As filed with the Securities and Exchange Commission on December 29, 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. 10 (X)
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 11 (X)
FRANKLIN VALUE INVESTORS TRUST (Formerly Franklin Balance Sheet
Investment Fund)
(Exact Name of Registrant as Specified in Charter)
777 MARINERS ISLAND BLVD., SAN MATEO, CA 94404
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (415) 312- 2000
Harmon E. Burns, 777 Mariners Island Blvd., San Mateo, CA 94404
(Name and Address of Agent for Service of Process)
Approximate Date of Proposed Public Offering:
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on December 12, 1995 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[X] on March 1, 1996 pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on(date) pursuant to paragraph (a)(ii) of rule 485
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Declaration Pursuant to Rule 24f-2. The issuer has registered an indefinite
number or amount of securities under the Securities Act of 1933 pursuant to
Rule 24(f)(2) under the Investment Company Act of 1940. The Rule 24f-2
Notice for the issuers most recent fiscal year was filed on December 26, 1995.
FRANKLIN VALUE INVESTORS TRUST
CROSS REFERENCE SHEET
FORM N- 1A
Part A: Information Required in Prospectus
Franklin Balance Sheet Investment Fund
N-1A Location in
Item No. Item Registration Statement
1. Cover Page Cover Page
2. Synopsis "Expense Table"
3. Condensed Financial "Financial Highlights - How Has
Information the Fund Performed?"; "How Does
the Fund Measure Performance?"
4. General Description of "What Is the Franklin Balance
Registrant Sheet Investment Fund?"; "How
Does the Fund Invest Its
Assets?"; "General Information"
5. Management of the Fund "Who Manages the Fund?"
5A. Managements Discussion of Contained in Registrant's Annual
Fund Performance Report to Shareholders
6. Capital Stock and Other "What Distributions Might I
Securities Receive From the Fund?"; "How
Taxation Affects You and the
Fund"; "General Information";
"Registering Your Account"
7. Purchase of Securities Being "How Do I Buy Shares?"; "How Are
Offered Fund Shares Valued?"; "What
Programs and Privileges Are
Available to Me as a
Shareholder?"
8. Redemption or Repurchase "How Do I Sell Shares?"; "What
if My Investment Outlook
Changes? - Exchange Privilege";
"How Does the Fund Measure
Performance?"; "How Do I Get
More Information About My
Investment?"; "General
Information"; "Telephone
Transactions"
9. Pending Legal Proceedings Not Applicable
FRANKLIN VALUE INVESTORS TRUST
CROSS REFERENCE SHEET
FORM N- 1A
Part B: Information Required in
Statement of Additional Information
Franklin Balance Sheet Investment Fund
10. Cover Page Cover Page
11. Table of Contents Contents
12. General Information and "General Information"
History
13. Investment Objectives and "How Does the Fund Invest Its
Policies Assets?" "Investment Restrictions"
14. Management of the Registrant "Officers and Trustees";
"Investment Advisory and Other
Services"
15. Control Persons and "Officers and Trustees";
Principal Holders of "Investment Advisory and Other
Securities Services"
16. Investment Advisory and "Investment Advisory and Other
Other Services Services"
17. Brokerage Allocation and "How Does the Fund Purchase
Other Practices Securities For Its Portfolio?"
18. Capital Stock and Other "How Do I Buy and Sell Shares?";
Securities "How are Fund Shares Valued?"
19. Purchase, Redemption and "How Do I Buy and Sell Shares?";
Pricing of Securities Being "Financial Statements"
Offered
20. Tax Status "Additional Information Regarding
Taxation"
21. Underwriters "The Fund's Underwriter"
22. Calculation of Performance "General Information"
Data
23. Financial Statements "Financial Statements"
FRANKLIN
BALANCE SHEET
INVESTMENT FUND
PROSPECTUS
MARCH 1, 1996
777 MARINERS ISLAND BLVD.,
P.O. BOX 7777
SAN MATEO, CA 94403-7777
1-800/DIAL BEN
Franklin Balance Sheet Investment 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. The Fund will seek capital appreciation primarily through investment in
securities that the Fund's investment manager believes are undervalued in the
marketplace. The Fund will also seek income when deemed consistent with its
objective. The Fund currently seeks to achieve its objective by investing in the
types of securities which the investment manager believes represent intrinsic
values not reflected in the current market price of such securities and/or
present opportunities for high income. The Fund will also invest a portion of
its total assets in the securities of closed-end management investment
companies.
This Prospectus is intended to set forth in a clear and concise manner
information about the Fund that you should know before investing. The Fund is
designed for long-term investors and not as a trading vehicle, and is not
intended to present a complete investment program. An investment in the Fund
involves certain speculative considerations; see "What Are the Fund's Potential
Risks?" There can be no assurance that the Fund will achieve its investment
objective. After reading the Prospectus, you should retain it for future
reference; it contains information about the purchase and sale of shares and
other items which you 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 (the "SAI") concerning the Fund, dated
March 1, 1996, as may be amended from time to time, provides a further
discussion of certain areas in this Prospectus and other matters which may be of
interest to you. It has been filed with the Securities and Exchange Commission
("SEC") and is incorporated herein by reference. A copy is available without
charge from the Fund or the Fund's principal underwriter, Franklin/Templeton
Distributors, Inc. ("Distributors"), at the address or telephone number shown
above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THIS PROSPECTUS IS NOT AN OFFERING OF THE SECURITIES HEREIN DESCRIBED IN ANY
STATE IN WHICH THE OFFERING IS NOT AUTHORIZED. NO SALES REPRESENTATIVE, DEALER
OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS. FURTHER
INFORMATION MAY BE OBTAINED FROM THE UNDERWRITER.
CONTENTS PAGE
Expense Table
Financial Highlights - How Has the Fund Performed?
What Is the Franklin Balance Sheet Investment Fund?
How Does the Fund Invest Its Assets?
What Are the Fund's Potential Risks?
Who Manages the Fund?
What Distributions Might I Receive from the Fund?
How Taxation Affects You and the Fund
How Do I Buy Shares?
What Programs and Privileges
Are Available to Me as a Shareholder?
What If My Investment Outlook Changes? - Exchange Privilege
How Do I Sell Shares?
Telephone Transactions
How Are Fund Shares Valued?
How Do I Get More Information About My Investment?
How Does the Fund Measure Performance?
General Information
Registering Your Account
Important Notice Regarding
Taxpayer IRS Certifications
Useful Terms and Definitions
in this Prospectus
EXPENSE TABLE
The purpose of this table is to assist you in understanding the various costs
and expenses that you will bear directly or indirectly in connection with an
investment in the Fund. These figures are based on the aggregate operating
expenses of the Fund for the fiscal year ended October 31, 1995.
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) 1.50%
Deferred Sales Charge NONE*
Exchange Fee (per transaction) $5.00**
*Investments of $1 million or more are not subject to a front-end sales
charge; however, a contingent deferred sales charge of 1% is generally
imposed on certain redemptions within a "contingency period" of 12 months of
the calendar month of such investments. See "How Do I Sell Shares? -
Contingent Deferred Sales Charge."
**$5.00 fee imposed only on Timing Accounts as described under "What If My
Investment Outlook Changes - Exchange Privilege." All other exchanges are
processed without a fee.
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees 0.54%
12b-1 Fees 0.44%+
Other Expenses
Shareholder servicing costs 0.06%
Reports to shareholders 0.04%
Other expenses 0.09%
-----
Total other expenses 0.19%
Total Fund Operating Expenses 1.17%
+ The maximum amount of Rule 12b-1 fees allowed pursuant to the Fund's
distribution plan is 0.50%. See "Who Manages the Fund? - Plan of Distribution."
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. Given the
Fund's maximum front-end sales charge and the rate of the Fund's Rule 12b-1 fee,
however, it is estimated that this would take a substantial number of years.
You should be aware that the above table is not intended to reflect in precise
detail the fees and expenses associated with an investment in the Fund. Rather,
the table has been provided only to assist you in gaining a more complete
understanding of fees, charges, and expenses. For a more detailed discussion of
these matters, you should refer to the appropriate sections of this Prospectus.
EXAMPLE
As required by SEC regulations, the following example illustrates the expenses,
including the maximum front-end sales charge, that apply to a $1,000 investment
in the Fund over various time periods assuming (1) a 5% annual rate of return
and (2) redemption at the end of each time period.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$27* $52 $78 $155
*Assumes that a contingent deferred sales charge will not apply.
This example is based on the aggregate annual operating expenses shown above and
should not be considered a representation of past or future expenses, which may
be more or less than those shown. The operating expenses are borne by the Fund
and only indirectly by you as a result of your investment in the Fund. 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%.
FINANCIAL HIGHLIGHTS - HOW HAS THE FUND PERFORMED?
Set forth below is a table containing the financial highlights for a share of
the Fund from the effective date of its registration statement, as indicated
below, through the fiscal year ended October 31, 1995. The information for each
of the five fiscal years in the period ended October 31, 1995 has been audited
by Coopers & Lybrand, L.L.P., independent auditors, whose audit report appears
in the financial statements in the Trust's Annual Report to Shareholders dated
October 31. The remaining figures, which are also audited, are not covered by
the auditors' current report. See "Reports to Shareholders" under "General
Information" in this Prospectus.
<TABLE>
<CAPTION>
Year Ended October 31, April 2, 1990**
1995 1994 1993 1992 1991 to October 31, 1990
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value at beginning of period $22.68 $22.97 $17.37 $15.54 $11.48 $15.00
----- ----- ----- ----- ----- -----
Net investment income .30 .23 .39 .53 .52 .29
Net realized and unrealized gain (loss)
on securities 3.98 .51 6.26 1.83 4.10 (3.63)
---- --- ---- ---- ---- ------
Total from investment operations 4.28 .74 6.65 2.36 4.62 (3.34)
---- --- ---- ---- ---- ------
Less distributions:
From net investment income (.27) (.26) (.43) (.53) (.56) (.18)
From capital gains (.35) (.77) (.62) -- -- --
Total distributions (.62) (1.03) (1.05) (.53) (.56) (.18)
----- ------ ----- ----- ---- -----
Net asset value at end of period $26.34 $22.68 $22.97 $17.37 $15.54 $11.48
------ ------ ------ ------ ------ ------
Total Return* 19.32% 3.42% 37.78% 15.51% 40.96% (22.36)%
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (in 000's) $387,540 134,255 $22,317 $5,149 $3,572 $1,405
Ratio of expenses to average net
assets 1.17% 1.19%++ --++ --++ --++ --++
Ratio of expenses to average net assets
(excluding waiver and payment of
expenses by investment manager) 1.17% 1.34% 1.85% 2.60% 3.16% 3.54%+
Ratio of net investment income to average
net assets 1.30% .99% 1.89% 3.16% 3.79% 2.31%+
Portfolio turnover rate. 28.63% 24.96% 31.36% 30.86% 31.94% 5.34%
</TABLE>
*Total return measures the change in value of an investment over the periods
indicated. It is not annualized. It does not include the maximum initial
front-end sales charge and assumes reinvestment of dividends and capital gains
distributions, if any, at net asset value.
**Effective date of registration.
+Annualized.
++During the periods indicated, Franklin Advisers, Inc., the investment manager,
agreed in advance to waive all or a portion of its management fees and/or pay
other expenses of the Fund.
WHAT IS THE FRANKLIN BALANCE SHEET INVESTMENT 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 (the "1940 Act"). The Trust currently consists of
three series, each of which issues a separate series of the Trust's shares and
maintains a totally separate investment portfolio. Franklin Advisers, Inc.
("Manager" or "Advisers") serves as the Fund's investment manager.
The Board of Trustees (the "Board") may determine, at a future date, to offer
shares of the Fund in one or more "classes" to permit the Fund to take advantage
of alternative methods of selling Fund shares. "Classes" of shares represent
proportionate interests in the same portfolio of investment securities but with
different rights, privileges and attributes as determined by the trustees.
Certain funds in the Franklin Templeton Funds currently offer their shares in
two classes, designated "Class I" and "Class II." Because the Fund's sales
charge structure and plan of distribution are similar to those of Class I
shares, shares of the Fund may be considered Class I shares for redemption
exchange and other purposes.
You may purchase shares of the Fund (minimum initial investment of $2,500 and
$100 thereafter) at the current public offering price. The current public
offering price of the Fund's shares is equal to the net asset value per share
plus a sales charge not exceeding 1.5% of the offering price. Please see "How Do
I Buy Shares?"
The investment objective of the Fund is to seek high total return, of which
capital appreciation and income are components. This investment objective is a
fundamental policy of the Fund and may not be changed without shareholder
approval. Capital appreciation will be sought primarily through investment in
securities that the Fund's Manager believes are undervalued in the marketplace.
Accordingly, the focus on balance sheet items will be an important element in
the Manager's investment analysis. Income will also be sought when consistent
with the Fund's objective. As with any other investment, there is no assurance
that the Fund's objective will be achieved.
The Fund currently invests in equity and debt securities which, in the opinion
of the Manager, represent intrinsic values not reflected in the current market
price of such securities and/or present opportunities for high income.
Effective when the Fund's assets total $500,000,000, no new accounts, other than
retirement plan accounts, will be accepted. If you are a shareholder of record
at that time, however, you will be able to continue to add to your account
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.
HOW DOES THE FUND INVEST ITS ASSETS?
The Fund may invest an unlimited amount of its total assets in the securities of
any companies which, in the opinion of the Manager, represent an opportunity for
(i) significant capital appreciation due to intrinsic values not reflected in
the current market price of such securities and/or (ii) high income. The
securities of such companies, which include common and preferred stocks and
secured or unsecured bonds, commercial paper or notes, will typically be
purchased at prices below the book value of the company; however, the Manager
also 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 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.
The Fund generally favors common stocks, although it has no limit on the
percentage of its assets which may be invested in preferred stock and debt
obligations of such issuers. The percentage of the Fund's assets invested for
capital appreciation or high income or both will vary at any time in accordance
with the Manager's appraisal of what securities will best meet the Fund's
objective of high total return.
The Fund will also invest a portion (but may invest without limitation) of its
total assets in the securities of registered closed-end management investment
companies ("closed-end funds"), which are traded on a national securities
exchange or in the over-the-counter markets and which the Manager believes are
undervalued in the marketplace. Consistent with its objective of capital
appreciation, the Fund may also purchase securities issued by unit investment
trusts ("UITs"), when in the Manager's view such securities are trading at a
discount from net asset value. The Fund's investment in the securities of
closed-end funds and UITs will be subject to certain restrictions and conditions
imposed by the 1940 Act. (See "1940 Act Provisions" in the SAI.) The Fund may,
consistent with its investment objective, invest in any securities of any
closed-end fund without regard to whether the investment objectives and policies
of such closed-end fund are similar to or consistent with those of the Fund.
The Manager will consider the following, among other factors, in evaluating
closed-end funds: (i) the historical market discounts, (ii) portfolio
characteristics, (iii) repurchase, tender offer, and dividend reinvestment
programs, (iv) provisions for converting into an open-end fund, and (v) quality
of management.
The securities of closed-end funds in which the Fund invests are traded on a
national securities exchange or in the over-the-counter markets. The Fund
invests in the securities of closed-end funds which, at the time of investment
by the Fund, are either trading at a discount to net asset value or which, in
the opinion of the Manager, present an opportunity for capital appreciation or
high income irrespective of whether such securities are trading at a discount or
at a premium to net asset value. There can be no assurance that the market value
of the securities of the closed-end funds in which the Fund invests will
increase, particularly with respect to securities trading at a premium to net
asset value. For further information regarding the conditions under which the
securities of a closed-end fund may trade at a discount to net asset value, see
"Characteristics of the Closed-End Funds in Which the Fund Will Invest" in the
SAI.
In anticipation of and during temporary defensive periods or when investments of
the type in which the Fund intends to invest are not available at prices that
the Manager believes are attractive, the Fund may invest up to 100% of its total
assets in: (1) securities of the U.S. government and certain of its agencies and
instrumentalities, which mature in one year or less from the date of purchase,
including U.S. Treasury bills, notes and bonds, and securities of the Government
National Mortgage Association, the Federal Housing Administration and other
agency or instrumentality issues or guarantees which are supported by the full
faith and credit of the United States; (2) obligations issued or guaranteed by
other U.S. government agencies or instrumentalities, some of which are supported
by the right of the issuer to borrow from the U.S. government (e.g., obligations
of the Federal Home Loan Banks) and some of which are backed by the credit of
the issuer itself (e.g., obligations of the Student Loan Marketing Association);
(3) bank obligations, including negotiable or non-negotiable certificates of
deposit (subject to the 10% aggregate limit on the Fund's investment in illiquid
securities), letters of credit and bankers' acceptances, or instruments secured
by such obligations, issued by banks and savings institutions which are subject
to regulation by the U.S. government, its agencies or instrumentalities and
which have assets of over one billion dollars, unless such obligations are
guaranteed by a parent bank which has total assets in excess of five billion
dollars; (4) commercial paper considered by the Manager to be of high quality,
which must be rated within the two highest grades by Standard & Poor's
Corporation ("S&P") or Moody's Investors Service ("Moody's") or, if not rated,
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 Manager to be high grade
or which are rated within the two highest rating categories by S&P and Moody's.
(See "Appendix" in the SAI for a discussion of ratings.)
OPTIONS STRATEGIES
When seeking high current income to achieve its investment objective of high
total return, the Fund may write covered call options on any of the securities
it actually owns which are listed for trading on a national securities exchange,
and it may also purchase listed call and put options for portfolio hedging
purposes.
Call options are short-term contracts (generally having a duration of nine
months or less) which give the purchaser of the option the right to buy, and
obligate the writer to sell, the underlying security at the exercise price at
any time during the option period, regardless of the market price of the
underlying security. The purchaser of an option pays a cash premium, which
typically reflects, among other things, the relationship of the exercise price
to the market price and the volatility of the underlying security, the remaining
term of the option, supply and demand factors, and interest rates.
Call options written by the Fund give the holder the right to buy the underlying
security from the Fund at a stated exercise price upon exercising the option at
any time prior to its expiration. A call option written by the Fund is "covered"
if the Fund owns or has an absolute right (such as by conversion) to the
underlying security covered by the call. A call option is also covered if the
Fund holds a call on the same security and in the same principal amount as the
call written and the exercise price of the call held (a) is equal to or less
than the exercise price of the call written or (b) is greater than the exercise
price of the call written if the difference is maintained by the Fund in cash,
government securities or other high grade debt obligations in a segregated
account with its custodian.
When the Fund writes or sells covered call options, it will receive a cash
premium which can be used in whatever way is believed by the Manager to be most
beneficial to the Fund. The risks associated with covered option writing are
that in the event of a price rise on the underlying security which would likely
trigger the exercise of the call option, the Fund will not participate in the
increase in price beyond the exercise price. It will generally be the Fund's
policy, in order to avoid the exercise of a call option written by it, to cancel
its obligation under the call option by entering into a "closing purchase
transaction," if available, unless it is determined to be in the Fund's interest
to deliver the underlying securities from its portfolio. A closing purchase
transaction consists of the Fund purchasing an option having the same terms as
the option written by the Fund, and has the effect of canceling the Fund's
position as a writer of such an option. The premium which the Fund will pay in
executing a closing purchase transaction may be higher or lower than the premium
it received when writing the option, depending in large part upon the relative
price of the underlying security at the time of each transaction.
One risk involved in both the purchase and sale of options is that the Fund may
not be able to effect a closing purchase transaction at a time when it wishes to
do so or at an advantageous price. There is no assurance that a liquid market
will exist for a given contract or option at any particular time. To mitigate
this risk, the Fund will ordinarily purchase and write options only if a
secondary market for the option exists on a national securities exchange or in
the over-the-counter market. Another risk is that during the option period, if
the Fund has written a covered call option, it will have given up the
opportunity to profit from a price increase in the underlying securities above
the exercise price in return for the premium on the option (although, of course,
the premium can be used to offset any losses or add to the Fund's income) but,
as long as its obligation as a writer of such an option continues, the Fund will
have retained the risk of loss should the price of the underlying security
decline. In addition, the Fund has no control over the time when it may be
required to fulfill its obligation as a writer of the option; once the Fund has
received an exercise notice, it cannot effect a closing transaction in order to
terminate its obligation under the option and must deliver the underlying
securities at the exercise price. The aggregate premiums paid on all such
options which are held at any time will not exceed 20% of the Fund's total net
assets.
The Fund may also purchase put options on common stock that it owns or may
acquire through the conversion or exchange of other securities to protect
against a decline in the market value of the underlying security or to protect
the unrealized gain in an appreciated security in its portfolio without actually
selling the security. A put option gives the holder the right to sell the
underlying security at the option exercise price at any time during the option
period. The Fund may pay for a put either separately or by paying a higher price
for securities which are purchased subject to a put, thus increasing the cost of
the securities and reducing the yield otherwise available from the same
securities.
In the case of put options, any gain realized by the Fund will be reduced by the
amount of the premium and transaction costs it paid and may be offset by a
decline in the value of its portfolio securities. If the value of the underlying
stock exceeds the exercise price (or never declines below the exercise price),
the Fund may suffer a loss equal to the amount of the premium it paid plus
transaction costs. The Fund may also close out its option positions before they
expire by entering into a closing purchase transaction as discussed above and
subject to the same risks.
The Fund's investment in options and certain securities transactions involving
actual or deemed short sales may be limited by the requirements of the Internal
Revenue Code of 1986, as amended (the "Code") for qualification as a regulated
investment company 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.
OTHER CONSIDERATIONS
While the Fund intends to operate as a non-diversified, open-end management
investment company for purposes of the 1940 Act, it intends to qualify as a
regulated investment company under the Code. As a non-diversified investment
company under the 1940 Act, the Fund may invest more than 5% and up to 25% of
its assets in the securities of any one issuer at the time of purchase. However,
for purposes of the Code, as of the last day of any fiscal quarter, the Fund may
not have more than 25% of its total assets invested in any one issuer, and, with
respect to 50% of its total assets, the Fund may not have more than 5% of its
total assets invested in any one issuer, nor may it own more than 10% of the
outstanding voting securities of any one issuer. These limitations do not apply
to investments in securities issued or guaranteed by the U.S. government or its
agencies or instrumentalities or to securities of investment companies that
qualify as regulated investment companies under the Code.
