
as follows:
(a) Upon receipt of Proper Instructions, the
Custodian shall effect the purchase of a Security by charging
the account of the Fund on the contractual settlement date;
provided, however, that in the case of Foreign Securities,
Proper Instructions are provided to the Custodian by the Fund
prior to the contractual settlement date in accordance with,
and within the time period specified in the "Global Custody
Guidelines for the Franklin Balance Sheet Investment Fund"
(the "Guidelines") as adopted for the use of this Fund, as may
be amended by the Custodian from time to time in its sole
discretion. The Custodian shall have no liability of any kind
to any person, including the Fund, if the Custodian effects
payment on behalf of the Fund as provided for herein or in
Proper Instructions, and the seller or selling broker fails to
deliver the Securities purchased.
(b) Upon receipt of Proper Instructions, the
Custodian shall effect the sale of a Security by delivering a
certificate or other indicia of ownership, and shall credit
the account of the Fund with the proceeds of such sale on the
contractual settlement date; provided, however, that in the
case of Foreign Securities, Proper Instructions are provided
to the Custodian by the Fund prior to the contractual
settlement date in accordance with, and within the time period
specified in, the Guidelines. The Custodian shall have no
liability of any kind to any person, including the Fund, if
the Custodian delivers such a certificate(s) or other indicia
of ownership as provided for herein or in Proper Instructions,
and the purchaser or purchasing broker fails to effect payment
to the Fund within a reasonable time period, as determined by
the Custodian in its sole discretion. In such event, the
Custodian shall be entitled to reimbursement of the amount so
credited to the account of the Fund in connection with such
sale.
(c) The Fund is responsible for ensuring
that the Custodian receives timely and accurate Proper
Instructions to enable the Custodian to effect settlement of
any purchase or sale. If the Custodian does not receive such
instructions within the required time period, the Custodian
shall have no liability of any kind to any person, including
the Fund, for failing to effect settlement on the contractual
settlement date. However, the Custodian shall use its best
reasonable efforts to effect settlement as soon as possible
after receipt of Proper Instructions.
(d) The Custodian shall credit the account
of the Fund with interest income payable on interest bearing
Securities on payable date. Interest income on cash balances
will be credited monthly to the account of the Fund on the
first Business Day (on which the Custodian is open for
business) following the end of each month. Dividends and other
amounts payable with respect to Domestic Securities and
Foreign Securities shall be credited to the account of the
Fund when received by the Custodian. The Custodian shall not
be required to commence suit or collection proceedings or
resort to any extraordinary means to collect such income and
other amounts payable with respect to Securities owned by the
Fund. The collection of income due the Fund on Domestic
Securities loaned pursuant to the provisions of Subsection
3.2(j) shall be the responsibility of the Fund. The Custodian
will have no duty or responsibility in connection therewith,
other than to provide the Fund with such information or data
as may be necessary to assist the Fund in arranging for the
timely delivery to the Custodian of the income to which the
Fund is entitled. The Custodian shall have no liability to any
person, including the Fund, if the Custodian credits the
account of the Fund with such income or other amounts payable
with respect to Securities owned by the Fund (other than
Securities loaned by the Fund pursuant to Subsection 3.2(j)
hereof) and the Custodian subsequently is unable to collect
such income or other amounts from the payors thereof within a
reasonable time period, as determined by the Custodian in its
sole discretion. In such event, the Custodian shall be
entitled to reimbursement of the amount so credited to the
account of the Fund.
3.6 Payment of Fund Monies. Upon receipt of Proper Instructions
the Custodian shall pay out monies of the Fund in the following cases or as
otherwise directed in Proper Instructions:
(a) upon the purchase of Securities, futures
contracts or options on futures contracts for the account of
the Fund but only, except as otherwise provided herein, (i)
against the delivery of such securities, or evidence of title
to futures contracts or options on futures contracts, to the
Custodian or a Subcustodian registered pursuant to Subsection
3.3 hereof or in proper form for transfer; (ii) in the case of
a purchase effected through a Securities System, in accordance
with the conditions set forth in Subsection 3.8 hereof; or
(iii) in the case of repurchase agreements entered into
between the Fund and the Custodian, another bank or a
broker-dealer (A) against delivery of the Securities either in
certificated form to the Custodian or a Subcustodian or
through an entry crediting the Custodian's account at the
appropriate Federal Reserve Bank with such Securities or (B)
against delivery of the confirmation evidencing purchase by
the Fund of Securities owned by the Custodian or such
broker-dealer or other bank along with written evidence of the
agreement by the Custodian or such broker-dealer or other bank
to repurchase such Securities from the Fund;
(b) in connection with conversion, exchange or
surrender of Securities owned by the Fund as set forth in
Subsection 3.2 hereof;
(c) for the redemption or repurchase of Shares
issued by the Fund;
(d) for the payment of any expense or liability
incurred by the Fund, including but not limited to the following
payments for the account of the Fund: custodian fees, interest,
taxes, management, accounting, transfer agent and legal fees and
operating expenses of the Fund whether or not such expenses are
to be in whole or part capitalized or treated as deferred
expenses; and
(e) for the payment of any dividends or
distributions declared by the Board of Directors with respect to
the Shares.
3.7 Appointment of Subcustodians. The Custodian may, upon
receipt of Proper Instructions, appoint another bank or trust company, which is
itself qualified under the Investment Company Act to act as a custodian (a
"Subcustodian"), as the agent of the Custodian to carry out such of the duties
of the Custodian hereunder as the Custodian may from time to time direct;
provided, however, that the appointment of any Subcustodian shall not relieve
the Custodian of its responsibilities or liabilities hereunder.
3.8 Deposit of Securities in Securities Systems. The Custodian
may deposit and/or maintain Domestic Securities owned by the Fund in a
Securities System in accordance with applicable Federal Reserve Board and
Securities and Exchange Commission rules and regulations, if any, and subject to
the following provisions:
(a) the Custodian may hold Domestic
Securities of the Fund in the Depository Trust Company or the
Federal Reserve's book entry system or, upon receipt of Proper
Instructions, in another Securities System provided that such
securities are held in an account of the Custodian in the
Securities System ("Securities System Account") which shall
not include any assets of the Custodian other than assets held
as a fiduciary, custodian or otherwise for customers;
(b) the records of the Custodian with
respect to Domestic Securities of the Fund which are
maintained in a Securities System shall identify by book-entry
those Domestic Securities belonging to the Fund;
(c) the Custodian shall pay for Domestic
Securities purchased for the account of the Fund upon (i)
receipt of advice from the Securities System that such
securities have been transferred to the Securities System
Account, and (ii) the making of an entry on the records of the
Custodian to reflect such payment and transfer for the account
of the Fund. The Custodian shall transfer Domestic Securities
sold for the account of the Fund upon (A) receipt of advice
from the Securities System that payment for such securities
has been transferred to the Securities System Account, and (B)
the making of an entry on the records of the Custodian to
reflect such transfer and payment for the account of the Fund.
Copies of all advices from the Securities System of transfers
of Domestic Securities for the account of the Fund shall be
maintained for the Fund by the Custodian and be provided to
the Fund at its request. Upon request, the Custodian shall
furnish the Fund confirmation of each transfer to or from the
account of the Fund in the form of a written advice or notice;
and
(d) upon request, the Custodian shall
provide the Fund with any report obtained by the Custodian on
the Securities System's accounting system, internal accounting
control and procedures for safeguarding domestic securities
deposited in the Securities System.
3.9 Segregated Account. The Custodian shall upon receipt of
Proper Instructions establish and maintain a segregated account or accounts for
and on behalf of the Fund, into which account or accounts may be transferred
cash and/or Securities, including Securities maintained in an account by the
Custodian pursuant to Section 3.8 hereof, (i) in accordance with the provisions
of any agreement among the Fund, the Custodian and a broker-dealer or futures
commission merchant, relating to compliance with the rules of registered
clearing corporations and of any national securities exchange (or the Commodity
Futures Trading Commission or any registered contract market), or of any similar
organization or organizations, regarding escrow or other arrangements in
connection with transactions by the Fund, (ii) for purposes of segregating cash
or securities in connection with options purchased, sold or written by the Fund
or commodity futures contracts or options thereon purchased or sold by the Fund
and (iii) for other proper corporate purposes, but only, in the case of this
clause (iii), upon receipt of, in addition to Proper Instructions, a certified
copy of a resolution of the Board of Directors or of the Executive Committee
certified by the Secretary or an Assistant Secretary, setting forth the purpose
or purposes of such segregated account and declaring such purposes to be proper
corporate purposes.