The Fund is subject to a number of other investment restrictions which may only
be changed by the affirmative vote of a majority of the Fund's outstanding
shares. Further information on investment restrictions is included in the SAI.
SOME OF THE FUND'S OTHER INVESTMENT POLICIES
For the purpose of earning additional income, the Fund may also engage to a
limited extent in the following investment practices each of which may involve
certain special risks. The SAI contains more detailed information about these
practices, including limitations designed to reduce these risks.
LENDING OF PORTFOLIO SECURITIES. Consistent with procedures approved by the
Board and subject to the following conditions, the Fund may lend its portfolio
securities to qualified securities dealers or other institutional investors,
provided that such loans do not exceed 25% of the value of the Fund's total
assets at the time of the most recent loan. The borrower must deposit with the
Fund's custodian collateral with an initial market value of at least 102% of the
initial market value of the securities loaned, including any accrued interest,
with the value of the collateral and loaned securities marked-to-market daily to
maintain collateral coverage of at least 102%. 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 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.
REPURCHASE AGREEMENTS. The Fund may engage in repurchase transactions, in which
the Fund purchases a U.S. government security subject to resale to a bank or
dealer at an agreed-upon price and date. The transaction requires the
collateralization of the seller's obligation by the transfer of securities with
an initial market value, including accrued interest, equal to at least 102% of
the dollar amount invested by the Fund in each agreement, with the value of the
underlying security marked-to-market daily to maintain coverage of at least
100%. A default by the seller might cause the Fund to experience a loss or delay
in the liquidation of the collateral securing the repurchase agreement. The Fund
might also incur disposition costs in liquidating the collateral. The Fund,
however, intends to enter into repurchase agreements only with financial
institutions such as broker-dealers and banks which are deemed creditworthy by
the Fund's investment manager. A repurchase agreement is deemed to be a loan by
the Fund under the 1940 Act. The U.S. government security subject to resale (the
collateral) will be held on behalf of the Fund by a custodian approved by the
Fund's Board and will be held pursuant to a written agreement.
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 purchase any securities
while any such 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.
Any of the Fund's fundamental policies may be changed only by the affirmative
vote of a majority of the Fund's outstanding shares.
HOW YOU PARTICIPATE IN THE RESULTS OF THE FUND'S ACTIVITIES
The assets of the Fund are invested in portfolio securities. If the securities
owned by the Fund increase in value, the value of the shares of the Fund which
you own will increase. If the securities owned by the Fund decrease in value,
the value of your shares will also decline. In this way, you participate in any
change in the value of the securities owned by the Fund.
In addition to the factors which affect the value of individual securities, as
described in the preceding sections, you may anticipate that the value of Fund
shares will fluctuate with movements in the broader equity and bond markets. To
the extent the Fund's investments consist of debt securities, changes in
interest rates will affect the value of the Fund's portfolio and thus its share
price. Increased rates of interest which frequently accompany higher inflation
and/or a growing economy are likely to have a negative effect on the value of
Fund shares. To the extent the Fund's investments consist of common stocks, a
decline in the market, expressed for example by a drop in the Dow Jones
Industrials or the Standard & Poor's 500 average or any other equity based
index, may also be reflected in declines in the Fund's share price. History
reflects both increases and decreases in the prevailing rate of interest and in
the valuation of the market, and these may reoccur unpredictably in the future.
WHAT ARE THE FUND'S POTENTIAL RISKS?
An investment in shares of the Fund involves certain speculative considerations.
An investment in shares of the Fund may involve a higher degree of risk than an
investment in shares of more traditional open-end, diversified investment
companies because the Fund may invest up to 100% of its assets in the securities
of issuers (including closed-end funds) with less than three years continuous
operation. The securities of certain closed-end funds in which the Fund will
invest may lack a liquid secondary market; for further information see
"Characteristics of the Closed-End Funds in Which the Fund Will Invest" in the
SAI.
As a non-diversified investment company, for purposes of the 1940 Act, the Fund
may concentrate its investments in the securities of a smaller number of issuers
than if it were a diversified company under the 1940 Act. An investment in the
Fund therefore will entail greater risk than an investment in a diversified
investment company because a higher percentage of investments among fewer
issuers may result in greater fluctuation in the total market value of the
Fund's portfolio, and economic, political or regulatory developments may have a
greater impact on the value of the Fund's portfolio than would be the case if
the portfolio were diversified among more issuers. However, the Fund intends to
comply with the diversification and other requirements applicable to regulated
investment companies under the Code. (See "Other Considerations.") All
securities in which the Fund may invest are inherently subject to market risk,
and the market value of the Fund's investments will fluctuate.
The Fund, by investing in securities of closed-end funds, indirectly pays a
portion of the operating expenses, management expenses and brokerage costs of
such companies. Thus, shareholders will indirectly pay higher total management
and operating expenses and other costs than they would otherwise incur if they
directly owned the securities of such closed-end funds. The Fund's shareholders
will also incur some duplicative costs such as advisory, administrative and
brokerage fees. The Fund's investment strategy may result (i) in duplicative
holdings, if two or more of the closed-end funds in whose securities the Fund
invests own the same portfolio security and/or (ii) in situations whereby one
closed-end fund in whose securities the Fund invests buys a portfolio security
that another closed-end fund in whose securities the Fund invests is selling.
However, the Fund offers the opportunity for a professionally managed portfolio
of the securities of different closed-end funds and/or other companies that the
Manager believes are undervalued in the marketplace.
FIXED-INCOME SECURITIES. The Fund may invest up to 25% of its total assets (as
measured at the time of such investment) in other securities, including
fixed-income and convertible securities of an issuer in default with respect to
such securities, that the Manager believes represent intrinsic values not
reflected in the current market prices of such securities. These securities may
be non-rated debt and/or debt rated D, the lowest rating category by S&P and
Moody's. Debt rated D is in default, and 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 such securities, its current investment strategy is to
limit such investments to less than 5% of the Fund's total net assets. Such debt
obligations are rated below investment grade and are regarded as extremely
speculative investments with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. Such securities are
also generally considered to be subject to greater risk than securities with
higher ratings with regard to a general deterioration of prevailing economic
conditions. See the SAI for further information concerning the risks of lower
rated securities, including the rating categories of S&P and Moody's.
WHO MANAGES THE FUND?
The Board has the primary responsibility for the overall management of the Fund
and for electing the officers of the Fund who are responsible for administering
its day-to-day operations.
Advisers serves as the Fund's investment manager Advisers is a wholly-owned
subsidiary of Franklin Resources, Inc. ("Resources"), a publicly owned holding
company, the principal shareholders of which are Charles B. Johnson and Rupert
H. Johnson, Jr., who own approximately 20% and 16%, respectively, of Resources'
outstanding shares. Resources is engaged in various aspects of the financial
services industry through its subsidiaries. Advisers acts as investment manager
or administrator to 34 U.S. registered investment companies (117 separate
series) with aggregate assets of over $78 billion.
The team responsible for the day-to-day management of the Fund's portfolio since
its inception is:
William Lippman
Portfolio Manager of Advisers
Mr. Lippman holds a bachelor of business administration degree from City
College New York and a master's degree in business administration from the
Graduate School of Business Administration of New York University. He has
been with Advisers since 1988.
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.
Pursuant to a management agreement, the Manager supervises and implements the
Fund's investment activities and provides certain administrative services and
facilities which are necessary to conduct the Fund's business. The Manager
performs similar services for other funds and there may be times when the
actions taken with respect to the Fund's portfolio will differ from those taken
by the Manager on behalf of other funds. Neither the Manager (including its
affiliates) nor its officers, directors or employees nor the officers and
trustees of the Fund are prohibited from investing in securities held by the
Fund or other funds which are managed or administered by the Manager to the
extent such transactions comply with the Fund's Code of Ethics. Please see
"Investment Advisory and Other Services" and "General Information" in the SAI
for further information on securities transactions and a summary of the Fund's
Code of Ethics.
During the fiscal year ended October 31, 1995, management fees totaling 0.54% of
the average daily net assets of the Fund were paid to Advisers.
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 "How
Does the Fund Purchase Securities For Its Portfolio?" in the SAI.
Shareholder accounting and many of the clerical functions for the Fund are
performed by Franklin/Templeton Investor Services, Inc. ("Investor Services" or
"Shareholder Services Agent"), in its capacity as transfer agent and
dividend-paying agent. Investor Services is a wholly-owned subsidiary of
Resources.
During the fiscal year ended October 31, 1995, expenses borne by the Fund,
including fees paid to Advisers and to Investor Services, totaled 1.17% of the
average daily net assets of the Fund.
PLAN OF DISTRIBUTION
A Plan of Distribution has been approved and adopted for the Fund (the
"Plan")pursuant to Rule 12b-1 under the 1940 Act. Under the Plan, the Fund may
reimburse Distributors or others in an amount equal to 0.25% per annum of the
average daily net assets of the Fund for all expenses incurred by Distributors
or others in the promotion and distribution of the Fund's shares. Such expenses
may include, but are not limited to, the printing of prospectuses, and reports
used for sales purposes, expenses of preparing and distributing sales literature
and related expenses, advertisements, and other distribution-related expenses,
including a prorated portion of Distributors' overhead expenses attributable to
the distribution of Fund shares, as well as any distribution or service fees
paid to securities dealers or their firms or others who have executed a
servicing agreement with the Fund, Distributors or its affiliates.
In addition, pursuant to the Plan, the Fund may pay Distributors or others a
service fee to reimburse such parties 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 year of
the average daily net assets of the Fund. Such payments are made pursuant to
distribution and/or service agreements entered into between such service
providers and Distributors or the Fund directly. The maximum amount which the
Fund may pay for the promotion and distribution of shares, including service
fees, is 0.50% per year of the average daily net assets of the Fund payable
monthly. Payments in excess of reimbursable expenses under the Plan in any year
must be refunded. Further, expenses of Distributors other than for service fees
in excess of 0.25% per year of the Fund's average net assets that otherwise
qualify for payment may not be carried forward into successive annual periods.
The Plan also covers any payments to or by the Fund, Advisers, Distributors, or
other parties on behalf of the Fund, Advisers or Distributors, to the extent
such payments are deemed to be for the financing of any activity primarily
intended to result in the sale of shares issued by the Fund within the context
of Rule 12b-1. The payments under the Plan are included in the maximum operating
expenses which may be borne by the Fund. For more information, please see "The
Fund's Underwriter" in the SAI.
WHAT DISTRIBUTIONS MIGHT I RECEIVE FROM THE FUND?
You may receive two types of distributions from the Fund:
1. INCOME DIVIDENDS. The Fund receives income generally in the form of
dividends, interest and other income derived from its investments. This income,
less the expenses incurred in the Fund's operations, is its net investment
income from which income dividends may be distributed. Thus, the amount of
dividends paid per share may vary with each distribution.
2. CAPITAL GAIN DISTRIBUTIONS. The Fund may derive capital gains or losses in
connection with sales or other dispositions of its portfolio securities.
Distributions by the Fund derived from net short-term and net long-term capital
gains (after taking into account any net capital loss carryovers) may generally
be made once a year in December to reflect any net short-term and net long-term
capital gains realized by the Fund as of October 31, its fiscal year ending
date, and any undistributed 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 GAIN 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 14th day of the month or prior business day, 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, you must have acquired Fund shares prior
to the close of business on the record date. If you are considering purchasing
Fund shares shortly before the record date of a distribution, you should be
aware that because the value of the Fund's shares is based directly on the
amount of its net assets, rather than on the principle of supply and demand, any
distribution of income or capital gain will result in a decrease in the value of
the Fund's shares equal to the amount of the distribution. While a dividend or
capital gain distribution received shortly after purchasing shares represents,
in effect, a return of a portion of your investment, it may be taxable as
dividend income or capital gain.
DISTRIBUTION OPTIONS
You may choose to receive your distributions from the Fund in any of these ways:
1. PURCHASE ADDITIONAL SHARES OF THE FUND - You may purchase additional shares
of the Fund (without a sales charge or imposition of a contingent deferred sales
charge) by reinvesting capital gain distributions, or both dividend and capital
gain distributions. This is a convenient way to accumulate additional shares and
maintain or increase your earnings base.
2. PURCHASE SHARES OF OTHER FRANKLIN TEMPLETON FUNDS - You may direct your
distributions to purchase the same class of shares of another Franklin Templeton
Fund (without a sales charge or imposition of a contingent deferred sales
charge). Many shareholders find this a convenient way to diversify their
investments.
3. RECEIVE DISTRIBUTIONS IN CASH - You may choose to receive dividends, or both
dividend and capital gain distributions in cash. You may have the money sent
directly to you, to another person, or to a checking account. If you choose to
send the money to a checking account, please see "Electronic Fund Transfers"
under "What Programs and Privileges Are Available to Me as a Shareholder?"
TO SELECT ONE OF THESE OPTIONS, PLEASE COMPLETE SECTIONS 6 AND 7 OF THE
SHAREHOLDER APPLICATION INCLUDED WITH THIS PROSPECTUS OR TELL YOUR INVESTMENT
REPRESENTATIVE WHICH OPTION YOU PREFER. IF NO OPTION IS SELECTED, DIVIDEND AND
CAPITAL GAIN DISTRIBUTIONS WILL BE AUTOMATICALLY REINVESTED IN THE FUND. You may
change the distribution option selected at any time by notifying the Fund by
mail or by telephone. Please allow at least seven days prior to the reinvestment
date for the Fund to process the new option.
HOW TAXATION AFFECTS YOU AND THE FUND
The following discussion reflects some of the tax considerations that affect
mutual funds and their shareholders. For additional information on tax matters
relating to the Fund and its shareholders see "Additional Information Regarding
Taxation" in the SAI.
The Fund intends to continue to qualify for treatment 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.
99.62% of the income dividends paid by the Fund for the fiscal year ended
October 31, 1995 qualified for the corporate dividends-received deduction,
subject to certain holding period and debt financing restrictions imposed under
the Code on the corporation claiming the deduction.
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.
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 Fund will inform shareholders of the source of their dividends and
distributions at the time they are paid, and will promptly after the close of
each calendar year advise them of the tax status for federal income tax purposes
of such dividends and distributions.
Shareholders who are not U.S. persons for purposes of federal income taxation
should consult with their financial or tax advisors regarding the applicability
of U.S. withholding or other taxes on distributions received by them from the
Fund and the application of foreign tax laws to these distributions.
Shareholders should consult their tax advisors with respect to the applicability
of state and local intangible property or income taxes to their shares in the
Fund and to distributions and redemption proceeds received from the Fund.
HOW DO I BUY SHARES?
You may buy shares to open a Fund account with as little as $2,500 and make
additional investments at any time with as little as $100. If you are purchasing
shares through a retirement plan established by the Franklin Templeton Group,
these minimums may be waived. To open your account, contact your investment
representative or complete and sign the enclosed Shareholder Application and
return it to the Fund with your check.
PURCHASE PRICE OF FUND SHARES
You may buy shares at the public offering price. The public offering price is
equal to the net asset value plus the 1.50% sales charge, unless you qualify to
purchase shares at a discount or without a sales charge as discussed below. The
offering price will be calculated to two decimal places using standard rounding
criteria.
QUANTITY DISCOUNTS IN SALES CHARGES
The sales charge you pay when you buy shares may be reduced based upon the size
of your purchase, as shown in the table below.
TOTAL SALES CHARGE
DEALER
AS A CONCESSION
AS A PERCENTAGE AS A
PERCENTAGE OF NET PERCENTAGE
SIZE OF TRANSACTION OF OFFERING AMOUNT OF OFFERING
AT OFFERING PRICE PRICE INVESTED PRICE*
----------------- ----- -------- ------
Less than $500,000 1.50% 1.52% 1.50
$500,000 but less than
$1,000,000 1.00% 1.01% 1.00%
$1,000,000 or more none** none see below***
*Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages indicated. Distributors may at times allow
the entire sales charge to the securities dealer. A securities dealer who
receives 90% or more of the sales commission may be deemed an underwriter under
the Securities Act of 1933, as amended. **A contingent deferred sales charge of
1% may be imposed on certain redemptions of all or a part of an investment of $1
million or more. See "How Do I Sell Shares? - Contingent Deferred Sales Charge."
***Please see "General - Other Payments to Securities Dealers" below for a
discussion of commissions Distributors may pay to securities dealers out of its
own resources.
RIGHTS OF ACCUMULATION. To determine if you may pay a reduced sales charge, you
may add the cost or current value, whichever is higher, of your Class I and
Class II shares in other Franklin Templeton Investments, as well as those of
your spouse, children under the age of 21 and grandchildren under the age of 21,
to the amount of your current purchase. To receive the reduction, you or your
investment representative must notify Distributors that your investment
qualifies for a discount.
LETTER OF INTENT. You may purchase shares at a reduced sales charge by
completing the Letter of Intent section of the Shareholder Application. A Letter
of Intent is a commitment by you to invest a specified dollar amount during a 13
month period. The amount you agree to invest determines the sales charge you
pay. You or your investment representative must inform us that the Letter is in
effect each time you purchase shares.
BY COMPLETING THE LETTER OF INTENT SECTION OF THE SHAREHOLDER APPLICATION, YOU
ACKNOWLEDGE AND AGREE TO THE FOLLOWING:
You authorize Distributors to reserve five percent (5%) of the amount of the
total intended purchase in Fund shares registered in your name.
You grant Distributors a security interest in these shares and appoint
Distributors as attorney-in-fact with full power of substitution to redeem
any or all of these reserved shares to pay any unpaid sales charge if you do
not fulfill the terms of the Letter.
We will include the reserved shares in the total shares you own as reflected
on your periodic statements.
You will receive dividend and capital gain distributions on the reserved
shares; we will pay or reinvest these distributions as you direct.
Although you may exchange your shares, you may not liquidate reserved shares
until you complete the Letter or pay the higher sales charge.
Our policy of reserving shares does not apply to certain benefit plans
described under "Purchases at Net Asset Value."
If you would like more information about the Letter of Intent privilege, please
see "How Do I Buy and Sell Shares? - Letter of Intent" in the SAI or call our
Shareholder Services Department.
GROUP PURCHASES. If you are a member of a qualified group, you may purchase Fund
shares at the reduced sales charge applicable to the group as a whole. The sales
charge is based on the combined dollar value of the group members' existing
investments, plus the amount of the current purchase. For example, if group
members previously invested and still hold $480,000 of Fund shares and invest
$25,000, the sales charge will be 1.0%.
We define a qualified group as 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.
In addition, a qualified group must have more than 10 members, and be available
to arrange for meetings between our representatives and group members. It must
also agree to include sales and other materials related to the Franklin
Templeton Funds in publications and mailings to its members at reduced or no
cost to Distributors, and arrange for payroll deduction or other bulk
transmission of investments to the Fund.
If you select a payroll deduction plan, your investments will continue
automatically until you notify the Fund and your employer to discontinue further
investments. Due to the varying procedures used by employers to handle payroll
deductions, there may be a delay between the time of the payroll deduction and
the time the money reaches the Fund. We invest your purchase at the applicable
offering price per share determined on the day that the Fund receives both the
check and the payroll deduction data in required form.
PURCHASES AT NET ASSET VALUE
You may invest money from the following sources in shares of the Fund without
paying front-end or contingent deferred sales charges:
(i) a distribution that you have received from a Franklin Templeton Fund if it
is returned within 365 days of its payment date. When you return the
distribution, please include a written request to reinvest the money at net
asset value. You may reinvest Class II distributions in either Class I or Class
II shares, but Class I distributions may only be invested in Class I shares
under this privilege. For more information, see "Distribution Options" under
"What Distributions Might I Receive From the Fund?" or call Shareholder Services
at 1-800/632-2301;
(ii) a redemption from a mutual fund with investment objectives similar to those
of the Fund, if (a) your investment in that fund was subject to either a
front-end or contingent deferred sales charge at the time of purchase, (b) the
fund is not part of the Franklin Templeton Funds, and (c) your redemption
occurred within the past 60 days;
(iii) a distribution from an existing retirement plan already invested in the
Franklin Templeton Funds (including the Franklin Templeton Profit Sharing 401(k)
plan), up to the total amount of the distribution. When you return the
distribution, please include a written request to reinvest the money at net
asset value. The distribution must be returned to the Fund within 365 days of
the distribution date; or
(iv) a redemption from Templeton Institutional Funds, Inc., if you then reinvest
the redemption proceeds under an employee benefit plan qualified under Section
401 of the Code, in shares of the Fund.
You may also reinvest the proceeds from a redemption of any of the Franklin
Templeton Funds at net asset value. To do so, you must
(a) have paid a sales charge on the purchase or sale of the original shares, (b)
reinvest the redemption money in the same class of shares, and (c) request the
reinvestment of the money in writing to the Fund within 365 days of the
redemption date. You may reinvest up to the total amount of the redemption
proceeds under this privilege. IF A DIFFERENT CLASS OF SHARES IS PURCHASED, THE
FULL FRONT-END SALES CHARGE MUST BE PAID AT THE TIME OF PURCHASE OF THE NEW
SHARES. While you will receive credit for any contingent deferred sales charge
paid on the shares redeemed, a new contingency period will begin. Shares that
were no longer subject to a contingent deferred sales charge will be reinvested
at net asset value and will not be subject to a new contingent deferred sales
charge. Shares exchanged into other Franklin Templeton Funds are not considered
"redeemed" for this privilege (see "What If My Investment Outlook Changes? -
Exchange Privilege").
If you immediately reinvested your redemption proceeds in a Franklin Bank
Certificate of Deposit ("CD") but you would like to reinvest them back into the
Franklin Templeton Funds as described above, you will have 365 days from the
date the CD (including any rollover) matures to do so.
If your securities dealer or another financial institution reinvests your money
in the Fund at net asset value for you, that person or institution may charge
you a fee for this service.
A redemption is a taxable transaction, but reinvestment without a sales charge
may affect the amount of gain or loss you recognize and the tax basis of the
shares reinvested. If you have a loss on the redemption, the loss may be
disallowed if you reinvest in the same fund within a 30-day period. If you would
like more information regarding the possible tax consequences of such a
reinvestment, please see the tax section of this Prospectus and the SAI.
Certain categories of investors also qualify to purchase shares of the Fund at
net asset value regardless of the source of the investment proceeds. If you are
or your account is included in one of the categories below, none of the shares
of the Fund you purchase will be subject to front-end or contingent deferred
sales charges:
(i) companies exchanging shares or selling assets pursuant to a merger,
acquisition or exchange offer;
(ii) accounts managed by the Franklin Templeton Group;
(iii) certain unit investment trusts and unit holders of such trusts reinvesting
distributions from the trusts in the Fund;
(iv) registered securities dealers and their affiliates, for their
investment accounts only;
(v) current employees of securities dealers and their affiliates and their
family members, in accordance with the internal policies and procedures of the
employing securities dealer and affiliate;
(vi) broker-dealers who have entered into a supplemental agreement with
Distributors, or 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);
(vii) 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").
IF YOU ARE SUCH AN INVESTOR, PLEASE CONSULT YOUR OWN LEGAL ADVISORS TO DETERMINE
WHETHER AND TO WHAT EXTENT THE SHARES OF THE FUND CONSTITUTE LEGAL INVESTMENTS.
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 you are a securities dealer who has executed a dealer agreement
with Distributors and, through your services, an eligible governmental authority
invests in the Fund at net asset value, Distributors or one of its affiliates
may make a payment, out of its own resources, to you in an amount not to exceed
0.25% of the amount invested. Please contact the Franklin Templeton
Institutional Services Department for additional information;
(viii) officers, trustees, directors and full-time employees of the Franklin
Templeton Funds, or of the Franklin Templeton Group, and their family members.
Although you may pay sales charges on investments in accounts opened after your
association with us has ended, you may continue to invest in accounts opened
while you were with us without paying sales charges;
(ix) trust companies and bank trust departments that exercise exclusive
discretionary investment authority over funds held in a fiduciary, agency,
advisory, custodial or similar capacity and agree to invest at least $1 million
in Franklin Templeton Investments over a 13-month period. We will accept orders
for such accounts by mail accompanied by a check or by telephone or other means
of electronic data transfer directly from the bank or trust company, with
payment by federal funds received by the close of business on the next business
day following such order;
(x) insurance company separate accounts investing for pension plan contracts;
(xi) 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; or
(xii) Designated Retirement Plans. Non-Designated Retirement Plans may also
qualify to purchase shares of the Fund if they meet the requirements
described under "Group Purchases," above.
If you would like more information, please see "How Do I Buy and Sell Shares?"
in the SAI.
HOW DO I BUY SHARES IN CONNECTION WITH TAX-DEFERRED RETIREMENT PLANS?
Your individual or employer-sponsored tax-deferred retirement plans may invest
in the Fund. You may use the Fund for an existing retirement plan, or, because
Trust Company can serve as custodian or trustee for retirement plans, you may
ask Trust Company to provide the plan documents and serve as custodian or
trustee. A plan document must be adopted in order for a retirement plan to be in
existence.
Brochures for Trust Company plans contain important information regarding
eligibility, contribution and deferral limits and distribution requirements.
Please note that you must use an application other than the one contained in
this Prospectus to establish a retirement plan account with Trust Company. To
obtain a retirement plan brochure or application, please call 1-800/DIAL BEN
(1-800/342-5236). Trust Company is an affiliate of Distributors.
Please see "How Do I Sell Shares?" for information regarding redemptions from
retirement plan accounts. You must complete specific forms in order to receive
distributions from Trust Company retirement plans.
Individuals and plan sponsors should consult with legal, tax or benefits and
pension plan consultants before choosing a retirement plan. In addition, if you
are a retirement plan investor, you should consider consulting your investment
representatives or advisors about investment decisions within your plans.
GENERAL
The Fund continuously offers it shares through securities dealers who have an
agreement with Distributors. The Fund and Distributors may refuse any order for
the purchase of shares.
Securities laws of states in which the Fund offers its shares may differ from
federal law. Banks and financial institutions that sell shares of the Fund may
be required to register as securities dealers pursuant to state law.
OTHER PAYMENTS TO SECURITIES DEALERS. Distributors will pay the following
commissions, out of its own resources, to securities dealers who initiate and
are responsible for purchases of $1 million or more: 1% on sales of $1 million
but less than $2 million, plus 0.80% on sales of $2 million but less than $3
million, plus 0.50% on sales of $3 million but less than $50 million, plus 0.25%
on sales of $50 million but less than $100 million, plus 0.15% on sales of $100
million or more. These breakpoints are reset every 12 months for purposes of
additional purchases.
Distributors or one of its affiliates may also pay up to 1% of the amount
purchased to securities dealers who initiate and are responsible for purchases
made at net asset value by any of the entities described in paragraphs (ix),
(xi) or (xii) under "Purchases at Net Asset Value" above. Please see "How Do I
Buy and Sell Shares?" in the SAI for the breakpoints applicable to these
purchases.
Either Distributors or one of its affiliates, out of its own resources, may also
provide additional compensation to securities dealers in connection with the
sale of shares of the Franklin Templeton Funds. In some cases, this compensation
may be available only to securities dealers whose representatives have sold or
are expected to sell significant amounts of shares of the Franklin Templeton
Funds. Compensation may include financial assistance and payments made in
connection with conferences, sales or training programs for employees of the
securities dealer, seminars for the public, advertising, sales campaigns and/or
shareholder services, programs regarding one or more of the Franklin Templeton
Funds and other programs or events sponsored by securities dealers, and payment
for travel expenses of invited registered representatives and their families,
including lodging, in connection with business meetings or seminars located
within or outside the United States. Securities dealers may not use sales of the
Fund's shares to qualify for this compensation if prohibited by the laws of any
state or self-regulatory agency, such as the National Association of Securities
Dealers, Inc. None of this compensation is paid for by the Fund or its
shareholders.
For additional information about shares of the Fund, please see "How Do I Buy
and Sell Shares?" in the SAI. The SAI also includes a listing of the officers
and trustees of the Fund who are affiliated with Distributors. See "Officers
and Trustees."
WHAT PROGRAMS AND PRIVILEGES
ARE AVAILABLE TO ME AS A SHAREHOLDER
CERTAIN OF THE PROGRAMS AND PRIVILEGES DESCRIBED IN THIS SECTION MAY NOT BE
AVAILABLE DIRECTLY FROM THE FUND IF YOUR SHARES ARE HELD, OF RECORD, BY A
FINANCIAL INSTITUTION OR IN A "STREET NAME" ACCOUNT, OR NETWORKED ACCOUNT
THROUGH THE NATIONAL SECURITIES CLEARING CORPORATION ("NSCC") (SEE "REGISTERING
YOUR ACCOUNT" IN THIS PROSPECTUS).
SHARE CERTIFICATES
Shares from an initial investment, as well as subsequent investments, including
the reinvestment of dividends and capital gain distributions, are generally
credited to an account in your name on the books of the Fund, without the
issuance of a share certificate. Maintaining shares in uncertificated form (also
known as "plan balance") minimizes the risk of loss or theft of a share
certificate. A lost, stolen or destroyed certificate cannot be replaced without
obtaining a sufficient indemnity bond. The cost of such a bond, which is
generally borne by you, can be 2% or more of the value of the lost, stolen or
destroyed certificate. A certificate will be issued if requested by you or your
securities dealer.
CONFIRMATIONS
A confirmation statement will be sent to you quarterly to reflect the dividends
reinvested during the period and after each other transaction which affects your
account. This statement will also show the total number of shares you own,
including the number of shares in "plan balance" for your account.
AUTOMATIC INVESTMENT PLAN
The Automatic Investment Plan offers a convenient way to invest in the Fund.
Under the plan, you can arrange to have money transferred automatically from
your checking account to the Fund each month to purchase additional shares. If
you are interested in this program, please refer to the Automatic Investment
Plan Application at the back of this Prospectus for the requirements of the
program or contact your investment representative. Of course, the market value
of the Fund's shares may fluctuate and a systematic investment plan such as this
will not assure a profit or protect against a loss. You may terminate the
program at any time by notifying Investor Services by mail or by phone.
SYSTEMATIC WITHDRAWAL PLAN
The Systematic Withdrawal Plan allows you to receive regular payments from your
account on a monthly, quarterly, semiannual or annual basis. To establish a
Systematic Withdrawal Plan, the value of your account must be at least $5,000
and the minimum payment amount for each withdrawal must be at least $50. Please
keep in mind that $50 is merely the minimum amount and is not a recommended
amount. For retirement plans subject to mandatory distribution requirements, the
$50 minimum will not apply.
If you would like to establish a Systematic Withdrawal Plan, please complete the
Systematic Withdrawal Plan section of the Shareholder Application included with
this Prospectus and indicate how you would like to receive your payments. You
may choose to receive your payments in any of the following ways:
1. PURCHASE SHARES OF OTHER FRANKLIN TEMPLETON FUNDS - You may direct your
payments to purchase the same class of shares of another Franklin Templeton
Fund.
2. RECEIVE PAYMENTS IN CASH - You may choose to receive your payments in cash.
You may have the money sent directly to you, to another person, or to a checking
account. If you choose to have the money sent to a checking account, please see
"Electronic Fund Transfers" below.
There are no service charges for establishing or maintaining a Systematic
Withdrawal Plan. Once your plan is established, any distributions paid by the
Fund will be automatically reinvested in your account. Payments under the plan
will be made from the redemption of an equivalent amount of shares in your
account, generally on the first business day of the month in which a payment is
scheduled. You will generally receive your payments within three to five days
after the shares are redeemed.
Redeeming shares through a Systematic Withdrawal Plan may reduce or exhaust the
shares in your account if payments exceed distributions received from the Fund.
This is especially likely to occur if there is a market decline. If a withdrawal
amount exceeds the value of your account, your account will be closed and the
remaining balance in your account will be sent to you. Redemptions under a
Systematic Withdrawal Plan are considered a sale for federal income tax
purposes. Because the amount withdrawn under the plan may be more than your
actual yield or income, part of the payment may be a return of your investment.
While a Systematic Withdrawal Plan is in effect, no share certificates will be
issued. You should ordinarily not make additional investments in the Fund of
less than $5,000 or three times the amount of annual withdrawals under the plan
because of the sales charge on additional purchases. Shares redeemed under the
plan may also be subject to a contingent deferred sales charge. Please see
"Contingent Deferred Sales Charge" under "How Do I Sell Shares?"
You may terminate a Systematic Withdrawal Plan, change the amount and schedule
of withdrawal payments, or suspend a payment by notifying Investor Services in
writing at least seven business days prior to the end of the month preceding a
scheduled payment. The Fund may also terminate a Systematic Withdrawal Plan by
notifying you in writing and will automatically terminate a Systematic
Withdrawal Plan if all shares in your account are withdrawn or if the Fund
receives notification of the shareholder's death or incapacity.
ELECTRONIC FUND TRANSFERS
You may choose to have distributions from the Fund or payments under a
Systematic Withdrawal Plan sent directly to a checking account. If the checking
account is maintained at a bank that is a member of the Automated Clearing
House, the payments may be made automatically by electronic funds transfer. If
you choose this option, please allow at least fifteen days for initial
processing. Any payments made during that time will be sent to the address of
record on your account.
INSTITUTIONAL ACCOUNTS
There may be additional methods of purchasing, redeeming or exchanging shares
of the Fund available to institutional accounts. For further information,
contact the Franklin Templeton Institutional Services Department at
1/800-321-8563.
WHAT IF MY INVESTMENT OUTLOOK CHANGES? - EXCHANGE PRIVILEGE
The Franklin Templeton Funds consist of a number of mutual funds with various
investment objectives and policies. The shares of most of these funds are
offered to the public with a sales charge. If your investment objective or
outlook for the securities markets changes, Fund shares may be exchanged for the
same class of shares of other Franklin Templeton Funds which are eligible for
sale in your state of residence and in conformity with such fund's stated
eligibility requirements and investment minimums.
No exchanges between different classes of shares will be allowed. Shareholders
may choose to redeem shares of the Fund and purchase Class II shares of another
Franklin Templeton Fund but such purchase will be subject to that fund's Class
II front-end and contingent deferred sales charges. Although there are no
exchanges between different classes of shares, Class II shareholders of a
Franklin Templeton Fund may elect to direct their dividends and capital gain
distributions to the Fund at net asset value.
A contingent deferred sales charge will not be imposed on exchanges. If,
however, the exchanged shares were subject to a contingent deferred sales charge
in the original fund purchased and shares are subsequently redeemed within the
contingency period, a contingent deferred sales charge will be imposed.
Before making an exchange, you should review the prospectus of the fund you wish
to exchange from and the fund you wish to exchange into for all specific
requirements or limitations on exercising the exchange privilege, for example,
limitations on a fund's sale of its shares, minimum holding periods for
exchanges at net asset value, or applicable sales charges.
You may exchange shares in any of the following ways:
BY MAIL
Send written instructions signed by all account owners and accompanied by any
outstanding share certificates properly endorsed. The transaction will be
effective upon receipt of the written instructions together with any outstanding
share certificates.
BY TELEPHONE
YOU OR YOUR INVESTMENT REPRESENTATIVE OF RECORD, IF ANY, MAY EXCHANGE SHARES OF
THE FUND BY CALLING INVESTOR SERVICES AT 1-800/632-2301 OR THE AUTOMATED
FRANKLIN TELEFACTS(R) SYSTEM (DAY OR NIGHT) AT 1-800/247-1753. IF YOU DO NOT
WISH THIS PRIVILEGE EXTENDED TO A PARTICULAR ACCOUNT, YOU SHOULD NOTIFY THE FUND
OR INVESTOR SERVICES.
The telephone exchange privilege allows you to effect exchanges from the Fund
into an identically registered account of the same class of shares in one of the
other available Franklin Templeton Funds. The telephone exchange privilege is
available only for uncertificated shares or those which have previously been
deposited in your account. The Fund and Investor Services will employ reasonable
procedures to confirm that instructions communicated by telephone are genuine.
Please see "Telephone Transactions - Verification Procedures."
During periods of drastic economic or market changes, it is possible that the
telephone exchange privilege may be difficult to implement and the TeleFACTS
option may not be available. In this event, you should follow the other exchange
procedures discussed in this section, including the procedures for processing
exchanges through securities dealers.
THROUGH SECURITIES DEALERS
As is the case with all purchases and redemptions of the Fund's shares, Investor
Services will accept exchange orders from securities dealers who execute a
dealer or similar agreement with Distributors. See also "By Telephone" above.
Such a dealer-ordered exchange will be effective only for uncertificated shares
on deposit in your account or for which certificates have previously been
deposited. A securities dealer may charge a fee for handling an exchange.
ADDITIONAL INFORMATION REGARDING EXCHANGES
Exchanges are made on the basis of the net asset 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 original
investment in the Franklin Templeton Funds was made pursuant to the privilege
permitting purchases at net asset value, as discussed under "How Do I buy
Shares?" Exchanges of shares of the Fund which were purchased with a lower sales
charge into a fund which has a higher sales charge will be charged the
difference, unless the shares were held in the Fund for at least twelve months
prior to executing the exchange (six months with respect to shares purchased
prior to September 30, 1994, by persons who were shareholders of the Fund as of
July 30, 1994).
The contingency period during which a contingent deferred sales charge may be
assessed will be tolled (or stopped) for the period shares are exchanged into
and held in a Franklin or Templeton money market fund. If your account has
shares subject to a contingent deferred sales charge, shares will be exchanged
into the new account on a "first-in, first-out" basis. See also "How Do I Sell
Shares? - Contingent Deferred Sales Charge" for a discussion of investments
subject to a contingent deferred sales charge.
If you request the exchange of the total value of the Fund account, declared but
unpaid dividends and capital gains distributions will be transferred to the fund
being exchanged into and will be invested at net asset value. Because the
exchange is considered a redemption and purchase of shares, you may realize a
gain or loss for federal income tax purposes. Backup withholding and information
reporting may also apply. Information regarding the possible tax consequences of
such an exchange is included in the tax section in this Prospectus and under
"Additional Information Regarding Taxation" in the SAI.
If a substantial portion of the Fund's shareholders should, within a short
period, elect to redeem their shares of the Fund pursuant to the exchange
privilege, the Fund might have to liquidate portfolio securities it might
otherwise hold and incur the additional costs related to such transactions. On
the other hand, increased use of the exchange privilege may result in periodic
large inflows of money. If this should occur, it is the general policy of the
Fund to initially invest this money in short-term, interest-bearing money market
instruments, unless it is felt that attractive investment opportunities
consistent with the Fund's investment objective exist immediately. Subsequently,
this money will be withdrawn from such short-term money market instruments and
invested in portfolio securities in as orderly a manner as is possible when
attractive investment opportunities arise.
The exchange privilege may be modified or discontinued by the Fund at any time
upon 60 days' written notice to shareholders.
RETIREMENT PLAN ACCOUNTS
Franklin Templeton IRA and 403(b) retirement plan accounts may exchange
shares directly. Certain restrictions may apply, however, to other types of
retirement plans. See "Restricted Accounts" under "Telephone Transactions."
TIMING ACCOUNTS
Accounts which are administered by allocation or market timing services to
exchange shares based on predetermined market indicators ("Timing Accounts")
will be charged a $5.00 administrative service fee per each such exchange.
All other exchanges are without charge.
RESTRICTIONS ON EXCHANGES
In accordance with the terms of their respective prospectuses, certain funds do
not accept or may place differing limitations than those below on exchanges by
Timing Accounts.
The Fund reserves the right to temporarily or permanently terminate the exchange
privilege or reject any specific purchase order for any Timing Account or any
person whose transactions seem to follow a timing pattern who: (i) makes an
exchange request out of the Fund within two weeks of an earlier exchange request
out of the Fund, (ii) makes more than two exchanges out of the Fund per calendar
quarter, or (iii) exchanges shares equal in value to at least $5 million, or
more than 1% of the Fund's net assets. Accounts under common ownership or
control, including accounts administered so as to redeem or purchase shares
based upon certain predetermined market indicators, will be aggregated for
purposes of the exchange limits.
The Fund also reserves the right to refuse the purchase side of an exchange
request by any Timing Account, person, or group if, in the Manager's judgment,
the Fund would be unable to invest effectively in accordance with its investment
objective and policies, or would otherwise potentially be adversely affected.
Your purchase exchanges may be restricted or refused if the Fund receives or
anticipates simultaneous orders affecting significant portions of the Fund's
assets. In particular, a pattern of exchanges that coincide with a "market
timing" strategy may be disruptive to the Fund and therefore may be refused.
The Fund and Distributors as indicated under "How Do I Buy Shares?" reserve the
right to refuse any order for the purchase of shares.
HOW DO I SELL SHARES?
You may liquidate your shares at any time and receive from the Fund the value of
the shares. If you completely redeem your account after the Fund's assets have
reached $500 million, your account will be closed and you will not be allowed to
buy additional shares of the Fund or reopen your account. This policy does not
apply to retirement plans.
You may redeem shares in any of the following ways:
BY MAIL
Send a written request, signed by all registered owners, to Investor Services,
at the address shown on the back cover of this Prospectus, and any share
certificates which have been issued for the shares being redeemed, properly
endorsed and in order for transfer. You will then receive from the Fund the
value of the shares redeemed based upon the net asset value per share (less a
contingent deferred sales charge, if applicable) next computed after the written
request in proper form is received by Investor Services. Redemption requests
received after the time at which the net asset value is calculated will receive
the price calculated on the following business day. The net asset value per
share is determined as of the scheduled close of the New York Stock Exchange
(the "Exchange") (generally 1:00 p.m. Pacific time) each day that the Exchange
is open for trading. You are requested to provide a telephone number where you
may be reached during business hours, or in the evening if preferred. Investor
Services' ability to contact you promptly when necessary will speed the
processing of the redemption.
TO BE CONSIDERED IN PROPER FORM, SIGNATURES MUST BE GUARANTEED IF THE REDEMPTION
REQUEST INVOLVES ANY OF THE FOLLOWING:
(1) the proceeds of the redemption are over $50,000;
(2) the proceeds (in any amount) are to be paid to someone other than the
registered owners of the account;
(3) the proceeds (in any amount) are to be sent to any address other than the
address of record, preauthorized bank account or brokerage firm account;
(4) share certificates, if the redemption proceeds are in excess of $50,000;
or
(5) the Fund or Investor Services believes that a signature guarantee would
protect against potential claims based on the transfer instructions,
including, for example, when (a) the current address of one or more joint
owners of an account cannot be confirmed, (b) multiple owners have a
dispute or give inconsistent instructions to the Fund, (c) the Fund has
been notified of an adverse claim, (d) the instructions received by the
Fund are given by an agent, not the actual registered owner, (e) the Fund
determines that joint owners who are married to each other are separated or
may be the subject of divorce proceedings, or (f) the authority of a
representative of a corporation, partnership, association, or other entity
has not been established to the satisfaction of the Fund.
Signatures must be guaranteed by an "eligible guarantor institution" as defined
under Rule 17Ad-15 under the Securities Exchange Act of 1934. Generally,
eligible guarantor institutions include (1) national or state banks, savings
associations, savings and loan associations, trust companies, savings banks,
industrial loan companies and credit unions; (2) national securities exchanges,
registered securities associations and clearing agencies; (3) securities dealers
which are members of a national securities exchange or a clearing agency or
which have minimum net capital of $100,000; or (4) institutions that participate
in the Securities Transfer Agent Medallion Program ("STAMP") or other recognized
signature guarantee medallion program. A notarized signature will not be
sufficient for the request to be in proper form.