3.10 Ownership Certificates for Tax Purposes. The Custodian
shall execute ownership and other certificates and affidavits for all federal
and state tax purposes in connection with receipt of income or other payments
with respect to domestic securities of the Fund held by it and in connection
with transfers of such securities.
3.11 Proxies. The Custodian shall, with respect to the
Securities held hereunder, promptly deliver to the Fund all proxies, all proxy
soliciting materials and all notices relating to such Securities. If the
Securities are registered otherwise than in the name of the Fund or a nominee of
the Fund, the Custodian shall use its best reasonable efforts, consistent with
applicable law, to cause all proxies to be promptly executed by the registered
holder of such Securities in accordance with Proper Instructions.
3.12 Communications Relating to Fund Portfolio Securities. The
Custodian shall transmit promptly to the Fund all written information
(including, without limitation, pendency of calls and maturities of Securities
and expirations of rights in connection therewith and notices of exercise of put
and call options written by the Fund and the maturity of futures contracts
purchased or sold by the Fund) received by the Custodian from issuers of
Securities being held for the Fund. With respect to tender or exchange offers,
the Custodian shall transmit promptly to the Fund all written information
received by the Custodian from issuers of the Securities whose tender or
exchange is sought and from the party (or its agents) making the tender or
exchange offer. If the Fund desires to take action with respect to any tender
offer, exchange offer or any other similar transaction, the Fund shall notify
the Custodian at least three Business Days prior to the date of which the
Custodian is to take such action.
3.13 Reports by Custodian. The Custodian shall supply to the
Fund the daily, weekly and monthly reports described in the Guidelines as well
as any other reports which the Custodian and the Fund may agree upon from time
to time.
Section 4.CERTAIN DUTIES OF THE CUSTODIAN WITH RESPECT TO ASSETS
OF THE FUND HELD OUTSIDE THE UNITED STATES
4.1 Custody outside the United States. The Fund authorizes the
Custodian to hold Foreign Securities and cash in custody accounts which have
been established by the Custodian with (i) its foreign branches, (ii) foreign
banking institutions, foreign branches of United States banks and subsidiaries
of United States banks or bank holding companies (each a "Foreign Custodian")
and (iii) Foreign Securities depositories or clearing agencies (each a "Foreign
Securities Depository"); provided, however, that the Board of Directors or the
Executive Committee has approved in advance the use of each such Foreign
Custodian and Foreign Securities Depository and the contract between the
Custodian and each Foreign Custodian and that such approval is set forth in
Proper Instructions and a certified copy of a resolution of the Board of
Directors or of the Executive Committee certified by the Secretary or an
Assistant Secretary of the Fund. Unless expressly provided to the contrary in
this Section 4, custody of Foreign Securities and assets held outside the United
States by the Custodian, a Foreign Custodian or through a Foreign Securities
Depository shall be governed by Section 3 hereof.
4.2 Assets to be Held. The Custodian shall limit the
securities and other assets maintained in the custody of its foreign branches,
Foreign Custodians and Foreign Securities Depositories to: (i) "foreign
securities", as defined in paragraph (c) (1) of Rule 17f-5 under the Investment
Company Act, and (ii) cash and cash equivalents in such amounts as the Custodian
or the Fund may determine to be reasonably necessary to effect the Fund's
Foreign Securities transactions.
4.3 Foreign Securities Depositories. Except as may otherwise
be agreed upon in writing by the Custodian and the Fund, assets of the Fund
shall be maintained in Foreign Securities Depositories only through arrangements
implemented by the Custodian or Foreign Custodians pursuant to the terms hereof.
4.4 Segregation of Securities. The Custodian shall identify on
its books and records as belonging to the Fund, the Foreign Securities of the
Fund held by each Foreign Custodian.
4.5 Agreements with Foreign Custodians. Each agreement with a
Foreign Custodian shall provide generally that: (a) the Fund's assets will not
be subject to any right, charge, security interest, lien or claim of any kind in
favor of the Foreign Custodian or its creditors, except a claim of payment for
their safe custody or administration; (b) beneficial ownership for the Fund's
assets will be freely transferable without the payment of money or value other
than for custody or administration; (c) adequate records will be maintained
identifying the assets as belonging to the Fund; (d) the independent public
accountants for the Fund, will be given access to the records of the Foreign
Custodian relating to the assets of the Fund or confirmation of the contents of
those records; (e) the disposition of assets of the Fund held by the Foreign
Custodian will be subject only to the instructions of the Custodian or its
agents; (f) the Foreign Custodian shall indemnify and hold harmless the
Custodian and the Fund from and against any loss, damage, cost, expense,
liability or claim arising out of or in connection with the Foreign Custodian's
performance of its obligations under such agreement; (g) to the extent
practicable, the Fund's assets will be adequately insured in the event of loss;
and (h) the Custodian will receive periodic reports with respect to the
safekeeping of the Fund's assets, including notification of any transfer to or
from the Fund's account.
4.6 Access of Independent Accountants of the Fund. Upon
request of the Fund, the Custodian will use its best reasonable efforts to
arrange for the independent accountants of the Fund to be afforded access to the
books and records of any Foreign Custodian insofar as such books and records
relate to the custody by any such Foreign Custodian of assets of the Fund.
4.7 Transactions in Foreign Custody Accounts. Upon receipt of
Proper Instructions, the Custodian shall instruct the appropriate Foreign
Custodian to transfer, exchange or deliver Foreign Securities owned by the Fund,
but, except to the extent explicitly provided herein, only in any of the cases
specified in Subsection 3.2. Upon receipt of Proper Instructions, the Custodian
shall pay out or instruct the appropriate Foreign Custodian to pay out monies of
the Fund in any of the cases specified in Subsection 3.6. Notwithstanding
anything herein to the contrary, settlement and payment for Foreign Securities
received for the account of the Fund and delivery of Foreign Securities
maintained for the account of the Fund may be effected in accordance with the
customary or established securities trading or securities processing practices
and procedures in the jurisdiction or market in which the transaction occurs,
including, without limitation, delivering securities to the purchaser thereof or
to a dealer therefor (or an agent for such purchaser or dealer) against a
receipt with the expectation of receiving later payment for such securities from
such purchaser or dealer. Foreign Securities maintained in the custody of a
Foreign Custodian may be maintained in the name of such entity or its nominee
name to the same extent as set forth in Section 3.3 of this Agreement and the
Fund agrees to hold any Foreign Custodian and its nominee harmless from any
liability as a holder of record of such securities.
4.8 Liability of Foreign Custodian. Each agreement between the
Custodian and a Foreign Custodian shall require the Foreign Custodian to
exercise reasonable care in the performance of its duties and to indemnify and
hold harmless the Custodian and the Fund from and against any loss, damage,
cost, expense, liability or claim arising out of or in connection with the
Foreign Custodian's performance of such obligations. At the election of the
Fund, it shall be entitled to be subrogated to the rights of the Custodian with
respect to any claims against a Foreign Custodian as a consequence of any such
loss, damage, cost, expense, liability or claim if and to the extent that the
Fund has not been made whole for any such loss, damage, cost, expense, liability
or claim.
4.9 Monitoring Responsibilities.
(a) The Custodian will promptly inform the
Fund in the event that the Custodian learns of a material
adverse change in the financial condition of a Foreign
Custodian or is notified by (i) a foreign banking institution
employed as a Foreign Custodian that there appears to be a
substantial likelihood that its shareholders' equity will
decline below $200 million or that its shareholders' equity
has declined below $200 million (in each case computed in
accordance with generally accepted United States accounting
principles) and denominated in U.S. dollars, or (ii) a
subsidiary of a United States bank or bank holding company
acting as a Foreign Custodian that there appears to be a
substantial likelihood that its shareholders' equity will
decline below $100 million or that its shareholders' equity
has declined below $100 million (in each case computed in
accordance with generally accepted United States accounting
principles) and denominated in U.S. dollars.
(b) The custodian will furnish such
information as may be reasonably necessary to assist the
Fund's Board of Directors in its annual review and approval of
the continuance of all contracts or arrangements with Foreign
Subcustodians.