Where shares to be redeemed are represented by share certificates, the request
for redemption must be accompanied by the share certificate and a share
assignment form signed by the registered owners exactly as the account is
registered, with the signatures guaranteed as referenced above. You are advised,
for your protection, to send the share certificate and assignment form in
separate envelopes if they are being mailed in for redemption.
Liquidation requests of corporate, partnership, trust and custodianship
accounts, and accounts under court jurisdiction require the following
documentation to be in proper form:
Corporation - (1) Signature guaranteed letter of instruction from the authorized
officers of the corporation, and (2) a corporate resolution.
Partnership - (1) Signature guaranteed letter of instruction from a general
partner and (2) pertinent pages from the partnership agreement identifying the
general partners or a certification for a partnership agreement.
Trust - (1) Signature guaranteed letter of instruction from the trustees and (2)
a copy of the pertinent pages of the trust document listing the trustees or a
Certification for Trust if the trustees are not listed on the account
registration.
Custodial (other than a retirement account) - Signature guaranteed letter of
instruction from the custodian.
Accounts under court jurisdiction - Check court documents and applicable state
law since these accounts have varying requirements, depending upon the state of
residence.
Payment for redeemed shares will be sent to you within seven days after receipt
of the request in proper form.
BY TELEPHONE
If you complete the Franklin Templeton Telephone Redemption Authorization
Agreement (the "Agreement"), included with this Prospectus, you may redeem
shares of the Fund by telephone, subject to the Restricted Account exception
noted under "Telephone Transactions - Restricted Accounts. You may obtain
additional information about telephone redemptions by writing to the Fund or
Investor Services at the address shown on the cover or by calling
1-800/632-2301. THE FUND AND INVESTOR SERVICES WILL EMPLOY REASONABLE PROCEDURES
TO CONFIRM THAT INSTRUCTIONS GIVEN BY TELEPHONE ARE GENUINE. YOU, HOWEVER, BEAR
THE RISK OF LOSS IN CERTAIN CASES AS DESCRIBED UNDER "TELEPHONE TRANSACTIONS -
VERIFICATION PROCEDURES."
If your account has a completed Agreement on file, redemptions of uncertificated
shares or shares which have previously been deposited with the Fund or Investor
Services may be made for up to $50,000 per day per Fund account. Telephone
redemption requests received before the scheduled close of the Exchange
(generally 1:00 p.m. Pacific time) on any business day will be processed that
same day. The redemption check will be sent within seven days, made payable to
all the registered owners on the account, and will be sent only to the address
of record.
Redemption requests by telephone will not be accepted within 30 days following
an address change by telephone. In that case, you should follow the other
redemption procedures set forth in this Prospectus. Institutional accounts
(certain corporations, bank trust departments, government entities, and
qualified retirement plans which qualify to purchase shares at net asset value
pursuant to the terms of this Prospectus) that wish to execute redemptions in
excess of $50,000 must complete an Institutional Telephone Privileges Agreement
which is available from the Franklin Templeton Institutional Services Department
by calling 1-800/321-8563.
THROUGH SECURITIES DEALERS
The Fund will accept redemption orders from securities dealers who have entered
into an agreement with Distributors. This is known as a repurchase. The only
difference between a normal redemption and a repurchase is that if you redeem
shares through a dealer, the redemption price will be the net asset value next
calculated after your dealer receives the order which is promptly transmitted to
the Fund, rather than on the day the Fund receives your written request in
proper form. The documents described under "By Mail" above, as well as a signed
letter of instruction, are required regardless of whether you redeem shares
directly or submit such shares to a securities dealer for repurchase. Your
letter should reference the Fund, the account number, the fact that the
repurchase was ordered by a dealer and the dealer's name. Details of the
dealer-ordered trade, such as trade date, confirmation number, and the amount of
shares or dollars, will help speed processing of the redemption. The seven-day
period within which the proceeds of your redemption will be sent will begin when
the Fund receives all documents required to complete ("settle") the repurchase
in proper form. The redemption proceeds will not earn dividends or interest
during the time between receipt of the dealer's repurchase order and the date
the redemption is processed upon receipt of all documents necessary to settle
the repurchase. Thus, it is in your best interest to have the required
documentation completed and forwarded to the Fund as soon as possible. Your
dealer may charge a fee for handling the order. See "How Do I Buy and Sell
Shares?" in the SAI for more information on the redemption of shares.
CONTINGENT DEFERRED SALES CHARGE
In order to recover commissions paid to securities dealers, all or a portion of
investments of $1 million or more redeemed within the contingency period of 12
months of the calendar month of investment will be assessed a contingent
deferred sales charge, unless one of the exceptions described below applies. The
charge is 1% of the lesser of the value of the shares redeemed (exclusive of
reinvested dividends and capital gain distributions) or the net asset value at
the time of purchase of such shares, and is retained by Distributors. The
contingent deferred sales charge is waived in certain instances.
In determining whether a contingent deferred sales charge applies, shares not
subject to a contingent deferred sales charge are deemed to be redeemed first,
in the following order: (i) a calculated number of shares representing amounts
attributable to capital appreciation on shares held less than the contingency
period; (ii) shares purchased with reinvested dividends and capital gain
distributions; and (iii) other shares held longer than the contingency period.
Shares subject to a contingent deferred sales charge will then be redeemed on a
"first in, first out" basis. For tax purposes, a contingent deferred sales
charge is treated as either a reduction in redemption proceeds or an adjustment
to the cost basis of the shares redeemed.
The contingent deferred sales charge is waived, as applicable, for: exchanges;
any account fees; distributions from an individual retirement plan account due
to death or disability or upon periodic distributions based on life expectancy;
tax-free returns of excess contributions from employee benefit plans;
distributions from employee benefit plans, including those due to termination or
plan transfer;] redemptions initiated by the Fund due to an account falling
below the minimum specified account size; redemptions following the death of the
shareholder or beneficial owner; and redemptions through a Systematic Withdrawal
Plan set up for shares prior to February 1, 1995, and for Systematic Withdrawal
Plans set up thereafter, redemptions of up to 1% monthly of an account's net
asset value (3% quarterly, 6% semiannually or 12% annually). For example, if an
account maintained an annual balance of $1,000,000, only $120,000 could be
withdrawn through a once-yearly Systematic Withdrawal Plan free of charge. Any
amount over that $120,000 would be assessed a 1% contingent deferred sales
charge.
All investments made during a calendar month, regardless of when during the
month the investment occurred, will age one month on the last day of that month
and each subsequent month.
Unless otherwise specified, requests for redemptions of a SPECIFIED DOLLAR
amount will result in additional shares being redeemed to cover any applicable
contingent deferred sales charge, while requests for redemption of a SPECIFIC
NUMBER of shares will result in the applicable contingent deferred sales charge
being deducted from the total dollar amount redeemed.
ADDITIONAL INFORMATION REGARDING REDEMPTIONS
The Fund may delay the mailing of the redemption check, or a portion thereof,
until the clearance of the check used to purchase Fund shares, which may take up
to 15 days or more. Although the use of a certified or cashier's check will
generally reduce this delay, shares purchased with these checks will also be
held pending clearance. Shares purchased by federal funds wire are available for
immediate redemption. The right of redemption may be suspended or the date of
payment postponed if the Exchange is closed (other than customary closing) or
upon the determination of the SEC that trading on the Exchange is restricted or
an emergency exists, or if the SEC permits it, by order, for the protection of
shareholders. Of course, the amount received may be more or less than the amount
you invested, depending on fluctuations in the market value of securities owned
by the Fund.
RETIREMENT PLAN ACCOUNTS
Retirement plan account liquidations require the completion of certain
additional forms to ensure compliance with IRS regulations. To liquidate a
retirement plan account, you or your securities dealer may call Franklin's
Retirement Plans Department to obtain the necessary forms.
Tax penalties will generally apply to any distribution from such plans to a
participant under age 59 1/2, unless the distribution meets one of the
exceptions set forth in the Code.
OTHER INFORMATION
Distribution or redemption checks sent to you do not earn interest or any other
income during the time such checks remain uncashed and neither the Fund nor its
affiliates will be liable for any loss caused by your failure to cash such
checks.
"Cash" payments to or from the Fund may be made by check, draft or wire. The
Fund has no facility to receive, or pay out, cash in the form of currency.
For any information required about a proposed liquidation, you may call
Franklin's Shareholder Services Department. Securities dealers may call
Franklin's Dealer Services Department.
TELEPHONE TRANSACTIONS
By calling Investor Services at 1-800/632-2301, you or your investment
representative of record, if any, may be able to execute various telephone
transactions, including to: (i) effect a change in address, (ii) change a
dividend option (see "Restricted Accounts" below), (iii) transfer Fund shares in
one account to another identically registered account in the Fund, (iv) request
the issuance of certificates, to be sent to the address of record only, and (v)
exchange Fund shares as described in this Prospectus by telephone. In addition,
if you complete and file an Agreement as described under "How Do I Sell Shares?
- - By Telephone" you will be able to redeem shares of the Fund.
VERIFICATION PROCEDURES
The Fund and Investor Services will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. These will include:
recording all telephone calls requesting account activity by telephone,
requiring that the caller provide certain personal and/or account information
requested by the telephone service agent at the time of the call for the purpose
of establishing the caller's identification, and by sending a confirmation
statement on redemptions to the address of record each time account activity is
initiated by telephone. So long as the Fund and Investor Services follow
instructions communicated by telephone which were reasonably believed to be
genuine at the time of their receipt, neither they nor their affiliates will be
liable for any loss to you caused by an unauthorized transaction. The Fund and
Investor Services may be liable for any losses due to unauthorized or fraudulent
instructions in the event such reasonable procedures are not followed. You are,
of course, under no obligation to apply for or accept telephone transaction
privileges. In any instance where the Fund or Investor Services is not
reasonably satisfied that instructions received by telephone are genuine, the
requested transaction will not be executed, and neither the Fund nor Investor
Services will be liable for any losses which may occur because of a delay in
implementing a transaction.
RESTRICTED ACCOUNTS
Telephone redemptions and dividend option changes may not be accepted on
Franklin Templeton retirement accounts. To assure compliance with all applicable
regulations, special forms are required for any distribution, redemption, or
dividend payment changes. While the telephone exchange privilege is extended to
Franklin Templeton IRA and 403(b) retirement accounts, certain restrictions may
apply to other types of retirement plans.
To obtain further information regarding distribution or transfer procedures,
including any required forms, retirement account shareholders may call to speak
to a Retirement Plan Specialist at 1-800/527-2020.
GENERAL
During periods of drastic economic or market changes, it is possible that the
telephone transaction privilege will be difficult to execute because of heavy
telephone volume. In such situations, you may wish to contact your investment
representative for assistance, or send written instructions to the Fund as
detailed elsewhere in this Prospectus.
Neither the Fund nor Investor Services will be liable for any losses resulting
from your inability to execute a telephone transaction.
HOW ARE FUND SHARES VALUED?
The net asset value per share of the Fund is determined as of the scheduled
close of the Exchange (generally 1:00 p.m. Pacific time) each day that the
Exchange is open for trading. Many newspapers carry daily quotations of the
prior trading day's closing "bid" (net asset value) and "ask" (offering price,
which includes the maximum front-end sales charge of the Fund).
The net asset value per share of the Fund is determined by deducting the
aggregate gross value of all liabilities from the aggregate gross value of all
assets, and then dividing the difference by the number of shares outstanding.
Assets in the Fund's portfolio are valued as described under "How Are Fund
Shares Valued?" in the SAI.
HOW DO I GET MORE INFORMATION
ABOUT MY INVESTMENT?
Any questions or communications regarding your account should be directed to
Investor Services at the address shown on the back cover of this Prospectus.
From a touch-tone phone, you may access an automated system (day or night) which
offers the following features.
By calling the Franklin TeleFACTS(R) system at 1-800/247-1753, you may obtain
account information, current price and, if available, yield or other performance
information specific to the Fund or any Franklin Templeton Fund. In addition,
you may process an exchange, within the same class, into an identically
registered Franklin account; and request duplicate confirmation or year-end
statements and deposit slips.
The Fund code, which will be needed to access system information, is 150. The
system's automated operator will prompt you with easy to follow step-by-step
instructions from the main menu. Other features may be added in the future.
To assist you and securities dealers wishing to speak directly with a
representative, the following list of Franklin departments, telephone numbers
and hours of operation is provided. The same numbers may be used when calling
from a rotary phone.
HOURS OF OPERATION
(PACIFIC TIME)(MONDAY
DEPARTMENT NAME TELEPHONE NO. THROUGH FRIDAY)
Shareholder Services 1-800/632-2301 5:30a.m. to 5:00p.m.
Dealer Services 1-800/524-4040 5:30a.m. to 5:00p.m.
Fund Information 1-800/DIAL BEN 5:30a.m. to 8:00p.m.
8:30a.m. to 5:00p.m.
(Saturday)
Retirement Plans 1-800/527-2020 5:30a.m. to 5:00p.m.
TDD (hearing impaired) 1-800/851-0637 5:30a.m. to 5:00p.m.
In order to ensure that the highest quality of service is being provided,
telephone calls placed to or by representatives in Franklin's service
departments may be accessed, recorded and monitored. These calls can be
determined by the presence of a regular beeping tone.
HOW DOES THE FUND MEASURE PERFORMANCE?
Advertisements, sales literature and communications to you may contain several
measures of the Fund's performance, including current yield, various expressions
of total return and current distribution rate. They may also occasionally cite
statistics to reflect the Fund's volatility or risk.
Average annual total return figures, as prescribed by the SEC, represent the
average annual percentage change in value of $1,000 invested at the maximum
public offering price (offering price includes sales charge) for one-, five- and
ten-year periods, or portion thereof, to the extent applicable, through the end
of the most recent calendar quarter, assuming reinvestment of all distributions.
The Fund may also furnish total return quotations for other periods or based on
investments at various sales charge levels or at net asset value. For such
purposes, total return equals the total of all income and capital gain paid to
shareholders, assuming reinvestment of all distributions, plus (or minus) the
change in the value of the original investment, expressed as a percentage of the
purchase price.
Current yield reflects the income per share earned by the Fund's portfolio
investments. It is calculated by dividing the Fund's net investment income per
share during a recent 30-day period by the maximum public offering price on the
last day of that period and annualizing the result.
Yield which is calculated according to a formula prescribed by the SEC (see
"General Information" in the SAI) is not indicative of the dividends or
distributions which were or will be paid to the Fund's shareholders. Dividends
or distributions paid to shareholders of the Fund are reflected in the current
distribution rate which may be quoted to you. The current distribution rate is
computed by dividing the total amount of dividends per share paid by the Fund
during the past 12 months by a current maximum offering price. Under certain
circumstances, such as when there has been a change in the amount of dividend
payout, or a fundamental change in investment policies, it might be appropriate
to annualize the dividends paid during the period such policies were in effect,
rather than using the dividends during the past 12 months. The current
distribution rate differs from the current yield computation because it may
include distributions to shareholders from sources other than dividends and
interest, such as premium income from option writing and short-term capital
gain, and is calculated over a different period of time.
In each case, performance figures are based upon past performance, reflect all
recurring charges against Fund income and will assume the payment of the maximum
sales charge on the purchase of shares. When there has been a change in the
sales charge structure, the historical performance figures will be restated to
reflect the new rate. The investment results of the Fund, like all other
investment companies, will fluctuate over time; thus, performance figures should
not be considered to represent what an investment may earn in the future or what
the Fund's 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 each household, as
well as to reduce Fund expenses, Investor Services will attempt to identify
related shareholders within a household and send only one copy of the report.
Additional copies may be obtained, without charge, upon request to the Fund at
the telephone number or address set forth on the cover page of this Prospectus.
Additional information on Fund performance is included in the Fund's Annual
Report to Shareholders and under "General Information" in the SAI.
ORGANIZATION AND VOTING RIGHTS
The Agreement and Declaration of Trust permits the trustees to issue an
unlimited number of shares of beneficial interest of $.01 per share par value,
which may be issued in any number of series or classes. All shares have one vote
and, when issued, are fully paid, non-assessable and redeemable. Shares have no
preemptive, conversion or subscription rights, and are fully transferable.
Shares of each series have equal and exclusive rights as to dividends and
distributions as declared by such series and the net assets of such series upon
liquidation or dissolution. Additional series or classes may be added in the
future by the Board.
All shares have equal voting, dividend and liquidation rights. Voting rights are
noncumulative, so that in any election of trustees, the holders of more than 50%
of the shares voting for the election of trustees can elect 100% of the trustees
if they choose to do so, and if this occurs the holders of the remaining shares
voting will not be able to elect any person or persons to the Board.
The Trust is not required, nor does it intend, to hold annual meetings; it may,
however, hold special shareholder meetings for such purposes as changing
fundamental investment restrictions, approving a new management agreement or any
other matters which are required to be acted on by shareholders under the 1940
Act. A meeting may also be called by a majority of the trustees in their
discretion or by shareholders holding at least ten percent of the shares
entitled to vote at the meeting. Shareholders will receive assistance in
communicating with other shareholders in connection with the election or removal
of trustees as provided in Section 16(c) of the 1940 Act.
REDEMPTIONS BY THE FUND
The Fund reserves the right to redeem your shares, at net asset value, if your
account has a value of less than $1,250 ($500 for an IRA account), but only
where the value of your account has been reduced by your prior voluntary
redemption of shares and has been inactive (except for the reinvestment of
distributions) for a period of at least six months, provided you are given
advance notice. For more information, see "How Do I Buy and Sell Shares?" in the
SAI.
REGISTERING YOUR ACCOUNT
An account registration should reflect your intention as to ownership. Where
there are two co-owners on the account, the account will be registered as "Owner
1" and "Owner 2"; the "or" designation is not used except for money market fund
accounts. If co-owners wish to have the ability to redeem or convert on the
signature of only one owner, a limited power of attorney may be used.
Accounts should not be registered in the name of a minor, either as sole or
co-owner of the account. Transfer or redemption for such an account may require
court action to obtain release of the funds until the minor reaches the legal
age of majority. The account should be registered in the name of one "Adult" as
custodian for the benefit of the "Minor" under the Uniform Transfer or Gifts to
Minors Act.
A trust designation such as "trustee" or "in trust for" should only be used if
the account is being established pursuant to a legal, valid trust document. Use
of such a designation in the absence of a legal trust document may cause
difficulties and require court action for transfer or redemption of the funds.
Shares, whether in certificate form or not, registered as joint tenants or "Jt
Ten" shall mean "as joint tenants with rights of survivorship" and not "as
tenants in common."
Except as indicated, you may transfer an account in the Fund carried in "street"
or "nominee" name by your securities dealer to a comparably registered Fund
account maintained by another securities dealer. Both the delivering and
receiving securities dealers must have executed dealer agreements on file with
Distributors. Unless a dealer agreement has been executed and is on file with
Distributors, the Fund will not process the transfer and will so inform your
delivering securities dealer. To effect the transfer, you should instruct the
securities dealer to transfer the account to a receiving securities dealer and
sign any documents required by the securities dealers to evidence consent to the
transfer. Under current procedures, the account transfer may be processed by the
delivering securities dealer and the Fund after the Fund receives authorization
in proper form from your delivering securities dealer. Account transfers may be
effected electronically through the services of the NSCC.
The Fund may conclusively accept instructions from you or your nominee listed in
publicly available nominee lists, regardless of whether the account was
initially registered in the name of or by you, your nominee, or both. If a
securities dealer or other representative is of record on your account, you will
be deemed to have authorized the use of electronic instructions on the account,
including, without limitation, those initiated through the services of the NSCC,
to have adopted as instruction and signature any such electronic instructions
received by the Fund and Investor Services, and to have authorized them to
execute the instructions without further inquiry. At the present time, such
services which are available include the NSCC's "Networking," "Fund/SERV," and
"ACATS" systems.
Any questions regarding an intended registration should be answered by the
securities dealer handling the investment, or by calling Franklin's Fund
Information Department.
IMPORTANT NOTICE REGARDING
TAXPAYER IRS CERTIFICATIONS
Pursuant to the Code and U.S. Treasury regulations, the Fund may be required to
report to the IRS any taxable dividend, capital gain distribution, or other
reportable payment (including share redemption proceeds) and withhold 31% of any
such payments made to individuals and other non-exempt shareholders who have not
provided a correct taxpayer identification number ("TIN") and made certain
required certifications that appear in the Shareholder Application. You may also
be subject to backup withholding if the IRS or a securities dealer notifies the
Fund that the number furnished by you is incorrect or that you are subject to
backup withholding for previous under-reporting of interest or dividend income.
The Fund reserves the right to (1) refuse to open an account for any person
failing to provide a TIN along with the required certifications and (2) close an
account by redeeming its shares in full at the then-current net asset value upon
receipt of notice from the IRS that the TIN certified as correct by you is in
fact incorrect or upon the failure of a shareholder who has completed an
"awaiting TIN" certification to provide the Fund with a certified TIN within 60
days after opening the account.
USEFUL TERMS AND DEFINITIONS IN THIS PROSPECTUS
DESIGNATED RETIREMENT PLANS - certain retirement plans, including
profit-sharing, pension, 401(k) and simplified employee pension plans, that: (i)
are sponsored by an employer with at least 200 employees; (ii) have aggregate
plan assets of at least $1 million; or (iii) agree to invest at least $1 million
in any of the Franklin Templeton Investments over a 13-month period.
Distributors determines the qualifications for Designated Retirement Plans.
DISTRIBUTORS - Franklin/Templeton Distributors, Inc., the Fund's principal
underwriter.
FRANKLIN FUNDS - the mutual funds in the Franklin Group of Funds(R) except
Franklin Valuemark Funds and the Franklin Government Securities Trust.
FRANKLIN TEMPLETON FUNDS - the Franklin Funds and the Templeton Funds.
FRANKLIN TEMPLETON GROUP - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries.
FRANKLIN TEMPLETON INVESTMENTS - the Franklin Funds, the Templeton Funds and
other investment products underwritten by Distributors or its affiliates.
LETTER - Letter of Intent.
NET ASSET VALUE (NAV) - the value of a mutual fund share determined by deducting
the fund's liabilities from the total assets of the portfolio and dividing this
by the number of shares outstanding. When you buy, sell or exchange shares, we
will use the NAV next calculated after we receive your request in proper form.
NON-DESIGNATED RETIREMENT PLANS - employee benefit plans not included as
"Designated Retirement Plans" and not qualified under Section 401 of the Code.
PROPER FORM (PURCHASES) - generally, the Fund must receive a completed
Shareholder Application accompanied by a negotiable check.
SECURITIES DEALER - financial institutions which, either directly or through
affiliates, have an agreement with Distributors to handle customer orders and
accounts with the Fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity.
TEMPLETON FUNDS - 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.
TRUST COMPANY - Franklin Templeton Trust Company.
FRANKLIN BALANCE SHEET INVESTMENT FUND
STATEMENT OF ADDITIONAL INFORMATION
MARCH 1, 1996
777 MARINERS ISLAND BLVD.,
P.O. BOX 7777
SAN MATEO, CA 94403-7777
1-800/DIAL BEN
CONTENTS PAGE
How Does the Fund Invest Its Assets?
What Are the Fund's Potential Risks?
Investment Restrictions
Officers and Trustees
Investment Advisory and Other Services
How Does the Fund Purchase Securities
For Its Portfolio?
How Do I Buy and Sell Shares?
How Are Fund Shares Valued?
Additional Information Regarding Taxation
The Fund's Underwriter
General Information
Financial Statements
Appendix
Franklin Balance Sheet Investment 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.
A Prospectus for the Franklin Balance Sheet Investment Fund (the "Fund") dated
March 1, 1996, as may be amended from time to time, provides the basic
information you should know before investing in the Fund and may be obtained
without charge from the Fund or from the Fund's principal underwriter,
Franklin/Templeton Distributors, Inc. ("Distributors"), at the address or
telephone number shown above.
THIS STATEMENT OF ADDITIONAL INFORMATION ("SAI") IS NOT A PROSPECTUS. IT
CONTAINS INFORMATION IN ADDITION TO AND IN MORE DETAIL THAN SET FORTH IN THE
PROSPECTUS. THIS SAI IS INTENDED TO PROVIDE YOU WITH ADDITIONAL INFORMATION
REGARDING THE ACTIVITIES AND OPERATIONS OF THE FUND, AND SHOULD BE READ IN
CONJUNCTION WITH THE FUND'S PROSPECTUS.
HOW DOES THE FUND INVEST ITS ASSETS?
As noted in the Prospectus, the Fund's investment objective is to seek 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 will seek capital appreciation primarily through
investment in securities that the Fund's investment manager believes are
undervalued in the marketplace. The Fund will also seek income when deemed
consistent with its objective.
CHARACTERISTICS OF THE CLOSED-END FUNDS
IN WHICH THE FUND WILL INVEST
As stated in the Prospectus, the Fund invests a portion of its total assets (but
may invest without limitation) in the common shares of closed-end funds which
are traded on a national securities exchange or in the over-the-counter markets.
Typically, the common shares of closed-end funds are offered to the public in a
one-time initial public offering by a group of underwriters who retain a spread
or underwriting commission of between 4% and 6% of the initial public offering
price. Such securities are then listed for trading on the New York Stock
Exchange, the American Stock Exchange, the National Association of Securities
Dealers Automated Quotation ("NASDAQ") System and, in some cases, may be traded
in other over-the-counter markets. Because the common shares of closed-end funds
cannot be redeemed upon demand to the issuer like the shares of an open-end
investment company (such as the Fund), investors seek to buy and sell common
shares of closed-end funds in the secondary market.
The Fund also may invest in senior securities, such as preferred stock and debt
obligations, of closed-end funds. Closed-end funds may issue senior securities
for the purpose of leveraging the closed-end fund's common shares in an attempt
to enhance the current return to such closed-end fund's common shareholders. The
Fund's investment in the common shares of closed-end funds that are financially
leveraged may create an opportunity for greater total return on its investment,
but at the same time may be expected to exhibit more volatility in market price
and net asset value than an investment in shares of investment companies without
a leveraged capital structure. The Fund will not invest in senior securities of
closed-end funds rated lower than A by Standard & Poor's Corporation ("S&P") and
Moody's Investors Service ("Moody's") and the Fund will not own more than 3% of
the total outstanding stock (including common and preferred stock and certain
senior securities that have been afforded voting rights as a consequence of the
existence of dividend arrears) of any single closed-end fund.
The Fund generally will only purchase securities of closed-end funds in the
secondary market. The Fund will incur normal brokerage costs on such purchases
similar to the expenses the Fund would incur for the purchase of securities of
any other type of issuer in the secondary market. The Fund may, however, also
purchase securities of a closed-end fund in an initial public offering when, in
the opinion of the investment manager, based on a consideration of the nature of
the closed-end fund's proposed investments, the prevailing market conditions and
the level of demand for such securities, they represent an attractive
opportunity for capital appreciation. The initial offering price will include a
dealer spread, which may be higher than the applicable brokerage cost if the
Fund purchased such securities in the secondary market.
Closed-end funds invest the net proceeds of their public offering in the
securities of other companies consistent with their investment objectives and
policies. Certain closed-end funds seek to provide current income to investors,
others seek to provide appreciation in value, while others may seek a
combination of both income and appreciation. Closed-end funds may have a policy
of investing in certain types of securities such as equity or debt securities;
some may concentrate in particular industry sectors or geographic areas, while
others may invest in a variety of securities to achieve a particular type of
return or a particular tax result. The indicated characteristics and risks apply
to the securities of closed-end funds regardless of whether such securities
trade at a market discount or premium. According to a report from Lipper
Analytical Services, Inc., as of December 31, 1994, there were approximately 531
closed-end funds with assets in excess of $118 billion. In order to comply with
federal tax regulations, the Fund will generally invest in closed-end funds that
qualify as "regulated investment companies" under federal income tax law.
The common shares of many closed-end funds, after their initial public offering,
frequently trade at a price per share which is less than the net asset value per
share, the difference representing the "market discount" of such common shares.
This market discount may be due in part to the investment objective of long-term
appreciation, which is sought by many closed-end funds, as well as to the fact
that the common shares of closed-end funds are not redeemable by the holder upon
demand to the issuer at the next-determined net asset value but rather are
subject to the principles of supply and demand in the secondary market. A
relative lack of secondary market purchasers of closed-end fund common shares
also may contribute to such common shares trading at a discount to their net
asset value.
Although the Fund intends primarily to purchase common shares of closed-end
funds which trade at a market discount and which the investment manager believes
present the opportunity for capital appreciation or increased income due in part
to such market discount, there can be no assurance that the market discount on
common shares of any closed-end fund will ever decrease. In fact, it is possible
that this market discount may increase and the Fund may suffer realized or
unrealized capital losses due to further decline in the market price of the
securities of such closed-end funds, thereby adversely affecting the net asset
value of the Fund's shares. Similarly, there can be no assurance that the common
shares of closed-end funds which trade at a premium will continue to trade at a
premium or that the premium will not decrease subsequent to a purchase of such
shares by the Fund. Although no assurances can be given, the investment manager
believes that its market research and analysis and the diversification policies
of the Fund will enable the Fund to avoid significant declines in the net asset
value of the Fund's shares due to losses related to an individual issuer.
The Fund may also invest in the securities of closed-end funds which (i)
concentrate their portfolios in the issuers of specific industries or in
specific geographic areas and (ii) are non-diversified for purposes of the
Investment Company Act of 1940. as amended (the "1940 Act"). However, because
the Fund does not intend to concentrate its investments in any single industry
and because the closed-end funds in which the Fund will invest will generally
satisfy the diversification requirements applicable to a regulated investment
company under the Internal Revenue Code of 1986, as amended (the "Code") the
Fund does not believe that its investment in closed-end funds which concentrate
in specific industries or geographic areas or which are non-diversified for
purposes of the 1940 Act present any special risks to the shareholders of the
Fund. The Fund will treat its entire investment in the securities of a
closed-end fund that concentrates in a specific industry as an investment in
securities of an issuer in the industry in which such fund concentrates its
portfolio.
The Fund will not invest in the securities of closed-end funds that invest more
than 10% of their assets in the securities of other investment companies. The
Fund will also not invest directly in the securities of open-end investment
companies; however, the Fund may retain the securities of a closed-end
investment company that has converted to open-end fund status subsequent to the
Fund's investment in the securities of such closed-end fund.
1940 ACT PROVISIONS
The Fund will structure its investments in the securities of closed-end funds
and unit investment trusts ("UITs") to comply with applicable provisions of the
1940 Act. The presently applicable provisions require that (i) the Fund and
affiliated persons of the Fund not own together more than 3% of the total
outstanding stock of any one investment company, (ii) the Fund not offer its
shares at a public offering price that includes a sales charge of more than 1.5%
and (iii) the Fund will either seek instructions from its shareholders with
regard to the voting of all proxies with respect to its investment in the
securities of closed-end funds and UITs and vote such proxies only in accordance
with such instructions, or vote the shares held by it in the same proportion as
the vote of all other holders of such securities. For purposes of applying the
3% of total outstanding stock limitation, the Fund will aggregate its purchases
of a closed-end fund or a UIT with the purchases, if any, by other investment
companies managed or sponsored by the investment manager. The Fund intends to
vote the shares of any closed-end fund held by it in the same proportion as the
vote of all other holders of such fund's securities. The effect of such "mirror"
voting is to neutralize the Fund's influence on corporate governance matters
regarding the closed-end funds in which the Fund invests.
Closed-end funds may, under certain circumstances, convert into open-end
investment companies. Pursuant to applicable provisions of the 1940 Act, the
Fund may not redeem more than 1% of the outstanding redeemable securities of an
open-end investment company during any period of 30 days or less. Consequently,
should the Fund own more than 1% of the outstanding redeemable securities of an
open-end investment company after such fund's conversion from closed-end fund
status, the amount in excess of 1% may be treated as an investment in illiquid
securities. Because the Fund may not hold at any time more than 10% of the value
of its total assets in 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), the Fund may seek to divest
itself, prior to any such conversion, of securities in excess of 1% of the
outstanding redeemable securities of a converting fund. The Fund may, however,
retain such securities and any amount in excess of 1% of the open-end fund,
thereby subject to the limits on redemption, would be treated as an investment
in illiquid securities subject to the aggregate limit of 10% of the Fund's total
assets.
The Fund will not invest in the securities of closed-end funds which are managed
by the investment manager or UITs that are sponsored by the investment manager.
The foregoing policy is not a fundamental policy of the Fund and can therefore
be changed by a majority vote of the Board of Trustees of the Fund without any
requirement for a vote of the Fund's shareholders.
WHAT ARE THE FUND'S POTENTIAL RISKS?
FIXED-INCOME SECURITIES. The Fund may invest up to 25% of its total assets in
fixed-income and convertible securities offering high current income, although
it is its current investment strategy to limit such investments to less than 5%
of its net assets (at the time of investment). Such high yielding, fixed-income
securities will ordinarily be in the lower rating categories of recognized
rating agencies or non-rated securities of comparable quality (sometimes
referred to as "junk bonds" in the popular media). The market values of such
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 are higher rated securities. These
lower-rated fixed-income securities are considered by S&P and Moody's, on
balance, as predominantly speculative with respect to 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 securities rated BBB or Baa by S&P and 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 generally is 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 such periods, such issuers may not have sufficient
revenues 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 is 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.
The Fund may have difficulty disposing of such high yielding securities because
there may be a thin trading market for such securities. Because not all dealers
maintain markets in all high yielding, fixed-income securities, there is no
established retail secondary market for many of these securities, and the Fund
anticipates that such securities could be sold only to a limited number of
dealers or institutional investors. To the extent a secondary trading market for
high yielding, fixed-income securities does exist, it is generally not as liquid
as the secondary market for higher rated securities. The lack of a liquid
secondary market may also 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 a
deterioration in the creditworthiness of the issuer. The lack of a liquid
secondary market for certain securities may also make it more difficult for the
Fund to obtain accurate market quotations for purposes of valuing the Fund's
portfolio. Market quotations are generally available on many high yield issues
only from a limited number of dealers and may not necessarily represent firm
bids of such dealers or prices for actual sales.
Potential liquidity problems associated with the Fund's investment in high
yielding securities and other securities in which the Fund invests, such as the
securities of closed-end investment companies, may negatively affect the Fund's
net asset value, liquidity and ability to redeem Fund shares in accordance with
applicable provisions of the 1940 Act.
For fiscal year ended, October 31, 1994, the Fund did not purchase any
securities which were in default, nor did it own any at fiscal year-end.
The Fund is authorized to acquire high yielding, fixed-income securities that
are sold without registration under the federal securities laws and which
therefore carry restrictions on resale. While many recent high yielding
securities have been sold with registration rights, covenants and penalty
provisions for delayed registration, if the Fund is required to sell such
restricted securities before the securities have been registered, it may be
deemed an underwriter of such securities as defined in the Securities Act of
1933, which entails special responsibilities and liabilities. The Fund may incur
special costs in disposing of such securities; however, the Fund will generally
incur no costs when the issuer is responsible for registering the securities.
The Fund may also 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 any person concerning the acquisition
of such securities, and the investment advisor 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. In addition, the Fund may 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 advisor's judgment, analysis and experience in evaluating the
creditworthiness of an issuer. In this evaluation, the investment advisor 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.
INVESTMENT RESTRICTIONS
In addition to the policies stated in the Prospectus, the investment
restrictions set forth below have been adopted by the Fund to limit certain
risks that may otherwise result from investment in specific types of securities
or from engaging in certain types of transactions which such restrictions are
designed to prohibit. Unless specifically approved by the affirmative vote of a
majority of the outstanding voting securities of the Fund, consisting of the
lesser of (i) 67% or more of the Fund's voting securities present at a meeting
of shareholders if the holders of more than 50% of its voting securities are
represented at the meeting or (ii) more than 50% of the Fund's outstanding
voting securities, 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
obligations of any one issuer, except for securities issued or guaranteed by the
U.S. government, its agencies or instrumentalities.
2. Purchase more than 10% of the voting securities, or more than 10% of any
class of securities, of any issuer. For purposes of this restriction, all
outstanding fixed-income securities of an issuer are considered as one class.
3. Invest in the stock of any investment company if a purchase of such stock
would result in the Fund and affiliates of the Fund owning together more than 3%
of the total outstanding stock of such investment company.
4. Borrow money, except from banks, in order to meet redemption requests that
might otherwise require the untimely disposition of portfolio securities or for
other temporary or emergency (not leveraging) 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.
5. 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.
6. Purchase securities on margin or underwrite 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.)
7. Buy or sell interests in oil, gas or mineral exploration or development
programs or leases, or real estate. (Does not preclude investments in marketable
securities of issuers engaged in such activities.)
8. Make loans to others except through the purchase of debt obligations
referred to in the Prospectus and the entry into repurchase agreements and
portfolio lending agreements, provided that the value of securities subject to
such lending agreements may not exceed 25% of the value of the Fund's total
assets. Any loans of portfolio securities will be made according to guidelines
established by the Securities and Exchange Commission ("SEC") and the Fund's
Board of Trustees, including maintenance of collateral of the borrower equal at
all times to at least 102% of the current market value of the securities loaned.
9. 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.
10. Invest 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.
11. 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 company if, to the knowledge of the
Fund, any officer, director or trustee of the Fund or the investment advisor
owns more than 0.5% of the outstanding securities of such company and such
officers, directors and trustees (who own more than 0.5%) in the aggregate own
more than 5% of the outstanding securities of such company.
12. Underwrite the 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.
13. 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.
14. Invest in any issuer for purposes of exercising control or management.
15. 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.
16. 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.
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.
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.
Pursuant to an undertaking given to the Texas State Securities Board, the
Franklin Balance Sheet Investment Fund may not invest in real estate limited
partnerships or in interests (other than publicly traded equity securities) in
oil, gas, or other mineral leases, exploration or development.
OFFICERS AND TRUSTEES
The Board of Trustees (the "Board") has the responsibility for the overall
management of the Fund, including general supervision and review of its
investment activities. The trustees, in turn, elect the officers of the Fund who
are responsible for administering the day-to-day operations of the Fund. The
affiliations of the officers and trustees and their principal occupations for
the past five years are listed below. Trustees who are deemed to be "interested
persons" of the Fund, as defined in the 1940 Act, are indicated by an asterisk
(*).
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(47)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Secretary
Senior Vice President - Legal, Franklin Resources, Inc. and Franklin Templeton
Distributors, Inc.; Vice President, Franklin Advisers, Inc.; and officer of 37
of the investment companies in the Franklin Group of Funds.
Rupert H. Johnson, Jr. (55)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Executive Vice President and Director, Franklin Resources, Inc. and Franklin
Templeton Distributors, Inc.; President and Director, Franklin Advisers, Inc.;
Director, Franklin/Templeton Investor Services, Inc.; and officer and/or
director, trustee or managing general partner, as the case may be, of most other
subsidiaries of Franklin Resources, Inc. and of 43 of the investment companies
in the Franklin Templeton Group of Funds.
Diomedes Loo-Tam (56)
777 Mariners Island Blvd.
San Mateo, CA 94404
Treasurer and Principal Accounting Officer
Employee of Franklin Advisers, Inc.; and officer of 37 of the investment
companies in the Franklin Group of Funds.
Edward V. McVey (58)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Senior Vice President/National Sales Manager, Franklin Templeton Distributors,
Inc.; and officer of 32 of the investment companies in the Franklin Group of
Funds.
R. Martin Wiskemann (68)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Senior Vice President, Portfolio Manager and Director, Franklin Advisers, Inc.;
Senior Vice President, Franklin Management, Inc.; Vice President, Treasurer and
Director, ILA Financial Services, Inc. and Arizona Life Insurance Company of
America; and officer and/or director, as the case may be, of 20 of the
investment companies in the Franklin Group of Funds.
The preceding table indicates those officers and trustee who are also affiliated
persons of Distributors and Advisers. Trustees not affiliated with the
investment manager ("nonaffiliated trustees") are currently paid fees of $600
per quarter plus $300 per meeting attended. As indicated above, certain of the
Fund's nonaffiliated directors also serve as directors, trustees or managing
general partners of other investment companies in the Franklin Group of Funds(R)
and the Templeton Group of Funds (the "Franklin Templeton Group of Funds") from
which they may receive fees for their services. The following table indicates
the total fees paid to nonaffiliated directors by the Fund and by other funds in
the Franklin Templeton Group of Funds.
NUMBER OF BOARDS
IN THE FRANKLIN
TOTAL FEES TEMPLETON GROUP OF
RECEIVED FROM FUNDS ON WHICH
TOTAL FEES THE FRANKLIN EACH SERVES***
RECEIVED FROM GROUP OF FUNDS**
NAME THE TRUST*
Frank T. Crohn $3,900 $14,700 3
Charles Rubens, II $3,900 $15,900 3
Leonard Rubin $3,900 $15,900 3
*For the fiscal year ended October 31, 1995.
**For the calendar year ended December 31, 1994.
***The number of boards is based on the number of registered investment
companies in the Franklin Templeton Group of Funds and does not include the
total number of series or funds within each investment company for which the
trustees are responsible. The Franklin Templeton Group of Funds currently
includes 61 registered investment companies, consisting of approximately 163
U.S. based funds or series.
Nonaffiliated directors 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 director received any other compensation directly from
the Fund. Certain officers or directors who are shareholders of Franklin
Resources, Inc. ("Resources") may be deemed to receive indirect remuneration by
virtue of their participation, if any, in the fees paid to its subsidiaries.
As of December 7, 1995, the trustees and officers, as a group, owned of record
and beneficially approximately 64,792 shares of the Fund, or less than 1% of the
total outstanding shares of the Fund. Many of the Fund's directors also own
shares in various of the other funds in the Franklin Templeton Groups of Funds.
From time to time, the number of Fund shares held in the "street name" accounts
of various securities dealers for the benefit of their clients or in centralized
securities depositories may exceed 5% of the total shares outstanding. To the
best knowledge of the Fund, no other person holds beneficially or of record more
than 5% of the Fund's outstanding shares.
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 Resources, a publicly-owned
holding company whose shares are listed on the New York Stock Exchange (the
"Exchange"). Resources owns several other subsidiaries that are involved in
investment management and shareholder services.
Pursuant to the management agreement, the Manager provides investment research
and portfolio management services, including the selection of securities for the
Fund to purchase, hold or sell and the selection of brokers through whom the
Fund's portfolio transactions are executed. The Manager's activities are subject
to the review and supervision of the Board to whom the Manager renders periodic
reports of the Fund's investment activities. Under the terms of the management
agreement, the Manager provides office space and office furnishings, facilities
and equipment required for managing the business affairs of the Fund; maintains
all internal bookkeeping, clerical, secretarial and administrative personnel and
services; and provides certain telephone and other mechanical services. The
Manager is covered by fidelity insurance on its officers, directors and
employees for the protection of the Fund. Please see the Statement of Operations
in the financial statements included in the Trust's Annual Report to
Shareholders dated October 31.
The Manager also provides management services to numerous other investment
companies or funds pursuant to management agreements with each fund. The Manager
may give advice and take action with respect to any of the other funds it
manages, or for its own account, which may differ from action taken by the
Manager on behalf of the Fund. Similarly, with respect to the Fund, the Manager
is not obligated to recommend, purchase or sell, or to refrain from
recommending, purchasing or selling any security that the Manager and access
persons, as defined by the 1940 Act, may purchase or sell for its or their own
account or for the accounts of any other fund. Furthermore, the Manager is not
obligated to refrain from investing in securities held by the Fund or other
funds which it manages or administers. Of course, any transactions for the
accounts of the Manager and other access persons will be made in compliance with
the Fund's Code of Ethics.