Section 5.PROPER INSTRUCTIONS
As used in this Agreement, the term "Proper Instructions"
means instructions of the Fund received by the Custodian via telephone or in
Writing which the Custodian believes in good faith to have been given by
Authorized Persons (as defined below) or which are transmitted with proper
testing or authentication pursuant to terms and conditions which the Custodian
may specify. Any Proper Instructions delivered to the Custodian by telephone
shall promptly thereafter be confirmed in Writing by an Authorized Person, but
the Fund will hold the Custodian harmless for its failure to send such
confirmation in writing, the failure of such confirmation to conform to the
telephone instructions received or the Custodian's failure to produce such
confirmation at any subsequent time. Unless otherwise expressly provided, all
Proper Instructions shall continue in full force and effect until cancelled or
superseded. If the Custodian requires test arrangements, authentication methods
or other security devices to be used with respect to Proper Instructions, any
Proper Instructions given by the Fund thereafter shall be given and processed in
accordance with such terms and conditions for the use of such arrangements,
methods or devices as the Custodian may put into effect and modify from time to
time. The Fund shall safeguard any testkeys, identification codes or other
security devices which the Custodian shall make available to it. The Custodian
may electronically record any Proper Instructions given by telephone, and any
other telephone discussions, with respect to its activities hereunder. As used
in this Agreement, the term "Authorized Persons" means such officers or such
agents of the Fund as have been designated by a resolution of the Board of
trustees or of the Executive Committee, a certified copy of which has been
provided to the Custodian, to act on behalf of the Fund under this Agreement.
Each of such persons shall continue to be an Authorized Person until such time
as the Custodian receives Proper Instructions that any such officer or agent is
no longer an Authorized Person.
Section 6. ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY
The Custodian may in its discretion, without express authority
from the Fund:
(a) make payments to itself or others for minor
expenses of handling Securities or other similar items relating
to its duties under this Agreement, provided that all such
payments shall be accounted for to the Fund;
(b) endorse for collection, in the name of the
Fund, checks, drafts and other negotiable instruments; and
(c) in general, attend to all non-discretionary
details in connection with the sale, exchange, substitution,
purchase, transfer and other dealings with the Securities and
property of the Fund except as otherwise provided in Proper
Instructions.
Section 7.EVIDENCE OF AUTHORITY
The Custodian shall be protected in acting upon any
instructions (conveyed by telephone or in Writing), notice, request, consent,
certificate or other instrument or paper believed by it to be genuine and to
have been properly given or executed by or on behalf of the Fund. The Custodian
may receive and accept a certified copy of a resolution of the Board of
Directors or Executive Committee as conclusive evidence (a) of the authority of
any person to act in accordance with such resolution or (b) of any determination
or of any action by the Board of Directors or Executive Committee as described
in such resolution, and such resolution may be considered as in full force and
effect until receipt by the Custodian of written notice by an Authorized Person
to the contrary.
Section 8. DUTY OF CUSTODIAN TO SUPPLY INFORMATION
The Custodian shall cooperate with and supply necessary
information in its possession (to the extent permissible under applicable law)
to the entity or entities appointed by the Board of Directors to keep the books
of account of the Fund and/or compute the net asset value per Share of the
outstanding Shares of the Fund.
Section 9.RECORDS
The Custodian shall create and maintain all records relating
to its activities under this Agreement which are required with respect to such
activities under Section 31 of the Investment Company Act and Rules 31a-1 and
31a-2 thereunder. All such records shall be the property of the Fund and shall
at all times during the regular business hours of the Custodian be open for
inspection by duly authorized officers, employees or agents of the Fund and
employees and agents of the Securities and Exchange Commission. The Custodian
shall, at the Fund's request, supply the Fund with a tabulation of Securities
owned by the Fund and held by the Custodian and shall, when requested to do so
by the Fund and for such compensation as shall be agreed upon between the Fund
and the Custodian, include certificate numbers in such tabulations.
Section 10.COMPENSATION OF CUSTODIAN
The Custodian shall be entitled to reasonable compensation for
its services and expenses as Custodian, as agreed upon from time to time between
the Fund and the Custodian.
Section 11. RESPONSIBILITY OF CUSTODIAN
The Custodian shall be responsible for the performance of only
such duties as are set forth herein or contained in Proper Instructions and
shall use reasonable care in carrying out such duties. The Custodian shall be
liable to the Fund for any loss which shall occur as the result of the failure
of a Foreign Custodian or a Foreign Securities Depository engaged by such
Foreign Custodian or the Custodian to exercise reasonable care with respect to
the safekeeping of securities and other assets of the Fund to the same extent
that the Custodian would be liable to the Fund if the Custodian itself were
holding such securities and other assets. In the event of any loss to the Fund
by reason of the failure of the Custodian, a Foreign Custodian or a Foreign
Securities Depository engaged by such Foreign Custodian or the Custodian to
utilize reasonable care, the Custodian shall be liable to the Fund to the extent
of the Fund's damages, to be determined based on the market value of the
property which is the subject of the loss at the date of discovery of such loss
and without reference to any special conditions or circumstances. The Custodian
shall be held to the exercise of reasonable care in carrying out this Agreement.
The Fund agrees to indemnify and hold harmless the Custodian and its nominees
from all taxes, charges, expenses, assessments, claims and liabilities
(including legal fees and expenses) incurred by any of them in connection with
the performance of this Agreement, except such as may arise from any negligent
action, negligent failure to act or willful misconduct on the part of the
indemnified entity or any Foreign Custodian or Foreign Securities Depository.
The Custodian shall be entitled to rely, and may act, on advice of counsel (who
may be counsel for the Fund) on all matters and shall be without liability for
any action reasonably taken or omitted pursuant to such advice. The Custodian
need not maintain any insurance for the benefit of the Fund.
All collections of funds or other property paid or distributed
in respect of Securities held by the Custodian, agent, Subcustodian or Foreign
Custodian hereunder shall be made at the risk of the Fund. The Custodian shall
have no liability for any loss occasioned by delay in the actual receipt of
notice by the Custodian, agent, Subcustodian or by a Foreign Custodian of any
payment, redemption or other transaction regarding securities in respect of
which the Custodian has agreed to take action as provided in Section 3 hereof.
The Custodian shall not be liable for any action taken in good faith upon Proper
Instructions or upon any certified copy of any resolution of the Board of
Directors and may rely on the genuineness of any such documents which it may in
good faith believe to be validly executed. The Custodian shall not be liable for
any loss resulting from, or caused by, the direction of the Fund to maintain
custody of any Securities or cash in a foreign country including, but not
limited to, losses resulting from nationalization, expropriation, currency
restrictions, civil disturbance, acts of war or terrorism, insurrection,
revolution, nuclear fusion, fission or radiation or other similar occurrences or
events beyond the control of the Custodian. Finally, the Custodian shall not be
liable for any taxes, including interest and penalties with respect thereto,
that may be levied or assessed upon or in respect of any assets of the Fund held
by the Custodian.
Section 12.LIMITED LIABILITY OF THE FUND
The Custodian acknowledges that it has received notice of and
accepts the limitations of the Fund's liability as set forth in its Agreement
and Declaration of Fund. The Custodian agrees that the Fund's obligation
hereunder shall be limited to the assets of the Fund, and that the Custodian
shall not seek satisfaction of any such obligation from the shareholders of the
Fund nor from any Director, officer, employee, or agent of the Fund.
Section 13.EFFECTIVE PERIOD; TERMINATION
This Agreement shall become effective as of the date of its
execution and shall continue in full force and effect until terminated as
hereinafter provided. This Agreement may be terminated by the Fund or the
Custodian by 60 days notice in Writing to the other provided that any
termination by the Fund shall be authorized by a resolution of the Board of
Directors, a certified copy of which shall accompany such notice of termination,
and provided further, that such resolution shall specify the names of the
persons to whom the Custodian shall deliver the assets of the Fund held by it.
If notice of termination is given by the Custodian, the Fund shall, within 60
days following the giving of such notice, deliver to the Custodian a certified
copy of a resolution of the Board of Directors specifying the names of the
persons to whom the Custodian shall deliver assets of the Fund held by it. In
either case the Custodian will deliver such assets to the persons so specified,
after deducting therefrom any amounts which the Custodian determines to be owed
to it hereunder (including all costs and expenses of delivery or transfer of
Fund assets to the persons so specified). If within 60 days following the giving
of a notice of termination by the Custodian, the Custodian does not receive from
the Fund a certified copy of a resolution of the Board of Directors specifying
the names of the persons to whom the Custodian shall deliver the assets of the
Fund held by it, the Custodian, at its election, may deliver such assets to a
bank or trust company doing business in the State of California to be held and
disposed of pursuant to the provisions of this Agreement or may continue to hold
such assets until a certified copy of one or more resolutions as aforesaid is
delivered to the Custodian. The obligations of the parties hereto regarding the
use of reasonable care, indemnities and payment of fees and expenses shall
survive the termination of this Agreement.