Pursuant to the management agreement, the Fund is obligated to pay the Manager a
fee computed and accrued daily and paid monthly at an annual rate of 0.625 of 1%
for the first $100 million of average daily net assets of the Fund; 0.50 of 1%
on net assets in excess of $100 million up to $250 million; 0.45 of 1% on net
assets in excess of $250 million up to $10 billion; 0.44 of 1% on net assets in
excess of $10 billion up to and including $12.5 billion; 0.42 of 1% on net
assets in excess of $12.5 billion up to and including $15 billion; and 0.40 of
1% on net assets in excess over $15 billion.
In previous years the Manager agreed in advance agreed to waive its management
fees and make certain payments to reduce expenses. This arrangement may be
terminated by the Manager at any time upon notice to the Board. The management
agreement specifies that the management fee will be reduced to the extent
necessary to comply with the most stringent limits on the expenses which may be
borne by the Fund as prescribed by any state in which the Fund's shares are
offered for sale. The most stringent current limit requires the Manager to
reduce or eliminate its fee to the extent that aggregate operating expenses of
the Fund (excluding interest, taxes, brokerage commissions and extraordinary
expenses such as litigation costs) would otherwise exceed in any fiscal year
2.5% of the first $30 million of average net assets of the Fund, 2% of the next
$70 million of average net assets of the Fund and 1.5% of average net assets of
the Fund in excess of $100 million. Expense reductions have not been necessary
based on state requirements. For the fiscal years ended October 31, 1993, and
1994, the Manager waived the management fees the Fund was otherwise
contractually obligated to pay of $65,810 and $111,747, respectively.
Management fees for the fiscal year ended October 31, 1995, when there was no
advance waiver, were $1,325,910.
The management agreement is in effect until March 31, 1996. Thereafter, it may
continue in effect for successive annual periods providing such continuance is
specifically approved at least annually by a vote of the Board or by a vote of
the holders of a majority of the Fund's outstanding voting securities, and in
either event by a majority vote of the Fund's trustees who are not parties to
the management agreement or interested persons of any such party (other than as
trustees of the Fund), cast in person at a meeting called for that purpose. The
management agreement may be terminated without penalty at any time by the Board
or by a vote of the holders of a majority of the Fund's outstanding voting
securities, or by the Manager on 30 days' written notice and will automatically
terminate in the event of its assignment, as defined in the 1940 Act.
Franklin Templeton Investor Services, Inc. ("Investor Services"), 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. During the fiscal year ended October 31,
1995, their auditing services consisted of rendering an opinion on the financial
statements of the Fund included in the Trust's Annual Report to Shareholders
dates October 31, 1995.
HOW DOES THE FUND PURCHASE SECURITIES FOR ITS PORTFOLIO?
Under the current management agreement with Advisers, the selection of brokers
and dealers to execute transactions in the Fund's portfolio is made by the
Manager in accordance with criteria set forth in the management agreement and
any directions which the Board may give.
When placing a portfolio transaction, the Manager attempts to obtain the best
net price and execution of the transaction. On portfolio transactions 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 that 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
interest, the Manager may place portfolio transactions with brokers who provide
the types of services described below, even if it means the Fund will pay a
higher commission than 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 services 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 the Manager 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.
During the past three fiscal years ended on October 31, the Fund paid total
brokerage commissions of $143,849, $922,550, and $851,495 respectively. As of
October 31, 1995, the Fund did not own securities of its regular broker-dealers.
HOW DO I BUY AND SELL SHARES?
All checks, drafts, wires and other payment mediums used for purchasing or
redeeming shares of the Fund must be denominated in U.S. dollars. The Fund
reserves the right, in its sole discretion, to either (a) reject any order for
the purchase or sale of shares denominated in any other currency, or (b) to
honor the transaction or make adjustments to your account for the transaction as
of a date and with a foreign currency exchange factor determined by the drawee
bank.
In connection with exchanges, it should be noted that since the proceeds from
the sale of shares of an investment company are generally not available until
the fifth business day following the redemption, the funds into which you are
seeking to exchange reserve the right to delay issuing shares pursuant to an
exchange until said fifth business day. The redemption of shares of the Fund to
complete an exchange will be effected at the close of business on the day the
request for exchange is received in proper form at the net asset value then
effective. Please see "What If My Investment Outlook Changes? - Exchange
Privilege" in the Prospectus.
If, in connection with the purchase of Fund shares, you submit a check or a
draft that is returned unpaid to the Fund, the Fund may impose a $10 charge
against your account for each returned item.
Dividend checks returned to the Fund marked "unable to forward" by the postal
service will be deemed to be a request to change your dividend option to
reinvest all distributions and the proceeds will be reinvested in additional
shares at net asset value until new instructions are received.
The Fund may deduct from your account the costs of its efforts to locate you if
mail is returned as undeliverable or the Fund is otherwise unable to locate you
or verify your current mailing address. These costs may include a percentage of
the account when a search company charges a percentage fee in exchange for its
location services.
Under agreements with certain banks in Taiwan, Republic of China, the Fund's
shares are available to such banks' discretionary trust funds at net asset
value. The banks may charge service fees to their customers who participate in
the discretionary trusts. Pursuant to agreements, a portion of such service fees
may be paid to Distributors, or one of its affiliates, to help defray expenses
of maintaining a service office in Taiwan, including expenses related to local
literature fulfillment and communication facilities.
PURCHASES AND REDEMPTIONS
THROUGH SECURITIES DEALERS
Orders for the purchase of shares of the Fund received in proper form prior to
the scheduled close of the Exchange (generally 1:00 p.m. Pacific time) any
business day that the Exchange is open for trading and promptly transmitted to
the Fund will be based upon the public offering price determined that day.
Purchase orders received by securities dealers or other financial institutions
after the scheduled close of the Exchange will be effected at the Fund's public
offering price on the day it is next calculated. The use of the term "securities
dealer" herein shall include other financial institutions which, either directly
or through affiliates, have an agreement with Distributors to handle customer
orders and accounts with the Fund. Such reference, however, is for convenience
only and does not indicate a legal conclusion of capacity.
Orders for the redemption of shares are effected at net asset value subject to
the same conditions concerning time of receipt in proper form. It is the
securities dealer's responsibility to transmit the order in a timely fashion and
any loss to you resulting from the failure to do so must be settled between you
and the securities dealer.
SPECIAL NET ASSET VALUE PURCHASES
As discussed in the Prospectus under "How Do I Buy Shares? - General," either
Distributors or one of its affiliates may make payments, out of its own
resources, to securities dealers who initiate and are responsible for purchases
made at net asset value by certain trust companies and trust departments of
banks, certain designated retirement plans (excluding IRA and IRA Rollovers),
certain non-designated plans, and certain retirement plans of organizations with
collective retirement plan assets of $10 million or more, as described 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 shares are redeemed within 12
months of the calendar month of purchase. Other conditions may apply. All terms
and conditions may be imposed by an agreement between Distributors, or one of
its affiliates, and the securities dealer.
Either Distributors or one of its affiliates may pay the following amounts, out
of its own resources, 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): 1% on sales of $1 million but less than $2
million, plus 0.80% on sales of $2 million but less than $3 million, plus 0.50%
on sales of $3 million but less than $50 million, plus 0.25% on sales of $50
million but less than $100 million, plus 0.15% on sales of $100 million or more;
and for purchases made at net asset value by certain 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, either Distributors,
or one of its affiliates, out of its own resources, may pay up to 1% of the
amount invested.
LETTER OF INTENT
You may qualify for a reduced sales charge on the purchase of shares of the
Fund, as described in the Prospectus. At any time within 90 days after the first
investment which you want to qualify for a reduced sales charge, you may file
with the Fund a signed Shareholder Application, with the Letter of Intent (the
"Letter") section completed. After the Letter is filed, each additional
investment will be entitled to the sales charge applicable to the level of
investment indicated on the Letter. Sales charge reductions based upon purchases
in more than one of the Franklin Templeton Funds, will be effective only after
notification to Distributors that the investment qualifies for a discount. Your
holdings in the Franklin Templeton Funds, including Class II shares, acquired
more than 90 days before the Letter is filed, will be counted towards completion
of the Letter but will not be entitled to a retroactive downward adjustment in
the sales charge. Any redemptions you make, unless by a designated retirement
plan, during the 13-month period will be subtracted from the amount of the
purchases for purposes of determining whether the terms of the Letter have been
completed. If the Letter is not completed within the 13-month period, there will
be an upward adjustment of the sales charge, depending upon the amount actually
purchased (less redemptions) during the period. The upward adjustment does not
apply to designated retirement plans. If you execute a Letter prior to a change
in the sales charge structure for the Fund, you will be entitled to complete the
Letter at the lower of the new sales charge structure or the sales charge
structure in effect at the time the Letter was filed.
As mentioned in the Prospectus, five percent (5%) of the amount of the total
intended purchase will be reserved in shares of the Fund registered in your
name. This policy of reserving shares does not apply to a designated retirement
plan. If the total purchases, less redemptions, equal the amount specified under
the Letter, the reserved shares will be deposited to an account in your name or
delivered to you or your order. If the total purchases, less redemptions, exceed
the amount specified under the Letter and is an amount which would qualify for a
further quantity discount, a retroactive price adjustment will be made by
Distributors and the securities dealer through whom purchases were made pursuant
to the Letter (to reflect such further quantity discount) on purchases made
within 90 days before and on those made after filing the Letter. The resulting
difference in offering price will be applied to the purchase of additional
shares at the offering price applicable to a single purchase or the dollar
amount of the total purchases. If the total purchases, less redemptions, are
less than the amount specified under the Letter, you will remit to Distributors
an amount equal to the difference in the dollar amount of sales charge actually
paid and the amount of sales charge that would have applied to the aggregate
purchases if the total of such purchases had been made at a single time. Upon
such remittance, the reserved shares held for your account will be deposited to
an account in you name or delivered to you or your order. If within 20 days
after written request the difference in sales charge is not paid, the redemption
of an appropriate number of reserved shares to realize the difference will be
made. In the event of a total redemption of the account prior to fulfillment of
the Letter, the additional sales charge due will be deducted from the proceeds
of the redemption, and the balance will be forwarded to you.
If a Letter is executed on behalf of a designated retirement plan, the level and
any reduction in sales charge for these plans will be based on actual plan
participation and the projected investments in the Franklin Templeton Funds
under the Letter. These plans are not subject to the requirement to reserve 5%
of the total intended purchase, or to any penalty as a result of the early
termination of a plan, nor are benefit plans entitled to receive retroactive
adjustments in price for investments made before executing the Letter.
REDEMPTIONS IN KIND
The Fund has committed itself to pay in cash (by check) all requests for
redemption by any shareholder of record, limited in amount, however, during any
90-day period to the lesser of $250,000 or 1% of the value of the Fund's net
assets at the beginning of the 90-day period. This commitment is irrevocable
without the prior approval of the Securities and Exchange Commission ("SEC"). In
the case of redemption requests in excess of these amounts, the trustees reserve
the right to make payments in whole or in part in securities or other assets of
the Fund, in case of an emergency, or if the payment of such a redemption in
cash would be detrimental to the existing shareholders of the Fund. In such
circumstances, the securities distributed would be valued at the price used to
compute the Fund's net assets. Should the Fund do so, you may incur brokerage
fees in converting the securities to cash. The Fund does not intend to redeem
illiquid securities in kind. Should it happen, however, you may not be able to
recover your investment in a timely manner and you may incur brokerage costs in
selling the securities.
REDEMPTIONS BY THE FUND
Due to the relatively high cost of handling small investments, the Fund reserves
the right to involuntarily redeem your shares at net asset value if your account
has a value of less than one-half of your initial required minimum, but only
where the value of your account has been reduced by the prior voluntary
redemption of shares. Until further notice, it is the present policy of the Fund
not to exercise this right if your account has a value of $50 or more. In any
event, before the Fund redeems your shares and sends you the proceeds, it will
notify you that the value of the shares in your account is less than the minimum
amount and allow you 30 days to make an additional investment in an amount which
will increase the value of your account to at least $100.
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 the "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 its
performance and portfolio holdings to shareholders. If you 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, that maintain omnibus
accounts with the Fund on behalf of numerous beneficial owners, for
recordkeeping operations performed with respect to such beneficial owners. For
each 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. These financial institutions may also charge a fee for their services
directly to their clients.
HOW ARE FUND SHARES VALUED?
As noted in the Prospectus, the Fund calculates net asset value as of the
scheduled close of the Exchange (generally 1:00 p.m. Pacific time) each day that
the Exchange is open for trading. As of the date of this SAI, the Fund is
informed that the Exchange observes the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
The net asset value per share of the Fund is determined in the following manner:
The aggregate of all liabilities, including without limitation the current
market value of any outstanding options written by the Fund, accrued expenses
and taxes and any necessary reserves is deducted from the aggregate gross value
of all assets, and the difference is divided by the number of shares of the Fund
outstanding at the time. 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 portfolio securities for which market quotations are readily
available are valued within the range of the most recent bid and ask prices as
obtained from one or more dealers that make markets in the securities. 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 sales 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. In the case of
securities of closed-end funds, the last quoted sales price, or the mean between
the quoted bid and ask prices, may be lower or higher than the net asset value
of such securities. 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 close of the Exchange. The value of these securities used in
computing the net asset value of the Fund's shares is 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 close of the
Exchange which will not be reflected in the computation of the Fund's net asset
value. If events materially affecting the values of these securities occur
during such period, then the securities will be valued at their fair value as
determined in good faith by the Board.
ADDITIONAL INFORMATION
REGARDING TAXATION
As stated in the Prospectus, the Fund has elected to be treated as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). The Trustees reserve the right not to maintain the
qualification of the Fund as a regulated investment company if they determine
such course of action to be beneficial to 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 a 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.
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.
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 March 31, 1996,
Distributors acts as principal underwriter in a continuous public offering for
shares of the Fund. The underwriting agreement will continue in effect for
successive annual periods provided that its continuance is specifically approved
at least annually by a vote of the Board or by a vote of the holders of a
majority of the Fund's outstanding voting securities, and in either event by a
majority vote of the 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 the distribution of Fund shares, including
advertising expenses and the costs of printing sales material and prospectuses
used to offer shares to the public. The Fund pays the expenses of preparing and
printing amendments to its registration statements and prospectuses (other than
those necessitated by the activities of Distributors) and of sending
prospectuses to existing shareholders.
Distributors allows the entire underwriting commission on the sale of Fund
shares to the securities dealer of record, if any, on an account. In connection
with the offering of the Fund's shares, aggregate underwriting commissions for
the fiscal years ended October 31, 1993, 1994 and 1995 were $143,922, $953,869
and $1,801,511, respectively. After allowances to dealers, Distributors retained
$73, and $31,319, in net underwriting discounts and commissions in 1993 and
1994, respectively and nothing in 1995. Distributors may be entitled to
reimbursement under the Fund's distribution plan, as discussed below. Except as
noted, Distributors received no other compensation from the Fund for acting as
underwriter.
DISTRIBUTION PLAN
The Fund has adopted a distribution plan (the "Plan") pursuant to Rule 12b-1
under the 1940 Act. The Plan provides that the Fund shall pay Distributors or
others monthly at a rate of 0.25% per annum of average net assets for certain
expenses incurred in the distribution of Fund shares. In addition, the Plan
provides that up to an additional 0.25% may be paid to Distributors or others as
a service fee to reimburse such service providers for personal services to
shareholders of the Fund and/or the maintenance of shareholder accounts. Thus,
the amounts payable under the Plan total 0.50%. The basic terms of the Plan are
set forth in the Prospectus.
In addition to the payments to which Distributors or others are entitled under
the Plan, the Plan also provides that to the extent the Fund, the Manager or
Distributors or other parties on behalf of the Fund, the Manager or
Distributors, make payments that are deemed to be payments for the financing of
any activity primarily intended to result in the sale of shares of the Fund
within the context of Rule 12b-1 under the 1940 Act, then such payments shall be
deemed to have been made pursuant to the Plan.
In no event shall the aggregate asset-based sales charges which include payments
made under the Plan, plus any other payments deemed to be made pursuant to the
Plan, exceed the amount permitted to be paid pursuant to the Rules of Fair
Practice of the National Association of Securities Dealers, Inc., Article III,
Section 26(d)4.
The terms and provisions of the Plan relating to required reports, term, and
approval are consistent with Rule 12b-1.
To the extent fees are for distribution or marketing functions, as distinguished
from administrative servicing or agency transactions, certain banks will not be
entitled to participate in the Plan as a result of applicable federal law
prohibiting certain banks from engaging in the distribution of mutual fund
shares. Such banking institutions, however, are permitted to receive fees under
the Plan for administrative servicing or for agency transactions. If you are a
customer of a bank that is prohibited from providing such services, you would be
permitted to remain a shareholder of the Fund, and alternate means for
continuing the servicing would be sought. In such an event, changes in the
services provided might occur and you might no longer be able to avail yourself
of any automatic investment or other services then being provided by the bank.
It is not expected that you would suffer any adverse financial consequences as a
result of any of these changes.
The Plan has been approved in accordance with the provisions of Rule 12b-1. The
Plan is effective through March 31, 1996, and renewable annually by a vote of
the Board, including a majority vote of the trustees who are non-interested
persons of the Fund 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 penalty, by vote of a majority of the
outstanding voting shares of the Fund, or by vote of a majority of the
non-interested trustees on 60 days' written notice, or by Distributors on 60
days' written notice, or by any act that constitutes an assignment of the
management agreement with the Manager or the underwriting agreement with
Distributors. Distributors or any dealer or other firm may also terminate their
respective distribution or service agreement at any time upon written notice.
The Plan and any related agreements may not be amended to increase materially
the amount to be spent for distribution expenses without approval by a majority
of the Fund's outstanding shares, and all material amendments to the Plan or any
related agreements shall be approved by a vote of the non- interested trustees,
cast in person at a meeting called for the purpose of voting on any such
amendment.
Distributors is required to report in writing to the Board at least quarterly on
the amounts and purpose of any payment made under the Plan and any related
agreements, as well as to furnish the Board with such other information as may
reasonably be requested in order to enable the Board to make an informed
determination of whether the Plan should be continued.
For the fiscal year ended October 31, 1995, the total amount paid by the Fund
pursuant to the Plan was $1,068,865, which was used for the following purposes.
DOLLAR
AMOUNT
Advertising $ 65,454
Printing and mailing of prospectuses
to other than current shareholders $ 33,991
Payments to underwriters $ 29,281
Payments to broker-dealers $940,139
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 and 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 currently in effect.
In considering the quotations of total return by the Fund, you should remember
that the 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 your investment in the Fund. This charge will affect
actual performance less the longer you retain your investment in the Fund. The
Fund's average annual compounded rates of return for the indicated periods ended
on October 31, 1995 were as follows:
PERIOD ENDING OCTOBER 31, 1995:
One Year 17.51%
From inception (April 2, 1990) 14.67%
These figures were calculated according to the SEC formula:
n
P(1+T) = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the one-, five- or ten-year periods at the end of the one-,
five- or ten-year periods (or fractional portion thereof)
As discussed in the Prospectus, the Fund may quote total rates of return in
addition to its average annual total return. These quotations are computed in
the same manner as the Fund's average annual compounded rate, except they 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. The Fund's total rates of return for the indicated periods ended on
October 31, 1995 were as follows:
PERIOD ENDING OCTOBER 31, 1995
One Year 17.51%
From inception (April 2, 1990) 114.85%
YIELD
Current yield reflects the income per share earned by the Fund's portfolio
investments and is determined by dividing the net investment income per share
earned during a 30-day base period by the maximum offering price per share on
the last day of the period and annualizing the result. Expenses accrued for the
period include any fees charged to all shareholders during the base period. The
Fund's yield for the 30-day period ended on October 31, 1995 was 1.23%.
This figure was 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 (net of reimbursements)
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
The above formula will be used in calculating quotations of yield, based on
specified 30-day periods identified in the advertisement or communication. Yield
calculations assume the maximum applicable sales load.
The Fund's current yield and total return may be compared to relevant indices,
including U.S. domestic and international taxable bond indices and data from
Lipper Analytical Services, Inc. or S&P's Indices.
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 shareholders of the
Fund. 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 S&P'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 idea is that greater volatility means greater risk undertaken in achieving
performance.
OTHER PERFORMANCE QUOTATIONS
For 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.
You should note that the investment results of the Fund will fluctuate over
time, and any presentation of the Fund's current yield or total return for any
period should not be considered as a representation of what an investment may
earn or what your total return or yield may be in any future period. You should
also note that although the Fund believes that there are substantial benefits to
be realized by investing in the shares of closed-end funds, these investments
also involve certain risks. Please see "What Are the Fund's Potential Risks?" in
the Prospectus.
The Fund may include in its advertising or sales material information relating
to investment objectives and performance results of funds belonging to the
Templeton Group of Funds. Resources is the parent company of the advisors and
underwriter of both the Franklin Group of Funds and Templeton Group of Funds.
COMPARISONS
To help you better evaluate how an investment in the Fund might satisfy your
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 of total return and average current yield for the
mutual fund industry. Rank individual mutual fund performance over specified
time periods, assuming reinvestment of all distributions, exclusive of any
applicable sales charges.
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) Valueline Index - an unmanaged index which follows the stocks of
approximately 1,700 companies.
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) Historical data supplied by the research departments of First Boston
Corporation, the J. P. Morgan companies, Salomon Brothers, Merrill Lynch,
Pierce, Fenner & Smith, Lehman Brothers and Bloomberg L.P.
k) 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.
l) Morgan Stanley Capital International World Indices, including, among others,
the Morgan Stanley Capital International Europe, Australia, Far East Index
("EAFE Index"). The EAFE index is an unmanaged index of more than 1,000
companies of Europe, Australia and the Far East.
m) Financial Times Actuaries Indices - including the FTA-World Index (and
components thereof), which are based on stocks in major world equity markets.
n) The Russell 1000 Value Index is a total return index that comprises stocks
from the Russell 1000 Index with a less than average growth orientation. The
average market capitalization (as of November 31, 1995) is $18.99 billion.