Section 14.MISCELLANEOUS
14.1 Relationship. Nothing contained in this Agreement shall
(i) create any fiduciary, joint venture or partnership relationship between the
Custodian and the Fund or (ii) be construed as or constitute a prohibition
against the provision by the Custodian or any of its affiliates to the Fund of
investment banking, securities dealing or brokerages services or any other
banking or financial services.
14.2 Further Assurances. Each party hereto shall furnish to
the other party hereto such instruments and other documents as such other party
may reasonably request for the purpose of carrying out or evidencing the
transactions contemplated by this Agreement.
14.3 Attorneys' Fees. If any lawsuit or other action or
proceeding relating to this Agreement is brought by a party hereto against the
other party hereto, the prevailing party shall be entitled to recover reasonable
attorneys' fees, costs and disbursements (including allocated costs and
disbursements of in-house counsel), in addition to any other relief to which the
prevailing party may be entitled.
14.4 Notices. Except as otherwise specified herein, each
notice or other communication hereunder shall be in Writing and shall be
delivered to the intended recipient at the following address (or at such other
address as the intended recipient shall have specified in a written notice given
to the other parties hereto):
if to the Fund :
Franklin Balance Sheet Investment Fund
c/o Franklin Resources, Inc.
777 Mariners Island Blvd.
San Mateo, CA 94404
Attention: Fund Manager
if to the Custodian:
Bank of America NT&SA
International Securities Services
25 Cannon Street
London EC4P HN
England
Attention: Manager
14.5 Headings. The underlined headings contained herein are for
convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the interpretation
hereof.
14.6 Counterparts. This Agreement may be executed in
counterparts, each of which shall constitute an original and both of which, when
taken together, shall constitute one agreement.
14.7 Governing Law. This Agreement shall be construed in
accordance with, and governed in all respects by, the laws of the State of
California (without giving effect to principles of conflict of laws).
14.8 Force Majeure. Subject to the provisions of Section 11
hereof regarding the Custodian's general standard of care, no failure, delay or
default in performance of any obligation hereunder shall constitute an event of
default or a breach of this agreement, or give rise to any liability whatsoever
on the part of one party hereto to the other, to the extent that such failure to
perform, delay or default arises out of a cause beyond the control and without
negligence of the party otherwise chargeable with failure, delay or default;
including, but not limited to: action or inaction of governmental, civil or
military authority; fire; strike; lockout or other labor dispute; flood; war;
riot; theft; earthquake; natural disaster; breakdown of public or common carrier
communications facilities; computer malfunction; or act, negligence or default
of the other party. This paragraph shall in no way limit the right of either
party to this Agreement to make any claim against third parties for any damages
suffered due to such causes.
14.9 Successors and Assigns. This Agreement shall be binding
upon, and shall inure to the benefit of, the parties hereto and their respective
successors and assigns, if any.
14.10 Waiver. No failure on the part of any person to exercise
any power, right, privilege or remedy hereunder, and no delay on the part of any
person in the exercise of any power, right, privilege or remedy hereunder, shall
operate as a waiver thereof; and no single or partial exercise of any such
power, right, privilege or remedy shall preclude any other or further exercise
thereof or of any other power, right, privilege or remedy.
14.11 Amendments. This Agreement may not be amended, modified,
altered or supplemented other than by means of an agreement or instrument
executed on behalf of each of the parties hereto.
14.12 Severability. In the event that any provision of this
Agreement, or the application of any such provision to any person or set of
circumstances, shall be determined to be invalid, unlawful, void or
unenforceable to any extent, the remainder of this Agreement, and the
application of such provision to persons or circumstances other than those as to
which it is determined to be invalid, unlawful, void or unenforceable, shall not
be impaired or otherwise affected and shall continue to be valid and enforceable
to the fullest extent permitted by law.
14.13 Parties in Interest. None of the provisions of this
Agreement is intended to provide any rights or remedies to any person other than
the Fund and the Custodian and their respective successors and assigns, if any.
14.14 Entire Agreement. This Agreement sets forth the entire
understanding of the parties hereto and supersedes all prior agreements and
understandings between the parties hereto relating to the subject matter hereof.
14.15 Variations of Pronouns. Whenever required by the context
hereof, the singular number shall include the plural, and vice versa; the
masculine gender shall include the feminine and neuter genders; and the neuter
gender shall include the masculine and feminine genders.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered as of the date first above written.
"Custodian": BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By /s/ John B. Housen
Its Vice President
"Fund "Franklin Balance Sheet Investment Fund
By /s/ Rupert H. Johnson
Its Vice President
(Franklin logo)
FRANKLIN
RESOURCES, INC.
777 Mariners Island Blvd.
San Mateo, CA 94404
415/312-5818
FAX 415/312-3528
Martin L. Flanagan CPA, CFA
Senior Vice President
Chief Financial Officer
April 12, 1995
Mr. Stephen H. Kilbuck
Vice President Corporate Banking
Bank of America, NT & SA
555 California Street, 41st Floor
San Francisco, CA 94104
Dear Steve:
Various Franklin Funds/Portfolios (the "Funds") and Bank of America,
National Trust and Savings Association ("Bank") are parties to custody
agreements (the "Agreements") as well as separate cash management and deposit
services arrangements.
By this Letter Agreement, each of the Funds and Bank desire to establish
the cash compensation to be paid by each Fund for services rendered to it by
Bank.
Effective April 1, 1995, commencing with the first statement prepared
thereafter each Fund will pay to Bank a monthly fee in cash equal to an annual
rate of 87.5/100 ths. (.875) basis points of the net asset value of each such
Funds domestic portfolios held in custody by Bank and nine and three-tenths
(9.3) basis points of the net asset value of each such Funds international
portfolios held in custody by Bank or held by foreign sub-custodians calculated
as of the last business day of the month. For purposes of calculating the
monthly fee, 000007291 will be used as the monthly factor for the domestic
portfolio and .0000775 will be used as the monthly factor for the international
portfolio. The obligation of each Fund is separate from the obligation of any
other Fund.
The purpose of this Letter of Agreement is to provide for a fair level of
compensation to Bank for its service. The fee is based on the assumption that
each Fund will continue to use services of a type and volume comparable to the
services currently used. The parties agree that any party may initiate
discussions concerning revisions to the terms of this Letter Agreement at any
time it believes the level of compensation to be inappropriate. The parties
further agree that any party may, upon at least sixty (60) days' written notice,
terminate this Letter Agreement with respect to that party. Upon its
termination, if the parties have not agreed to a substitute fee arrangement, any
party may also terminate all or some of the service provided by Bank upon
additional sixty (60) days' written notice.
On an ongoing basis, Bank will continue to prepare the monthly corporate
account analysis statements on behalf of each Fund, which estimates all revenues
and expenses for the parties' relationship. From time to time, Bank and any
Fund(s) may renegotiate the estimated "prices" used in the account analysis
process. The account analysis statement will provide a basis for any
negotiations between the parties on the appropriateness of the fee agreement as
embodied in this Letter Agreement. However, no payment of any kind shall be due
on account of any shortfall on the account analysis statement.
Sincerely,
Authorized Officer for Each Trust/Franklin
Fund Portfolio (List Attached)
By /s/ Martin L. Flanagan
Martin L. Flanagan
Executive Financial Officer
ACCEPTED AND AGREED TO BY:
BANK OF AMERICA, NT & SA
By /s/ Stephen H. Kilbuck
Title: Vice President
FRANKLIN GROUP OF FUNDS
FUND # FUND INIT NAME OF FUND
022 FUT FRANKLIN UNIVERSAL TRUST - (closed-end)
033 FPMT FRANKLIN PRINCIPAL MATURITY TRUST - (closed-end)
024 FMIT FRANKLIN MULTI-INCOME TRUST - (closed-end)
101 FGF FRANKLIN GOLD FUND
102 FPRF FRANKLIN PREMIER RETURN FUND
(Franklin Option Fund until April 30, 1991)
103 FEF FRANKLIN EQUITY FUND
105 AGE AGE HIGH INCOME FUND, INC.
FCF FRANKLIN CUSTODIAN FUNDS, INC.
106 GROWTH SERIES
107 UTILITIES SERIES
108 DYNATECH SERIES
109 INCOME SERIES
110 U.S. GOVERNMENT SECURITIES SERIES
111* FMF FRANKLIN MONEY FUND (MMP feeder as of 8/1/94)
112 FCTFIF FRANKLIN CALIFORNIA TAX-FREE INCOME FUND, INC.
113* FFMF FRANKLIN FEDERAL MONEY FUND (USGSMMP feeder as of 8/1/94)
114 FTEMF FRANKLIN TAX-EXEMPT MONEY FUND
115 FNYTFIF FRANKLIN NEW YORK TAX-FREE INCOME FUND, INC.
116 FFTFIF FRANKLIN FEDERAL TAX-FREE INCOME FUND
FTFT FRANKLIN TAX-FREE TRUST
118 FRANKLIN MASSACHUSETTS INSURED TAX-FREE INCOME FUND
119 FRANKLIN MICHIGAN INSURED TAX-FREE INCOME FUND
120 FRANKLIN MINNESOTA INSURED TAX-FREE INCOME FUND
121 FRANKLIN INSURED TAX-FREE INCOME FUND
122 FRANKLIN OHIO INSURED TAX-FREE INCOME FUND
123 FRANKLIN PUERTO RICO TAX-FREE INCOME FUND
126 FRANKLIN ARIZONA TAX-FREE INCOME FUND
127 FRANKLIN COLORADO TAX-FREE INCOME FUND
128 FRANKLIN GEORGIA TAX-FREE INCOME FUND
129 FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND
130 FRANKLIN HIGH YIELD TAX-FREE INCOME FUND
160 FRANKLIN MISSOURI TAX-FREE INCOME FUND
161 FRANKLIN OREGON TAX-FREE INCOME FUND
162 FRANKLIN TEXAS TAX-FREE INCOME FUND
163 FRANKLIN VIRGINIA TAX-FREE INCOME FUND
164 FRANKLIN ALABAMA TAX-FREE INCOME FUND
165 FRANKLIN FLORIDA TAX-FREE INCOME FUND
166 FRANKLIN CONNECTICUT TAX-FREE INCOME FUND
167 FRANKLIN INDIANA TAX-FREE INCOME FUND
168 FRANKLIN LOUISIANA TAX-FREE INCOME FUND
169 FRANKLIN MARYLAND TAX-FREE INCOME FUND
170 FRANKLIN NORTH CAROLINA TAX-FREE INCOME FUND
171 FRANKLIN NEW JERSEY TAX-FREE INCOME FUND
172 FRANKLIN KENTUCKY TAX-FREE INCOME FUND
174 FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND
177 FRANKLIN ARIZONA INSURED TAX-FREE INCOME FUND
178 FRANKLIN FLORIDA INSURED TAX-FREE INCOME FUND
FCTFT FRANKLIN CALIFORNIA TAX-FREE TRUST
124 FRANKLIN CALIFORNIA INSURED TAX-FREE INCOME FUND
125 FRANKLIN CALIFORNIA TAX-EXEMPT MONEY FUND
152 FRANKLIN CALIFORNIA INTERMEDIATE-TERM TAX-FREE INCOME
FUND
FNYTFT FRANKLIN NEW YORK TAX-FREE TRUST
(Franklin New York-Tax Exempt Money Fund until 1/91)
131 FRANKLIN NEW YORK TAX-EXEMPT MONEY FUND
153 FRANKLIN NEW YORK INTERMEDIATE-TERM TAX-FREE INCOME FUND
181 FRANKLIN NEW YORK INSURED TAX-FREE INCOME FUND
FIST FRANKLIN INVESTORS SECURITIES TRUST
135 FRANKLIN GLOBAL GOVERNMENT INCOME FUND
(formerly Franklin Global Opportunity Income Fund)
136 FRANKLIN SHORT-INTERMEDIATE U.S. GOVERNMENT
SECURITIES FUND
137 FRANKLIN CONVERTIBLE SECURITIES FUND
138* FRANKLIN ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND
(formerly Franklin Adjustable Rate Mortgage Fund)
(USGARMP feeder)
139 FRANKLIN EQUITY INCOME FUND
(Franklin Special Equity Income Fund until 8/17/93)
151* FRANKLIN ADJUSTABLE RATE SECURITIES FUND
(ARSP retail feeder)
IFT INSTITUTIONAL FIDUCIARY TRUST
140* MONEY MARKET PORTFOLIO (MMP feeder)
141* FRANKLIN LATE DAY MONEY MARKET PORTFOLIO
(Franklin Government Investors Money Market
Portfolio until 6/15/93)
142* FRANKLIN U.S. GOVERNMENT SECURITIES MONEY MARKET
PORTFOLIO (USGSMMP feeder)
143* FRANKLIN U.S. TREASURY MONEY MARKET PORTFOLIO
144* FRANKLIN INSTITUTIONAL ADJUSTABLE U.S. GOVERNMENT
SECURITIES FUND (USGARMP feeder)
145* FRANKLIN INSTITUTIONAL ADJUSTABLE RATE SECURITIES FUND
(ARSP feeder)
146* FRANKLIN U.S. GOVERNMENT AGENCY MONEY MARKET FUND
147* AEA CASH MANAGEMENT FUND (MMP feeder)
(formerly Franklin Star MOney Market Portfolio)
149* FRANKLIN CASH RESERVES FUND (MMP feeder)
150 FBSIF FRANKLIN BALANCE SHEET INVESTMENT FUND
154 FTAIBF FRANKLIN TAX-ADVANTAGED INTERNATIONAL BOND FUND
155 FTAUSGSF FRANKLIN TAX-ADVANTAGED U.S. GOVERNMENT SECURITIES FUND
156 FTAHYSF FRANKLIN TAX-ADVANTAGED HIGH YIELD SECURITIES FUND
FMT FRANKLIN MANAGED TRUST
117 FRANKLIN CORPORATE QUALIFIED DIVIDEND FUND
(Franklin Corporate Cash Portfolio until 5/31/91)
158 FRANKLIN RISING DIVIDENDS FUND
159 FRANKLIN INVESTMENT GRADE INCOME FUND
---- FRANKLIN INSTITUTIONAL RISING DIVIDENDS FUND (PT feeder)
(not yet filed)
157 FSMP FRANKLIN STRATEGIC MORTGAGE PORTFOLIO (effective 2/1/93)
FMST FRANKLIN MUNICIPAL SECURITIES TRUST
173 FRANKLIN HAWAII MUNICIPAL BOND FUND
175 FRANKLIN CALIFORNIA HIGH YIELD MUNICIPAL FUND
176 FRANKLIN WASHINGTON MUNICIPAL BOND FUND
220 FRANKLIN TENNESSEE MUNICIPAL BOND FUND
221 FRANKLIN ARKANSAS MUNICIPAL BOND FUND
FSS FRANKLIN STRATEGIC SERIES (changed from Cal 250)
194 FRANKLIN STRATEGIC INCOME FUND
195 FRANKLIN MIDCAP GROWTH FUND (filed - not yet being sold)
196 FRANKLIN INSTITUTIONAL MIDCAP GROWTH FUND
(formerly FISCO MidCap Growth Fund)
197 FRANKLIN GLOBAL UTILITIES FUND
198 FRANKLIN SMALL CAP GROWTH FUND
199 FRANKLIN GLOBAL HEALTH CARE FUND
ARSP ADJUSTABLE RATE SECURITIES PORTFOLIOS (THE PARENT)
182 U.S. GOVERNMENT ADJUSTABLE RATE MORTGAGE PORTFOLIO
(master fund)
183 ADJUSTABLE RATE SECURITIES PORTFOLIO (filed under 1940
Act Only) (master fund)
MMP THE MONEY MARKET PORTFOLIOS (master fund parent)
(filed under 1940 Act only)
184* THE MONEY MARKET PORTFOLIO (master fund)
186* THE U.S. GOVERNMENT SECURITIES MONEY MARKET PORTFOLIO
(master fund)
187 MGP MIDCAP GROWTH PORTFOLIO (master fund) (1940 Act filing only
- not yet being sold)
PT THE PORTFOLIOS TRUST (master fund parent) (1940 Act filing
only - not yet being sold)
188 THE RISING DIVIDENDS PORTFOLIO (master fund)
FIT FRANKLIN INTERNATIONAL TRUST
190 FRANKLIN PACIFIC GROWTH FUND
191 FRANKLIN INTERNATIONAL EQUITY FUND
FREST FRANKLIN REAL ESTATE SECURITIES TRUST
192 FRANKLIN REAL ESTATE SECURITIES FUND
FTGT FRANKLIN TEMPLETON GLOBAL TRUST (formerly Huntington Funds)
210* FRANKLIN TEMPLETON GERMAN GOVERNMENT BOND FUND
211* FRANKLIN TEMPLETON GLOBAL CURRENCY FUND
212* FRANKLIN TEMPLETON HARD CURRENCY FUND
213* FRANKLIN TEMPLETON HIGH INCOME CURRENCY FUND
FVF FRANKLIN VALUEMARK FUNDS (ALLIANZ)
821 MONEY MARKET FUND
822 EQUITY GROWTH FUND
823 PRECIOUS METALS FUND
824 REAL ESTATE SECURITIES FUND
825 UTILITY EQUITY FUND
826 HIGH INCOME FUND
827 GLOBAL INCOME FUND
828 INVESTMENT GRADE INTERMEDIATE BOND FUND
829 INCOME SECURITIES FUND
830 U.S. GOVERNMENT SECURITIES FUND
831 ZERO COUPON FUND - 1995
832 ZERO COUPON FUND - 2000
833 ZERO COUPON FUND - 2005
834 ZERO COUPON FUND - 2010
835 ADJUSTABLE U.S. GOVERNMENT FUND
836 RISING DIVIDENDS FUND
837 TEMPLETON PACIFIC GROWTH FUND (Pacific Growth Fund
until 10/15/93)
838 TEMPLETON INTERNATIONAL EQUITY FUND (International
Equity Fund until 10/15/93)
839 TEMPLETON DEVELOPING MARKETS EQUITY FUND
840 TEMPLETON GLOBAL GROWTH FUND
841 TEMPLETON WORLDWIDE ASSET ALLOCATION FUND
(not yet effective)
891 FGST FRANKLIN GOVERNMENT SECURITIES TRUST (AETNA)
193 FRANKLIN STABLE VALUE FUND