From time to time, evaluations of the Fund's performance by independent sources
may be used in advertisements and in information furnished to present or
prospective shareholders. Fund advertisements or information for the Fund may
include a discussion of the benefits of investing in the shares of closed-end
investment companies by purchasing the shares of a mutual fund, such as the
Fund, which invest a substantial portion of its assets in closed-end fund
shares. Such advertisements or information may include symbols, headlines or
other material which highlights or summarizes 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. Further, it may be
noted that the Fund is the first to offer the research and potential benefits of
buying discounted securities in the mutual fund format.
Advertisements or information may also compare the Fund's performance to the
return on certificates of deposit or other investments. You should be aware,
however, that an investment in the Fund involves the risk of fluctuation of
principal value, a risk generally not present in an investment in a certificate
of deposit issued by a bank. For example, as the general level of interest rates
rise, the value of the Fund's fixed-income investments, as well as the value of
its shares which are based upon the value of such portfolio investments, can be
expected to decrease. Conversely, when interest rates decrease, the value of the
Fund's shares can be expected to increase. Certificates of deposit are
frequently insured by an agency of the U.S. government. An investment in the
Fund is not insured by any federal, state or private entity.
In assessing comparisons of performance, you should keep in mind that the
composition of the investments in the reported indices and averages is not
identical to the Fund's portfolio, the indices and averages are generally
unmanaged, and the items included in the calculations of the averages may not be
identical to the formula used by the Fund to calculate its figures. In addition,
there can be no assurance that the Fund will continue its performance as
compared to such other averages.
OTHER FEATURES AND BENEFITS
The Fund may help you achieve various investment goals such as accumulating
money for retirement, saving for a down payment on a home, college costs and/or
other long-term goals. The Franklin College Costs Planner may assist you in
determining how much money must be invested on a monthly basis in order to have
a projected amount available in the future to fund a child's college education.
(Projected college cost estimates are based upon current costs published by the
College Board.) The Franklin Retirement Planning Guide leads you through the
steps to start a retirement savings program. Of course, an investment in the
Fund cannot guarantee that such goals will be met.
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 has over $130
billion in assets under management for more than 3.9 million U.S. based mutual
fund shareholder and other accounts. The Franklin Group of Funds and the
Templeton Group of Funds offers to the public 115 U.S. based mutual funds. The
Fund may identify itself by its NASDAQ symbol or CUSIP number.
The Dalbar Surveys, Inc. broker-dealer survey has ranked Franklin number one
in service quality for five of the past seven years.
Employees of Resources or its subsidiaries who are access persons under the 1940
Act are permitted to engage in personal securities transactions subject to the
following general restrictions and procedures: (i) the trade must receive
advance clearance from a compliance officer and must be completed within 24
hours after clearance; (ii) copies of all brokerage confirmations must be sent
to a 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; and (iii) access persons involved in preparing and making
investment decisions must, in addition to (i) and (ii) above, file annual
reports of their securities holdings each January and 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.
OWNERSHIP AND AUTHORITY DISPUTES
In the event of disputes involving multiple claims of ownership or authority to
control your, 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.
MISCELLANEOUS
The organizational expenses of the Fund are being amortized on a straight line
basis over a period of five years from the commencement of the offering of the
Fund's shares. Investors purchasing shares of the Fund after the effective date
of the Fund's Registration Statement under the Securities Act of 1933 will be
bearing such expenses during the amortization period only as such charges are
accrued daily against the investment income of the Fund.
(See "Notes to Financial Statement.")
The Fund is registered with the SEC as a management investment company. Such
registration does not involve supervision of the management or policies of the
Fund. The Prospectus and this SAI omit certain of the information contained in
the Registration Statement filed with the SEC, copies of which may be obtained
from the SEC upon payment of the prescribed fee.
As a shareholder of a Massachusetts business trust, you could, under certain
circumstances, be held personally liable as a partner for its obligations. The
Fund's Agreement and Declaration of Trust, however, contains an express
disclaimer of shareholder liability for acts or obligations of the Fund. The
Declaration of Trust also provides for indemnification and reimbursement of
expenses out of the Fund's assets if you are 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 you 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 you
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.
FINANCIAL STATEMENTS
The audited financial statements contained in the Annual Report to Shareholders
of the Trust dated October 31, 1995, including the auditors' report, are
incorporated herein by reference.
APPENDIX
S&P
LONG-TERM DEBT
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from AAA issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in the higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C: Debt rated BB, B, CCC, CC and C is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
CI: The rating CI is reserved for income bonds on which no interest is being
paid.
D: Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
PLUS (+) OR MINUS (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
NR: Indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy.
COMMERCIAL PAPER
A S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
Ratings are graded into four categories, ranging from A for the highest quality
obligations to D for the lowest. The top two categories are as follows:
A: Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety.
A-1: This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) sign
designation.
NOTES
A S&P note rating reflects the liquidity concerns and market access risks unique
to notes. Notes due in three years or less will likely receive a note rating.
Notes maturing beyond three years will most likely receive a long-term debt
rating. The following criteria will be used in making that assessment:
- - Amortization schedule (the larger the final maturity relative to other
maturities the more likely it will be treated as a note).
- - Source of payment (the more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note).
Note rating symbols are as follows:
SP-1: Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
(+) designation.
SP-2: Satisfactory capacity to pay principal and interest.
SP-3: Speculative capacity to pay principal and interest.
MOODY'S
LONG-TERM DEBT
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 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 fluctuations or protective elements
may be of greater amplitude or there may be other elements present which make
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 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 are the lowest rated class of
bonds. Issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
NONRATED: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not rated as
a matter of policy.
3. There is a lack of essential data pertaining to the issuer.
4. The issue was privately placed, in which case the rating is not published
in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonably up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believe
possess the strongest investment attributes are designated by the symbols Aa 1,
A 1, Baa 1, Ba 1 and B 1.
SHORT-TERM DEBT
Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually senior debt obligations which have an original maturity not exceeding
one year.
Among the obligations covered are commercial paper, Eurocommercial paper, bank
deposits, bankers' acceptances and obligations to deliver foreign exchange.
Obligations relying upon support mechanisms such as letters-of-credit and bonds
of indemnity are excluded unless explicitly rated. Issuers rated Prime-1 (or
supporting institutions) have a superior ability for repayment of senior short
term debt obligations. Prime-1 repayment ability will often be evidenced by many
of the following characteristics:
- - Leading market positions in well-established industries.
- - High rates of return on funds employed.
- - Conservative capitalization structure with moderate reliance on debt and ample
asset protection.
- - Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- - Well-established access to a range of financial markets and assured sources of
alternate liquidity.
FRANKLIN VALUE INVESTORS TRUST
File Nos. 33-31326
811-5878
FORM N-1A
PART C
Other Information
Item 24 Financial Statements and Exhibits
(a) Financial Statements incorporated herein by reference to the
Registrant's Annual Report to Shareholders dated October 31, 1995
as filed with the SEC electronically on form type N-30D on
December 28, 1995
(i) Report of Independent Auditors, dated December 8, 1995.
(ii) Statement of Investments in Securities and Net Assets, October
31, 1995.
(iii) Statement of Assets and Liabilities - October 31 1995.
(iv) Statement of Operations - for the year ended October 31, 1995.
(v) Statements of Changes in Net Assets - for the years ended October
31, 1995 and 1994.
(vi) Notes to Financial Statements
b) Exhibits:
The following exhibits, where applicable, are herewith incorporated by
reference to the filings as noted with the exception of exhibits 5(ii),
11(i), 15(ii), 15(iii), 16(i), 17(i), 17(ii) and (27)
(1) copies of the charter as now in effect;
(i) Agreement and Declaration of Trust dated September 11,
1989
Filing: Post Effective Amendment No. 8 to
Registration Statement on Form N-1A
File No. 33-31326
Filing Date: September 21, 1995
(ii) Certificate of Amendment of Agreement and Declaration
of Trust of Franklin Balance Sheet Investment Fund
dated September 21, 1995
Filing: Post Effective Amendment No. 9 to Registration
Statement on Form N-1A
File No. 33-31326
Filing Date: December 26, 1995
(2) copies of the existing By-Laws or instruments corresponding
thereto;, defining the rights of the holders of such
securities, and copies of each security being registered;
(i) By-Laws
Filing: Post Effective Amendment No. 8 to Registration
Statement on Form N-1A
File No. 33-31326
Filing Date: September 21, 1995
(5) copies of all investment advisory contracts relating to the
management of the assets of the Registrant;
(i) Management Agreement between Franklin Balance Sheet
Investment Fund and Franklin Advisers, Inc. dated
April 2, 1990
Filing: Post Effective Amendment No. 8 to
Registration Statement on Form N-1A
File No. 33-31326
Filing Date: September 21, 1995
(ii) Management Agreement on behalf of Franklin
MicroCap Value Fund and Franklin Advisers, Inc.
dated December 12, 1995
(iii)Form of Management Agreement on behalf of Franklin
Value Fund and Franklin Advisers, Inc.
Filing: Post Effective Amendment No. 9 to
Registration Statement on Form N-1A
File No. 33-31326
Filing Date: December 26, 1995
(6) copies of each underwriting or distribution contract between
the Registrant and a principal underwriter, and specimens or
copies of all agreements between principal underwriters and
dealers;
(i) Distribution Agreement between Registrant and Franklin
Distributors, Inc. dated April 12, 1990
Filing: Post Effective Amendment No. 8 to
Registration Statement on Form N-1A
File No. 33-31326
Filing Date: September 21, 1995
(ii) Forms of dealer agreements between Registrant and
Franklin/Templeton Distributors, Inc.
Filing: Post Effective Amendment No. 8 to
Registration Statement on Form N-1A
File No. 33-31326
Filing Date: September 21, 1995
(7) copies of all bonus, profit sharing, pension or other similar
contracts or arrangements wholly or partly for the benefit
of Trustees or officers of the Registrant in their capacity
as such; any such plan that is not set forth in a formal
document, furnish a reasonably detailed description thereof;
N/A
(8) copies of all custodian agreements and depository contracts
under Section 17(f) of the Investment Company Act of 1940
(the "1940 Act"), with respect to securities and similar
investments of the Registrant, including the schedule of
remuneration;
(i) Custodian Agreement between Registrant and Bank of
America NT & SA dated June 12, 1991
Filing: Post Effective Amendment No. 8 to
Registration Statement on Form N-1A
File No. 33-31326
Filing Date: September 21, 1995
(ii) Copy of Custodian Agreements between Registrant and
Citibank Delaware:
1. Citicash Management ACH Customer
Agreement
2. Citibank Cash Management Services
Master Agreement
3. Short Form Bank Agreement - Deposit
and Disbursements of Funds
Registrant: Franklin Equity Fund
Filing: Post Effective Amendment No. 79 to
Registration on Form N-1A
File No. 33-31326
Filing Date: September 1, 1992
(iii) Amendment to Custodian Agreement between Registrant
and Bank of America NT & SA dated April 12, 1995
Filing: Post Effective Amendment No. 8 to
Registration Statement on Form N-1A
File No. 33-31326
Filing Date: September 21, 1995
(9) copies of all other material contracts not made in the
ordinary course of business which are to be performed in
whole or in part at or after the date of filing the
Registration Statement;
N/A
(10) an opinion and consent of counsel as to the legality of the
securities being registered, indicating whether they will
when sold be legally issued, fully paid and nonassessable;
(i) Opinion and Consent of Counsel dated December 1, 1989
Filing: Post Effective Amendment No. 8 to
Registration Statement on Form N-1A
File No. 33-31326
Filing Date: September 21, 1995
(11) copies of any other opinions, appraisals or rulings and
consents to the use thereof relied on in the preparation of
this registration statement and required by Section 7 of the
1933 Act;
Consent of Independent Auditors
(12) all financial statements omitted from Item 23;
N/A
(13) copies of any agreements or understandings made in
consideration for providing the initial capital between or
among the Registrant, the underwriter, adviser, promoter or
initial stockholders and written assurances from promoters
or initial stockholders that their purchases were made for
investment purposes without any present intention of
redeeming or reselling;
(i) Letter of Understanding relating to Initial Capital
of Franklin Balance Sheet Investment Fund dated
November 17, 1989
Filing: Post Effective Amendment No. 7 to
Registration Statement on Form N-1A
File No. 33-31326
Filing Date: September 21, 1995
(ii) Letter of Understanding relating to Initial Capital
of Franklin MicroCap Value Fund dated November 29,
1995
Filing: Post Effective Amendment No. 8 to
Registration Statement on Form N-1A
File No. 33-31326
Filing date: December 1, 1995
(iii) Form of Letter of Understanding relating to Initial
Capital of Franklin Value Fund
Filing: Post Effective Amendment No. 9 to
Registration Statement on Form N-1A
File No. 33-31326
Filing Date: December 26, 1995
(14) copies of the model plan used in the establishment of any
retirement plan in conjunction with which Registrant offers
its securities, any instructions thereto and any other
documents making up the model plan. Such form(s) should
disclose the costs and fees charged in connection therewith;
(i) Copy of Model Retirement Plan
Registrant: AGE High Income Fund, Inc.
Filing: Post Effective Amendment No. 26 to
Registration Statement on Form N-1A
File No. 2-30203
Filing Date: August 1, 1989
(15) copies of any plan entered into by Registrant pursuant to
Rule 12b-l under the 1940 Act, which describes all material
aspects of the financing of distribution of Registrant's
shares, and any agreements with any person relating to
implementation of such plan.
(i) Amended and Restated Distribution Plan between
Franklin Balance Sheet Investment Fund and
Franklin Distributors, Inc. Pursuant to Rule 12b-1
dated July 1, 1993
Filing: Post Effective Amendment No. 8 to
Registration Statement on Form N-1A
File No. 33-31326
Filing Date: September 21, 1995
(ii) Form of Distribution Plan between Franklin Value
Investors Trust on behalf of Franklin MicroCap
Value Fund and Franklin Templeton Distributors,
Inc. pursuant to Rule 12b-1 dated December 12, 1995
(iii) Form of Distribution Plan between Franklin Value
Investors Trust on behalf of Franklin Value Fund and
Franklin Templeton Distributors, Inc. pursuant to
Rule 12b-1
(16) schedule for computation of each performance quotation
provided in the registration statement in response to Item
22.
(i) Schedule for computation of performance quotations
(17) Power of Attorney
(i) Power of Attorney dated December 11, 1995
(ii) Certificate of Secretary dated December 11, 1995
(27)(i) Financial Data Schedule
Item 25 Persons Controlled by or under Common Control with Registrant
None
Item 26 Number of Holders of Securities
As of October 31, 1995 the number of record holders of the only
class of securities of the Registrant was as follows:
Number of
Title of Class Record Holders
Franklin Balance Sheet 25,725
Investment Fund
Item 27 Indemnification
Reference is made to Article VI of the Registrant's By-Laws
previously filed, which is incorporated herein by reference.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to officers and trustees
and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or
paid by a trustee, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is
asserted by such trustee, officer or controlling person in
connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court or appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed
by the final adjudication of such issue.
Notwithstanding the provisions contained in the Registrant's
By-Laws, in the absence of authorization by the appropriate court
on the merits pursuant to Sections 4 and 5 of Article VI of said
By-Laws, any indemnification under said Article shall be made by
Registrant only if authorized in the manner provided in either
subsection (a) or (b) of Section 6 of Article VI.
Item 28 Business and Other Connections of Investment Adviser
The officers and Directors of the Registrant's investment adviser also
serve as officers and/or directors for (1) the adviser's corporate parent,
Franklin Resources, Inc., and/or (2) other investment companies in the
Franklin Templeton Group of Funds. In addition, Mr. Charles B. Johnson is
a director of General Host Corporation. For additional information, please
see Part B.
Item 29 Principal Underwriters
a) Franklin/Templeton Distributors, Inc., ("Distributors") also acts as
principal underwriter of shares of Franklin Gold Fund, Franklin Premier
Return Fund, Franklin Equity Fund, AGE High Income Fund, Inc., Franklin
Custodian Funds, Inc., Franklin Money Fund, Franklin California Tax-Free
Income Fund, Inc., Franklin Federal Money Fund, Franklin Tax-Exempt Money
Fund, Franklin New York Tax-Free Income Fund, Inc., Franklin Federal Tax-Free
Income Fund, Franklin Tax-Free Trust, Franklin California Tax-Free Trust,
Franklin New York Tax-Free Trust, Franklin Investors Securities Trust,
Institutional Fiduciary Trust, Franklin Tax-Advantaged International Bond
Fund, Franklin Tax-Advantaged U.S. Government Securities Fund, Franklin
Tax-Advantaged High Yield Securities Fund, Franklin Municipal Securities
Trust, Franklin Managed Trust, Franklin Strategic Series, Franklin
International Trust, Franklin Real Estate Securities Trust, Franklin
Templeton Global Trust, Franklin Templeton Money Fund Trust, Franklin
Templeton Japan Fund, Templeton American Trust, Inc., Templeton Capital
Accumulator Fund, Inc., Templeton Developing Markets Trust, Templeton Funds,
Inc., Templeton Global Investment Trust, Templeton Global Opportunities
Trust, Templeton Growth Fund, Inc., Templeton Income Trust, Templeton
Institutional Funds, Inc., Templeton Real Estate Securities Fund, Templeton
Smaller Companies Growth Fund, Inc., and Templeton Variable Products Series
Fund
(b) The information required by this Item 29 with respect to
each director and officer of Distributors is incorporated by
reference to Part B of this N-1A and Schedule A of Form BD filed by
Distributors with the Securities and Exchange Commission pursuant to the
Securities Act of 1934 (SEC File No. 8-5889).
Item 30 Location of Accounts and Records
The accounts, books or other documents required to be maintained by
Section 31 (a) of the Investment Company Act of 1940 are kept by the Fund
or its shareholder services agent, Franklin/Templeton Investor Services,
Inc., both of whose address is 777 Mariners Island Blvd., San Mateo, CA
94404.
Item 31 Management Services
There are no management-related service contracts not discussed in Part A
or Part B.
Item 32 Undertakings
(a) The Registrant hereby undertakes to promptly call a meeting of
shareholders for the purpose of voting upon the question of removal
of any trustee or trustees when requested in writing to do so by the
record holders of not less than 10 per cent of the Registrant's
outstanding shares to assist its shareholders in the communicating
with other shareholders in accordance with the requirements of
Section 16(c) of the Investment Company Act of 1940.
(b) The Registrant hereby undertakes to comply with the information
requirement in Item 5A of the Form N1-A by including the required
information in the Fund's annual report and to furnish each person
to whom a prospectus is delivered a copy of the annual report upon
request and without charge.
(c) The Registrant hereby undertakes to file a Post-Effective Amendment
on behalf of Franklin MicroCap Value Fund and Franklin Value Fund
using Financial Statements which need not be certified, within four
to six months from the effective dates of Registrant's Applicable
Registration Statement under the Securities Act of 1933.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, as amended, the Registrant has duly caused this
Amendment to Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of San Mateo and the State
of California, on the 28th day of December, 1995.
Franklin Value Investors Trust
(Registrant)
By: WILLIAM J. LIPPMAN*
William J. Lippman
President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities
and on the dates indicated:
William J. Lippman* Trustee and Principal
William J. Lippman Executive Officer
Dated: December 28, 1995
Martin L. Flanagan* Vice President and Chief Financial
Martin L. Flanagan Officer
Dated: December 28, 1995
Diomedes Loo-Tam* Treasurer and Principal Accounting
Diomedes Loo-Tam Officer
Dated: December 28, 1995
Franklin T. Crohn* Trustee
Franklin T. Crohn Dated: December 28, 1995
Charles Rubens, II Trustee
Charles Rubens, II Dated: December 28, 1995
Leonard Rubin* Trustee
Leonard Rubin Dated: December 28, 1995
*By /s/Larry L. Greene
Larry L. Greene, Attorney-in-Fact
Pursuant to Powers of Attorney previously filed.
FRANKLIN VALUE INVESTORS TRUST
REGISTRATION STATEMENT
EXHIBITS INDEX
EXHIBIT NO. DESCRIPTION LOCATION
EX-99.B1(i) Agreement and Declaration of Trust *
dated September 11, 1989
EX-99.B1(ii) Certificate of Amendment of Agreement *
and Declaration of Trust of Franklin
Balance Sheet Investment Fund dated
September 21, 1995
EX-99.B2(i) By-Laws *
EX-99.B5(i) Management Agreement between Franklin *
Balance Sheet Investment Fund and
Franklin Advisers, Inc. dated April 2,
1990
EX-99.B5(ii) Management Agreement between Franklin Attached
Value Investors Trust on behalf of
Franklin MicroCap Value Fund and Franklin
Advisers, Inc. dated December 12,
1995
EX-99.B5(iii) Form of Management Agreement between *
Franklin Value Investors Trust on
behalf of Franklin Value Fund and
Franklin Advisers, Inc.
EX-99.B6(i) Distribution Agreement between *
Registrant and Franklin Distributors,
Inc. dated April 12, 1990
EX-99.B6(ii) Forms of Dealer Agreements between *
Registrant and Franklin/Templeton
Distributors, Inc.