511 FRANKLIN TEMPLETON MONEY FUND II (expected effective
date: 05/01/95)
*CURRENT CUSTODIAN IS NOT B OF A
GASTON & SNOW
COUNSELLORS AT LAW
101 CALIFORNIA STREET, SUITE 3000
SAN FRANCISCO, CA 94111
415/982-5444
December 1, 1989
Franklin Balance Sheet Investment Fund
777 Mariners Island Boulevard
San Mateo, California 94404
Gentlemen:
We understand that Franklin Balance Sheet Investment Fund, a
Massachusetts business trust (the "Fund"), has filed with the Securities and
Exchange Commission a Registration Statement on Form N-1A under the
Securities Act of 1933 and the Investment Company Act of 1940. We also
understand that pursuant to said Registration Statement, the Fund has elected
to register an indefinite number of shares of beneficial interest pursuant to
Rule 24f-2 under the Investment Company Act of 1940.
In connection with the registration of such shares, we have examined
the Fund's Agreement and Declaration of Trust, its By-Laws, and the
Registration Statement, as amended, or as proposed to be amended, including
all exhibits thereto, as necessary. Based upon such examination, we are of
the opinion that:
1. The Fund has been duly organized and is validly existing in good
standing as a business trust under the laws of the Commonwealth of
Massachusetts; and
2. The shares of beneficial interest in the Fund to be offered to
the public have been duly authorized for issuance and will be legally issued,
fully paid and nonassessable when said shares have been issued and sold in
accordance with the terms and in the manner set forth in the fund's
Registration Statement, as amended.
We hereby consent to the filing of this opinion as an exhibit to the
Fund's Registration Statement and to the reference to our name in the
documents comprising said Registration Statement.
Sincerely yours,
/s/ Gaston & Snow
GASTON & SNOW
Franklin Balance Sheet Investment Fund
777 Mariners Island Blvd.
San Mateo, California 94404
Gentlemen:
The undersigned hereby subscribes for the purchase of 7,000 shares of
beneficial interest (the "Shares") of the Franklin Balance Sheet Investment
Fund (the "Fund"), at $15.00 per share for a total investment of $105,000.
In connection with said subscription, the undersigned hereby represents that:
1. There is no present reason to anticipate any change in
circumstances or any other occasion or event which would cause the
undersigned to sell or redeem the Shares shortly after the purchase thereof.
2. There are no agreements or arrangements between the undersigned
and the Fund, or any of its officers, trustees, employees or the investment
manager of the Fund, or any affiliated persons thereof with respect to the
resale, future distribution or redemption of the Shares.
3. The sale of the Shares will only be made by redemption to the
Fund and not by a transfer to any third party.
4. The undersigned is aware that in issuing and selling these
Shares, the Fund is relying upon the aforementioned representations.
5. The undersigned is fully aware that the organization expenses of
the Fund, including the costs and expenses of the Shares, are being charged
to the operation of the Fund over a period of five years, and that in the
event the undersigned redeems any portion of these Shares prior to the end of
said amortization period, the undersigned will reimburse the fund for the pro
rata share of the unamortized organization expenses (by a reduction of the
redemption proceeds) in the same proportion as the number of Shares being
redeemed bears to the total number of remaining initial Shares acquired by
the undersigned hereunder.
Franklin Resources, Inc.
777 Mariners Island Blvd.
San Mateo, California 94404
By: /s/ Harmon E. Burns
Harmon E. Burns,
Senior Vice President
Dated: November 17, 1989
FRANKLIN BALANCE SHEET INVESTMENT FUND
Amended and Restated Distribution Plan
The following Amended and Restated Distribution Plan (the "Plan") has been
adopted pursuant to Rule l2b-l under the Investment Company Act of 1940 (the
"Act") by the Franklin Balance Sheet Investment Fund (the "Fund"). The Plan has
been approved by a majority vote of the Board of Trustees of the Fund (the
"Board of Trustees"), including a majority of the trustees who are not
interested persons of the Fund and who have no direct or indirect financial
interest in the operation of the Plan (the "non-interested Trustees"), cast in
person at a meeting called for the purpose of voting on such Plan.
In reviewing the Plan, the Board of Trustees considered the schedule and
nature of payments and terms of the Investment Management Agreement between the
Fund and Franklin Advisers, Inc. (the "Manager") and the terms of the
Underwriting Agreement between the Fund and Franklin/Templeton Distributors Inc.
(the "Underwriter"). The Board of Trustees, including the non-interested
Trustees, concluded that the compensation of the Manager under the Investment
Management Agreement was fair and not excessive; however, the Board of Trustees
also recognized that uncertainty may exist from time to time with respect to
whether payments to be made by the Fund to the Manager or to the Underwriter or
others under agreements with the Funds or by the Manager or the Underwriter to
others, may be deemed to constitute distribution expenses. Accordingly, the
Board of Trustees determined that the Plan also 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 the Trustees' reasonable business judgment and in light of their
fiduciary duties, there is a reasonable likelihood that the Plan will benefit
the Fund and its shareholders. The amount of compensation and a plan with
similar terms has also been approved by a vote of at least a majority of the
Fund's outstanding voting securities, as defined in the Act.
The provisions of the Plan are:
1. The Fund shall pay the Underwriter an amount equal to 0.25% per annum
of the average daily net assets of the Fund as reimbursement for expenses
incurred by the Underwriter for the promotion and distribution of the shares of
the Fund, including, but not limited to, the printing of prospectuses,
statements of additional information and reports used for sales purposes,
expenses of preparation and distribution of sales literature and related
expenses, advertisements and other distribution-related expenses, including a
prorated portion of the Underwriter's overhead expenses attributable to the
distribution of Fund shares. Payments shall be made monthly at a rate of 0.25%
per annum of the Fund's average net assets for that month.
2. The Fund shall also pay to the Underwriter or directly to others a
service fee to reimburse the Underwriter, dealers or others for personal
services provided to shareholders of the Fund and/or the maintenance of
shareholder accounts. The total amount of service fees paid by the Fund shall
not exceed 0.25% per annum of the average daily net assets of the Fund. All
payments pursuant to this paragraph 2 shall be made, if by the Underwriter to
dealers pursuant to a form of Distribution and Service Agreement, substantially
in the form of Exhibit "A" attached hereto, if by the Underwriter to
other-than-dealers, pursuant to a form of Service Agreement attached hereto as
Exhibit "B," if by the Fund directly to other-than-dealers, pursuant to a form
of Service Agreement attached hereto as Exhibit "C," each of which is
incorporated by reference herein, or pursuant to other agreements which, from
time to time, are approved by the Board of Trustees, including the
non-interested Trustees.
3. The maximum amount which the Fund may annually pay pursuant to
paragraphs 1 and 2 above, and as service fees for the promotion and distribution
of shares of the Fund shall be 0.50% per annum of the average daily net assets
of the Fund. Payments in excess of the Underwriter's reimbursable expenses under
this Plan in any year shall be refunded. Expenses of the Underwriter in excess
of 0.25% per annum of the Fund's average net assets that otherwise qualify for
payment may not be carried forward into successive annual periods.
4. In addition to the payments which the Fund is authorized to make
pursuant to paragraphs 1, 2 and 3 hereof, to the extent that the Manager, the
Underwriter or other parties on behalf of the Manager or Underwriter make
payments that are deemed to be payments for the financing of any activity
primarily intended to result in the sale of shares issued by the Fund within the
context of Rule 12b-1 under the Act, then such payments shall be deemed to have
been made pursuant to the Plan.
In no event shall the 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).
5. The Underwriter shall furnish to the Board of Trustees, for their
review, on a quarterly basis, a written report of the monies paid to it under
the Plan, and shall furnish the Board of Trustees with such other information as
the Board of Trustees may reasonably request in connection with the payments
made under the Plan in order to enable the Board of Trustees to make an informed
determination of whether the Plan should be continued.
6. The Plan, any Distribution and Service Agreements, any Service
Agreements, or any other agreements related to the 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 mon-interested Trustees
on not more than sixty (60) days' written notice or by the Underwriter on not
more than sixty (60) days' written notice and shall terminate automatically in
the event of any act that constitutes an assignment of the Investment Management
Agreement between the Fund and the Manager or the Underwriting Agreement between
the Fund and the Underwriter.
7. The Plan, any Distribution and Service Agreement, any Service
Agreements or any other agreements entered into pursuant to this Plan may not be
amended to increase materially the amount to be spent for distribution and
servicing of Fund shares pursuant to Paragraph 3 hereof without approval by a
majority of the outstanding voting securities of the Fund.
8. All material amendments to the Plan, any Distribution and Service
Agreements, any Service Agreements or any other agreements related to this Plan
entered into with third parties 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.
10. In accordance with the limitations of liability contained in the
Declaration of Trust of the Fund, notice and acceptance of which is hereby
acknowledged, the Fund's obligations under the Plan shall be limited to the Fund
and the assets of the Fund, and no party shall seek satisfaction of any such
obligation from any shareholder, Trustee, officer, employee or agent of the
Fund.
This Amended and Restated Plan shall be entered into and take effect upon
execution, following approval by a majority of the Board of Trustees including
the non-interested Trustees and, unless sooner terminated, shall continue in
effect for a period of more than one year from the date of its execution only so
long as such continuance is specifically approved at least annually by a vote of
the Board of Trustees, including the non-interested Trustees, cast in person at
a meeting called for the purpose of voting on such continuance.
This Plan and the terms and provisions thereof are hereby accepted and
agreed to by the Fund and the Underwriter, as evidenced by their execution
hereof, this 1st day of July, 1993.
FRANKLIN BALANCE SHEET INVESTMENT FUND
By: /s/ William J. Lippman
William J. Lippman,
President
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
By: /s/ Harmon E. Burns
Harmon E. Burns,
Executive Vice-President
EXHIBIT "A"
FRANKLIN BALANCE SHEET INVESTMENT FUND
Distribution and Service Agreement
Gentlemen:
This Distribution and Service Agreement has been adopted pursuant to Rule
l2b-l under the Investment Company Act of 1940 (the "Act") by Franklin Balance
Sheet Investment Fund (the "Fund") as part of a Plan pursuant to said Rule (the
"Plan"). The Plan has been approved by a majority of the Trustees who are not
interested persons of the Fund 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. Such approval
included a determination that in the exercise of the reasonable business
judgment of the Board of Trustees and in light of the Trustees' fiduciary
duties, there is a reasonable likelihood that the Plan will benefit the Fund and
its shareholders. The amount of compensation and a plan with similar terms have
also been approved by a vote of at least a majority of the outstanding voting
securities of the Fund, as defined in the Act.
1. To the extent you provide personal services to shareholders including,
but not limited to, furnishing services and assistance to your customers who own
Fund shares, answering routine inquiries regarding the Fund, or assisting in the
maintenance of shareholder accounts including assisting in changing account
designations and addresses, we shall pay you a fee based on the net asset value
of the shares of the Fund which are attributable to customers of your firm (all
such shares being hereinafter referred to as "qualified assets") calculated on
the basis and at the rate set forth in the Schedule attached hereto and made a
part of this Agreement, provided that the average aggregate value of the shares
of the Fund held in your customer's accounts (measured at the end of each month,
unless otherwise specified in the attached Schedule) has equaled or exceeded
$500,000 for at least 12 consecutive months and continues to do so on a rolling
12-month basis.
2. Without prior approval by a majority of the outstanding shares of the
Fund, the aggregate annual fee paid to you pursuant to the Schedule attached
hereto shall not exceed the amount stated as the "annual maximum" on the
Schedule, which amount shall be a specified percent of the value of the Fund's
net assets held in your customers' accounts which are eligible for payment
pursuant to this Agreement (determined in the same manner as the Fund uses to
compute its net assets as set forth in its then effective Prospectus).
3. You shall furnish us and the Fund with such information as shall
reasonably be requested by the Fund's Board of Trustees with respect to the fees
paid to you pursuant to the Schedule.
4. We shall furnish to the Board of Trustees of the Fund, for their
review, on a quarterly basis, a written report of the amounts expended under the
Plan by us with respect to the Fund and the purposes for which such expenditures
were made.
5. This Agreement may be terminated by us or by you, by the vote of a
majority of the Trustees of the Fund who are non-interested Trustees, or by a
vote of a majority of the outstanding shares of the Fund, on sixty (60) days'
written notice all without payment of any penalty. This Agreement shall also be
terminated automatically by its assignment or by any act that terminates the
Fund's Underwriting Agreement with its Underwriter or the Fund's Investment
Management Agreement with its Manager, or upon termination of the Plan.
6. The provisions of the Plan between the Fund and us, insofar as
they relate to you, are incorporated herein by reference.
7. This Agreement shall take effect on the date set forth on the
attached Schedule.
8. The terms and provisions of the current Prospectus and Statement of
Additional Information for the Fund are hereby accepted and agreed to by you as
evidenced by your execution hereof.
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
By:
Agreed and Accepted:
(Name)
By:
(Authorized Officer)
FRANKLIN BALANCE SHEET INVESTMENT FUND
SCHEDULE TO DISTRIBUTION AND SERVICE AGREEMENT
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
AND
(Name)
Pursuant to the provisions of the Distribution and Service Agreement
between the above parties with respect to the Franklin Balance Sheet Investment
Fund, Franklin/Templeton Distributors, Inc. shall pay a fee to the above-named
party based on the net asset value of Fund shares during the period indicated
which are attributable to the above-named party calculated as follows:
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
(Name)
By:
By:
(Authorized Officer)
Dated:
EXHIBIT "B"
FRANKLIN BALANCE SHEET INVESTMENT FUND
Service Agreement
Gentlemen:
This Service Agreement has been adopted pursuant to Rule l2b-l under
the Investment Company Act of 1940 (the "Act") as part of a Plan pursuant to
said Rule (the "Plan") by the Franklin Balance Sheet Investment Fund (the
"Fund"). The Plan has been approved by a majority of the Trustees who are not
interested persons of the Fund 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. Such approval
included a determination that in the exercise of the reasonable business
judgment of the Board of Trustees and in light of the Trustees' fiduciary
duties, there is a reasonable likelihood that the Plan will benefit the Fund and
its shareholders. The amount of compensation and a plan with similar terms have
also been approved by a vote of at least a majority of the outstanding voting
securities of the Fund, as defined in the Act.
1. To the extent you provide personal services to shareholders including,
but not limited to, furnishing services and assistance to your customers who own
Fund shares, answering routine inquiries regarding the Fund, or assisting in the
maintenance of shareholder accounts including assisting in changing account
designations and addresses, we shall pay you a fee based on the net asset value
of the shares of the Fund which are attributable to customers of your firm (all
such shares being hereinafter referred to as "qualified assets") calculated on
the basis and at the rate set forth in the Schedule attached hereto and made a
part of this Agreement, provided that the average aggregate value of the shares
of the Fund held in your customer's accounts (measured at the end of each month,
unless otherwise specified in the attached Schedule) has equaled or exceeded
$500,000 for at least 12 consecutive months and continues to do so on a rolling
12-month basis.
2. Without prior approval by a majority of the outstanding shares of the
Fund, the aggregate annual fee paid to you pursuant to the Schedule attached
hereto shall not exceed the amount stated as the "annual maximum" on the
Schedule, which amount shall be a specified percent of the value of the Fund's
net assets held in your customers' accounts which are eligible for payment
pursuant to this Agreement (determined in the same manner as the Fund uses to
compute its net assets as set forth in its then effective Prospectus).
3. You shall furnish us and the Fund with such information as shall
reasonably be requested by the Fund's Board of Trustees with respect to the fees
paid to you pursuant to the Schedule.
4. We shall furnish to the Board of Trustees of the Fund, for their
review, on a quarterly basis, a written report of the amounts expended under the
Plan by us with respect to the Fund and the purposes for which such expenditures
were made.
5. This Agreement may be terminated by us or by you, by the vote of a
majority of the Trustees of the Fund who are non-interested Trustees, or by a
vote of a majority of the outstanding shares of the Fund, on sixty (60) days'
written notice all without payment of any penalty. This Agreement shall also be
terminated automatically by its assignment or by any act that terminates the
Fund's Underwriting Agreement with its Underwriter or the Fund's Management
Agreement with its Manager, or upon termination of the plan.
6. The provisions of the Plan between the Fund and us, insofar as
they relate to you, are incorporated herein by reference.
7. This Agreement shall take effect on the date set forth on the
attached Schedule.
8. The terms and provisions of the current Prospectus and Statement of
Additional Information for the Fund are hereby accepted and agreed to by you as
evidenced by your execution hereof.
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
By:
Agreed and Accepted:
(Name)
By:
(Authorized Officer)
FRANKLIN BALANCE SHEET INVESTMENT FUND
SCHEDULE TO SERVICE AGREEMENT
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
AND
(Name)
Pursuant to the provisions of the Service Agreement between the above
parties with respect to the Franklin Balance Sheet Investment Fund,
Franklin/Templeton Distributors, Inc. shall pay a fee to the above-named party
based on the net asset value of Fund shares during the period indicated which
are attributable to the above-named party calculated as follows:
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
(Name)
By:
By:
(Authorized Officer)
Dated:
EXHIBIT "C"
FRANKLIN BALANCE SHEET INVESTMENT FUND
Service Agreement
Gentlemen:
This Service Agreement has been adopted pursuant to Rule l2b-l under the
Investment Company Act of 1940 (the "Act") as part of a Plan pursuant to said
Rule (the "Plan") by the Franklin Balance Sheet Investment Fund (the "Fund").
The Plan has been approved by a majority of the Trustees who are not interested
persons of the Fund 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. Such approval included a
determination that in the exercise of the reasonable business judgment of the
Board of Trustees and in light of the Trustees' fiduciary duties, there is a
reasonable likelihood that the Plan will benefit the Fund and its shareholders.
The amount of compensation and a plan with similar terms have also been approved
by a vote of at least a majority of the outstanding voting securities of the
Fund, as defined in the Act.
1. To the extent you provide personal services to shareholders including,
but not limited to, furnishing services and assistance to your customers who own
Fund shares, answering routine inquiries regarding the Fund, or assisting in the
maintenance of shareholder accounts including assisting in changing account
designations and addresses, the Fund shall pay you a fee based on the net asset
value of the shares of the Fund which are attributable to customers of your firm
(all such shares being hereinafter referred to as "qualified assets") calculated
on the basis and at the rate set forth in the Schedule attached hereto and made
a part of this Agreement, provided that the average aggregate value of the
shares of the Fund held in your customer's accounts (measured at the end of each
month, unless otherwise specified in the attached Schedule) has equaled or
exceeded $500,000 for at least 12 consecutive months and continues to do so on a
rolling 12-month basis.
2. Without prior approval by a majority of the outstanding shares of the
Fund, the aggregate annual fee paid to you pursuant to the Schedule attached
hereto shall not exceed the amount stated as the "annual maximum" on the
Schedule, which amount shall be a specified percent of the value of the Fund's
net assets held in your customers' accounts which are eligible for payment
pursuant to this Agreement (determined in the same manner as the Fund uses to
compute its net assets as set forth in its then effective Prospectus).
3. You shall furnish the Fund in written form with such information as
shall reasonably be requested by the Fund's Board of Trustees with respect to
the fees paid to you pursuant to the Schedule to enable the Trustees to review,
on a quarterly basis, the amounts expended under the Plan and the purposes for
which such expenditures were made.
4. This Agreement may be terminated by you or by the Fund, by the vote of
a majority of the Trustees of the Fund who are non-interested Trustees, or by a
vote of a majority of the outstanding shares of the Fund, on sixty (60) days'
written notice all without payment of any penalty. This Agreement shall also be
terminated automatically by its assignment or by any act that terminates the
Plan.
5. The provisions of the Fund's Plan, insofar as they relate to you,
are incorporated herein by reference.
6. This Agreement shall take effect on the date set forth on the
attached Schedule.
7. The terms and provisions of the current Prospectus and Statement of
Additional Information for the Fund are hereby accepted and agreed to by you as
evidenced by your execution hereof.
FRANKLIN BALANCE SHEET INVESTMENT FUND
By:
Agreed and Accepted:
(Name)
By:
(Authorized Officer)
FRANKLIN BALANCE SHEET INVESTMENT FUND
SCHEDULE TO SERVICE AGREEMENT
FRANKLIN BALANCE SHEET INVESTMENT FUND
AND
(Name)
Pursuant to the provisions of the Service Agreement between the above
parties with respect to the Franklin Balance Sheet Investment Fund, the Franklin
Balance Sheet Investment Fund shall pay a fee to the above-named party based on
the net asset value of Fund shares during the period indicated which are
attributable to the above-named party calculated as follows:
FRANKLIN BALANCE SHEET INVESTMENT FUND
(Name)
By:
By:
(Authorized Officer)
Dated:
POWER OF ATTORNEY
The undersigned officers and trustees of Franklin Balance Sheet Investment
Fund (the "Registrant") hereby appoint MARK H. PLAFKER, HARMON E. BURNS, DEBORAH
R. GATZEK, KAREN L. SKIDMORE AND LARRY L. GREENE (with full power to each of
them to act alone) his attorney-in-fact and agent, in all capacities, to
execute, and to file any of the documents referred to below relating to
Post-Effective Amendments to the Registrant's registration statement on Form
N-1A under the Investment Company Act of 1940, as amended, and under the
Securities Act of 1933 covering the sale of shares by the Registrant under
prospectuses becoming effective after this date, including any amendment or
amendments increasing or decreasing the amount of securities for which
registration is being sought, with all exhibits and any and all documents
required to be filed with respect thereto with any regulatory authority. Each of
the undersigned grants to each of said attorneys, full authority to do every act
necessary to be done in order to effectuate the same as fully, to all intents
and purposes as he could do if personally present, thereby ratifying all that
said attorneys-in-fact and agents, may lawfully do or cause to be done by virtue
hereof.
The undersigned officers and trustees hereby execute this Power of Attorney
as of this 18th day of September.
/s/ William J. Lippman /s/ Frank T. Crohn
William J. Lippman, Principal Frank T. Crohn,
Executive Officer Trustee
and Trustee
/s/ Leonard Rubin
Charles Rubens, II, Leonard Rubin,
Trustee Trustee
/s/ Martin L. Flanagan /s/ Diomedes Loo-Tam
Martin L. Flanagan, Diomedes Loo-Tam,
Principal Financial Officer Principal Accounting Officer
CERTIFICATE OF SECRETARY
I, Deborah R. Gatzek, certify that I am Secretary of Franklin Balance
Sheet Investment Fund (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: September 18, 1995 /s/ Deborah R. Gatzek
Deborah R. Gatzek
Secretary