EX-99.B8(i) Custodian Agreement dated June 12, 1991 *
EX-99.B8(ii) Custodian Agreement between Registrant *
and Citibank Delaware
EX-99.B8(iii) Amendment to Custodian Agreement *
between Registrant and Bank of America
NT & SA dated April 12, 1995
EX-99.B10(i) Opinion and Consent dated December 1, *
1989
EX-99.B11(i) Consent of Independent Auditors Attached
EX-99.B13(i) Letter of Understanding relating to *
Initial Capital of Franklin Balance
Sheet Investment fund dated November
17, 1989
EX-99.B13(ii) Letter of Understanding relating to *
Initial Capital of Franklin MicroCap
Value Fund dated November 29, 1995
EX-99.B13(iii) Form of Letter of Understanding *
relating to Initial Capital of
Franklin Value Fund
EX-99.B14(i) Copy of Model Retirement Plan *
EX-99.B15(i) Amended and Restated Distribution Plan *
Pursuant to Rule 12b-1 dated July 1,
1993
EX-99.B15(ii) Form of Distribution Plan pursuant to Attached
Rule 12b-1 between Franklin Value
Investors Trust on behalf of Franklin
MicroCap Value Fund and Franklin Templeton
Distributors, Inc. dated December 12,
1995
EX-99.B15(iii) Form of Distribution Plan pursuant to Attached
Rule 12b-1 between Franklin Value
Investors Trust on behalf of Franklin
Value Fund and Franklin Templeton
Distributors, Inc.
EX-99.B16(i) Schedule for computation of performance Attached
quotations
EX-99.B17(i) Power of Attorney dated December 11, Attached
1995
EX-99.B17(ii) Certificate of Secretary dated Attached
December 11, 1995
EX-99.B27(i) Financial Data Schedule Attached
*Incorporated by Reference
FRANKLIN VALUE INVESTORS TRUST
on behalf of
FRANKLIN MICROCAP VALUE FUND
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT made between Franklin Value Investors Trust,
a Massachusetts business trust (the "Trust"), on behalf of Franklin MicroCap
Value Fund (the "Fund"), a series of the Trust, and FRANKLIN ADVISERS, INC.,
a California corporation, (the "Manager").
WHEREAS, the Trust has been organized and intends to operate as an
investment company registered under the Investment Company Act of 1940 (the
"1940 Act") for the purpose of investing and reinvesting its assets in
securities, as set forth in its Agreement and Declaration of Trust, its
By-Laws and its Registration Statements under the 1940 Act and the Securities
Act of 1933, all as heretofore and hereafter amended and supplemented; and
the Trust desires to avail itself of the services, information, advice,
assistance and facilities of an investment manager and to have an investment
manager perform various management, statistical, research, investment
advisory and other services for the Fund; and,
WHEREAS, the Manager is registered as an investment adviser under the
Investment Advisers Act of 1940, is engaged in the business of rendering
management, investment advisory, counseling and supervisory services to
investment companies and other investment counseling clients, and desires to
provide these services to the Fund.
NOW THEREFORE, in consideration of the terms and conditions hereinafter
set forth, it is mutually agreed as follows:
l. Employment of the Manager. The Trust hereby employs the Manager to
manage the investment and reinvestment of the Fund's assets and to administer
its affairs, subject to the direction of the Board of Trustees and the
officers of the Trust, for the period and on the terms hereinafter set
forth. The Manager hereby accepts such employment and agrees during such
period to render the services and to assume the obligations herein set forth
for the compensation herein provided. The Manager shall for all purposes
herein be deemed to be an independent contractor and shall, except as
expressly provided or authorized (whether herein or otherwise), have no
authority to act for or represent the Fund or the Trust in any way or
otherwise be deemed an agent of the Fund or the Trust.
2. Obligations of and Services to be Provided by the Manager. The
Manager undertakes to provide the services hereinafter set forth and to
assume the following obligations:
A. Administrative Services. The Manager shall furnish to the
Fund adequate (i) office space, which may be space within the offices of the
Manager or in such other place as may be agreed upon from time to time, (ii)
office furnishings, facilities and equipment as may be reasonably required
for managing the affairs and conducting the business of the Fund, including
conducting correspondence and other communications with the shareholders of
the Fund, maintaining all internal bookkeeping, accounting and auditing
services and records in connection with the Fund's investment and business
activities. The Manager shall employ or provide and compensate the
executive, secretarial and clerical personnel necessary to provide such
services. The Manager shall also compensate all officers and employees of
the Trust who are officers or employees of the Manager or its affiliates.
B. Investment Management Services.
(a) The Manager shall manage the Fund's assets subject
to and in accordance with the investment objectives and policies of the Fund
and any directions which the Trust's Board of Trustees may issue from time to
time. In pursuance of the foregoing, the Manager shall make all
determinations with respect to the investment of the Fund's assets and the
purchase and sale of its investment securities, and shall take such steps as
may be necessary to implement the same. Such determinations and services
shall include determining the manner in which any voting rights, rights to
consent to corporate action and any other rights pertaining to the Fund's
investment securities shall be exercised. The Manager shall render or cause
to be rendered regular reports to the Trust, at regular meetings of its Board
of Trustees and at such other times as may be reasonably requested by the
Trust's Board of Trustees, of (i) the decisions made with respect to the
investment of the Fund's assets and the purchase and sale of its investment
securities, (ii) the reasons for such decisions and (iii) the extent to which
those decisions have been implemented.
(b) The Manager, subject to and in accordance with any
directions which the Trust's Board of Trustees may issue from time to time,
shall place, in the name of the Fund, orders for the execution of the Fund's
securities transactions. When placing such orders, the Manager shall seek to
obtain the best net price and execution for the Fund, but this requirement
shall not be deemed to obligate the Manager to place any order solely on the
basis of obtaining the lowest commission rate if the other standards set
forth in this section have been satisfied. The parties recognize that there
are likely to be many cases in which different brokers are equally able to
provide such best price and execution and that, in selecting among such
brokers with respect to particular trades, it is desirable to choose those
brokers who furnish research, statistical, quotations and other information
to the Fund and the Manager in accordance with the standards set forth
below. Moreover, to the extent that it continues to be lawful to do so and
so long as the Board of Trustees determines that the Fund will benefit,
directly or indirectly, by doing so, the Manager may place orders with a
broker who charges a commission for that transaction which is in excess of
the amount of commission that another broker would have charged for effecting
that transaction, provided that the excess commission is reasonable in
relation to the value of "brokerage and research services" (as defined in
Section 28(e) (3) of the Securities Exchange Act of 1934) provided by that
broker.
Accordingly, the Trust and the Manager agree that the
Manager shall select brokers for the execution of the Fund's transactions
from among:
(i) Those brokers and dealers who provide quotations
and other services to the Fund, specifically including
the quotations necessary to determine the Fund's net
assets, in such amount of total brokerage as may
reasonably be required in light of such services; and
(ii) Those brokers and dealers who supply research,
statistical and other data to the Manager or its
affiliates which the Manager or its affiliates may
lawfully and appropriately use in their investment
advisory capacities, which relate directly to securities,
actual or potential, of the Fund, or which place the
Manager in a better position to make decisions in
connection with the management of the Fund's assets and
securities, whether or not such data may also be useful
to the Manager and its affiliates in managing other
portfolios or advising other clients, in such amount of
total brokerage as may reasonably be required. Provided
that the Trust's officers are satisfied that the best
execution is obtained, the sale of shares of the Fund may
also be considered as a factor in the selection of
broker-dealers to execute the Fund's portfolio
transactions.
(c) When the Manager has determined that the Fund
should tender securities pursuant to a "tender offer solicitation,"
Franklin/Templeton Distributors, Inc. ("Distributors") shall be designated as
the "tendering dealer" so long as it is legally permitted to act in such
capacity under the federal securities laws and rules thereunder and the rules
of any securities exchange or association of which Distributors may be a
member. Neither the Manager nor Distributors shall be obligated to make any
additional commitments of capital, expense or personnel beyond that already
committed (other than normal periodic fees or payments necessary to maintain
its corporate existence and membership in the National Association of
Securities Dealers, Inc.) as of the date of this Agreement. This Agreement
shall not obligate the Manager or Distributors (i) to act pursuant to the
foregoing requirement under any circumstances in which they might reasonably
believe that liability might be imposed upon them as a result of so acting,
or (ii) to institute legal or other proceedings to collect fees which may be
considered to be due from others to it as a result of such a tender, unless
the Trust on behalf of the Fund shall enter into an agreement with the
Manager and/or Distributors to reimburse them for all such expenses connected
with attempting to collect such fees, including legal fees and expenses and
that portion of the compensation due to their employees which is attributable
to the time involved in attempting to collect such fees.
(d) The Manager shall render regular reports to the
Trust, not more frequently than quarterly, of how much total brokerage
business has been placed by the Manager, on behalf of the Fund, with brokers
falling into each of the categories referred to above and the manner in which
the allocation has been accomplished.
(e) The Manager agrees that no investment decision
will be made or influenced by a desire to provide brokerage for allocation in
accordance with the foregoing, and that the right to make such allocation of
brokerage shall not interfere with the Manager's paramount duty to obtain the
best net price and execution for the Fund.
C. Provision of Information Necessary for Preparation of Securities
Registration Statements, Amendments and Other Materials. The Manager, its
officers and employees will make available and provide accounting and
statistical information required by the Fund in the preparation of registration
statements, reports and other documents required by federal and state securities
laws and with such information as the Fund may reasonably request for use in the
preparation of such documents or of other materials necessary or helpful for the
underwriting and distribution of the Fund's shares.
D. Other Obligations and Services. The Manager shall make its
officers and employees available to the Board of Trustees and officers of the
Trust for consultation and discussions regarding the administration and
management of the Fund and its investment activities.
3. Expenses of the Fund. It is understood that the Fund will pay all
of its own expenses other than those expressly assumed by the Manager herein,
which expenses payable by the Fund shall include:
A. Fees and expenses paid to the Manager as provided herein;
B. Expenses of all audits by independent public accountants;
C. Expenses of transfer agent, registrar, custodian, dividend
disbursing agent and shareholder record-keeping services, including the expenses
of issue, repurchase or redemption of its shares;
D. Expenses of obtaining quotations for calculating the value of the Fund's
net assets;
E. Salaries and other compensations of executive officers of the Trust who
are not officers, directors, stockholders or employees of the Manager or its
affiliates;
F. Taxes levied against the Fund;
G. Brokerage fees and commissions in connection with the
purchase and sale of securities for the Fund;
H. Costs, including the interest expense, of borrowing
money;
I. Costs incident to meetings of the Board of Trustees and
shareholders of the Fund, reports to the Fund's shareholders, the filing of
reports with regulatory bodies and the maintenance of the Fund's and the
Trust's legal existence;
J. Legal fees, including the legal fees related to the
registration and continued qualification of the Fund's shares for sale;
K. Trustees' fees and expenses to trustees who are not
directors, officers, employees or stockholders of the Manager or any of its
affiliates;
L. Costs and expense of registering and maintaining the
registration of the Fund and its shares under federal and any applicable
state laws; including the printing and mailing of prospectuses to its
shareholders;
M. Trade association dues; and
N. The Fund's pro rata portion of fidelity bond, errors and
omissions, and trustees and officer liability insurance premiums.
4. Compensation of the Manager. The Fund shall pay a management fee
in cash to the Manager based upon a percentage of the value of the Fund's net
assets, calculated as set forth below, as compensation for the services
rendered and obligations assumed by the Manager, during the preceding month,
on the first business day of the month in each year.
A. For purposes of calculating such fee, the value of the
net assets of the Fund shall be determined in the same manner as the Fund
uses to compute the value of its net assets in connection with the
determination of the net asset value of its shares, all as set forth more
fully in the Fund's current prospectus and statement of additional
information. The rate of the management fee payable by the Fund shall be
calculated daily at the rate of .75% (.75 of 1%) of the Fund's average daily
net assets.
B. The management fee payable by the Fund shall be reduced
or eliminated to the extent that Distributors has actually received cash
payments of tender offer solicitation fees less certain costs and expenses
incurred in connection therewith and to the extent necessary to comply with
the limitations on expenses which may be borne by the Fund as set forth in
the laws, regulations and administrative interpretations of those states in
which the Fund's shares are registered. The Manager may waive all or a
portion of its fees provided for hereunder and such waiver shall be treated
as a reduction in purchase price of its services. The Manager shall be
contractually bound hereunder by the terms of any publicly announced waiver
of its fee, or any limitation of the Fund's expenses, as if such waiver or
limitation were fully set forth herein.
C. If this Agreement is terminated prior to the end of any
month, the accrued management fee shall be paid to the date of termination.
5. Activities of the Manager. The services of the Manager to the
Fund hereunder are not to be deemed exclusive, and the Manager and any of its
affiliates shall be free to render similar services to others. Subject to
and in accordance with the Agreement and Declaration of Trust and By-Laws of
the Trust and Section 10(a) of the 1940 Act, it is understood that trustees,
officers, agents and shareholders of the Trust are or may be interested in
the Manager or its affiliates as directors, officers, agents or stockholders;
that directors, officers, agents or stockholders of the Manager or its
affiliates are or may be interested in the Trust as trustees, officers,
agents, shareholders or otherwise; that the Manager or its affiliates may be
interested in the Fund as shareholders or otherwise; and that the effect of
any such interests shall be governed by said Agreement and Declaration of
Trust, By-Laws and the 1940 Act.
6. Liabilities of the Manager.
A. In the absence of willful misfeasance, bad faith, gross
negligence, or reckless disregard of obligations or duties hereunder on the
part of the Manager, the Manager shall not be subject to liability to the
Trust or the Fund or to any shareholder of the Fund for any act or omission
in the course of, or connected with, rendering services hereunder or for any
losses that may be sustained in the purchase, holding or sale of any security
by the Fund.
B. Notwithstanding the foregoing, the Manager agrees to
reimburse the Trust for any and all costs, expenses, and counsel and
trustees' fees reasonably incurred by the Trust in the preparation, printing
and distribution of proxy statements, amendments to its Registration
Statement, holdings of meetings of its shareholders or trustees, the conduct
of factual investigations, any legal or administrative proceedings (including
any applications for exemptions or determinations by the Securities and
Exchange Commission) which the Trust incurs as the result of action or
inaction of the Manager or any of its affiliates or any of their officers,
directors, employees or stockholders where the action or inaction
necessitating such expenditures (i) is directly or indirectly related to any
transactions or proposed transaction in the stock or control of the Manager
or its affiliates (or litigation related to any pending or proposed or future
transaction in such shares or control) which shall have been undertaken
without the prior, express approval of the Trust's Board of Trustees; or,
(ii) is within the control of the Manager or any of its affiliates or any of
their officers, directors, employees or stockholders. The Manager shall not
be obligated pursuant to the provisions of this Subparagraph 6(B), to
reimburse the Trust for any expenditures related to the institution of an
administrative proceeding or civil litigation by the Trust or a shareholder
seeking to recover all or a portion of the proceeds derived by any
stockholder of the Manager or any of its affiliates from the sale of his
shares of the Manager, or similar matters. So long as this Agreement is in
effect, the Manager shall pay to the Trust the amount due for expenses
subject to this Subparagraph 6(B) within 30 days after a bill or statement
has been received by the Manager therefor. This provision shall not be
deemed to be a waiver of any claim the Trust may have or may assert against
the Manager or others for costs, expenses or damages heretofore incurred by
the Trust or for costs, expenses or damages the Trust may hereafter incur
which are not reimbursable to it hereunder.
C. No provision of this Agreement shall be construed to
protect any trustee or officer of the Trust, or director or officer of the
Manager, from liability in violation of Sections 17(h) and (i) of the 1940
Act.
7. Renewal and Termination.
A. This Agreement shall become effective on the date written
below and shall continue in effect for two (2) years thereafter, unless
sooner terminated as hereinafter provided and shall continue in effect
thereafter for periods not exceeding one (1) year so long as such
continuation is approved at least annually (i) by a vote of a majority of the
outstanding voting securities of each Fund or by a vote of the Board of
Trustees of the Trust, and (ii) by a vote of a majority of the Trustees of
the Trust who are not parties to the Agreement (other than as Trustees of the
Trust), cast in person at a meeting called for the purpose of voting on the
Agreement.
B. This Agreement:
(i) may at any time be terminated without the payment
of any penalty either by vote of the Board of Trustees of the Trust or by
vote of a majority of the outstanding voting securities of the Fund on 60
days' written notice to the Manager;
(ii) shall immediately terminate with respect to the
Fund in the event of its assignment; and
(iii) may be terminated by the Manager on 60 days'
written notice to the Fund.
C. As used in this Paragraph the terms "assignment,"
"interested person" and "vote of a majority of the outstanding voting
securities" shall have the meanings set forth for any such terms in the 1940
Act.
D. Any notice under this Agreement shall be given in
writing addressed and delivered, or mailed post-paid, to the other party at
any office of such party.
8. Severability. If any provision of this Agreement shall be held
or made invalid by a court decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby.
9. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of California.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and effective on the 12th day of December, 1995.
FRANKLIN VALUE INVESTORS TRUST
By:
FRANKLIN ADVISERS, INC.
By:
CONSENT OF INDEPENDENT AUDITORS
To the Board of Trustees of Franklin Value Investors Trust
We consent to the incorporation by reference in Post-Effective Amendment No. 10
to the Registration Statement of Franklin Value Investors Trust on Form N-1A
(File No. 33-31326) of our report dated December 8, 1995 on our audit of the
financial statements and financial highlights of Franklin Value Investors Trust,
which report is included in the Annual Report to Shareholders for the year ended
October 31, 1995, which is incorporated by reference in the Registration
Statement.
/s/ Coopers & Lybrand L.L.
COOPERS & LYBRAND L.L.P.
San Francisco, California
December 27, 1995
DISTRIBUTION PLAN
I. Investment Company: Franklin Value Investors Trust
II. Fund: Franklin MicroCap Value Fund
III. Maximum Per Annum Rule 12b-1 Fees (as a percentage of average daily net
assets of the Fund): 0.25%
Preamble to Distribution Plan
The following Distribution Plan (the "Plan") has been adopted pursuant to
Rule l2b-l under the Investment Company Act of 1940 (the "Act") by the
Investment Company named above ("Investment Company") for the use of the Fund
named above (the "Fund"). The Plan has been approved by a majority of the
Board of Trustees or Directors of the Investment Company (the "Board"),
including a majority of the Board members who are not interested persons of the
Investment Company and who have no direct or indirect financial interest in the
operation of the Plan (the "non-interested Board members"), cast in person at a
meeting called for the purpose of voting on such Plan.
In reviewing the Plan, the Board considered the schedule and nature of
payments and terms of the Management Agreement between the Investment Company,
on behalf of the Fund, and Franklin Advisers, Inc. (the "Manager") and the
terms of the Underwriting Agreement between the Investment Company and
Franklin/Templeton Distributors, Inc. ("Distributors"). The Board concluded
that the compensation of the Manager, under the Management Agreement was fair
and not excessive; however, the Board also recognized that uncertainty may
exist from time to time with respect to whether payments to be made by the Fund
to the Manager or to Distributors or others or by the Manager or Distributors
to others may be deemed to constitute distribution expenses. Accordingly, the
Board determined that the Plan should provide for such payments and that
adoption of the Plan would be prudent and in the best interests of the Fund and
its shareholders. Such approval included a determination that in the exercise
of their reasonable business judgment and in light of their fiduciary duties,
there is a reasonable likelihood that the Plan will benefit the Fund and its
shareholders.
Distribution Plan
l. The Fund shall primarily use the fees payable under this Plan to
reimburse Distributors, or others who have executed a servicing agreement with
the Fund, Distributors or its affiliates, which form of agreement has been
approved from time to time by the Board members, for providing personal
services to shareholders of the Fund and/or for maintenance of shareholder
accounts. In addition, the fees payable under this Plan may, from time to time,
be used to reimburse Distributors or others for expenses incurred by
Distributors or others in the promotion and distribution of the shares of the
Fund, including, but not limited to, the printing of prospectuses and reports
used for sales purposes, expenses of preparing and distributing of sales
literature and related expenses, advertisements, and other distribution-related
expenses, including a prorated portion of Distributors' overhead expenses
attributable to the distribution of Fund shares.
2. The maximum amount which may be reimbursed by the Fund to Distributors or
others pursuant to Paragraph 1 herein shall be 0.25% per annum of the average
daily net assets of the Fund. Said reimbursement shall be made quarterly by
the Fund to Distributors or others.
3. In addition to the payments which the Fund is authorized to make pursuant
to paragraphs 1 and 2 hereof, to the extent that the Fund, the Manager,
Distributors or other parties on behalf of the Fund, the Manager or
Distributors make payments that are deemed to be payments for the financing of
any activity primarily intended to result in the sale of shares issued by the
Fund within the context of Rule 12b-1 under the Act, then such payments shall
be deemed to have been made pursuant to the Plan.
In no event shall the aggregate asset-based sales charges which include
payments specified in paragraphs 1 and 2, plus any other payments deemed to be
made pursuant to the Plan under this paragraph, exceed the amount permitted to
be paid pursuant to the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., Article III, Section 26(d).
4. Distributors shall furnish to the Board, for its review, on a quarterly
basis, a written report of the monies reimbursed to it and to others under the
Plan, and shall furnish the Board with such other information as the Board may
reasonably request in connection with the payments made under the Plan in order
to enable the Board to make an informed determination of whether the Plan
should be continued.
5. The Plan shall continue in effect for a period of more than one year only
so long as such continuance is specifically approved at least annually by the
Board including the non-interested Board members, cast in person at a meeting
called for the purpose of voting on the Plan.
6. The Plan, and any agreements entered into pursuant to this Plan, may be
terminated at any time, without penalty, by vote of a majority of the
outstanding voting securities of the Fund, or by vote of the majority of the
non-interested Board members, on not more than sixty (60) days' written notice,
or by Distributors on not more than sixty (60) days' written notice and shall
terminate automatically in the event of any act that constitutes an assignment
of the Management Agreement between the Investment Company and the Manager or
the Underwriting Agreement between the Investment Company and Distributors.
7. The Plan, and any agreements entered into pursuant to this Plan, may not
be amended to increase materially the amount to be spent for distribution
pursuant to Paragraph 2 hereof without approval by a majority of the Fund's
outstanding voting securities.
8. All material amendments to the Plan, or any agreements entered into
pursuant to this Plan, shall be approved by the non-interested Board members
cast in person at a meeting called for the purpose of voting on any such
amendment.
9. So long as the Plan is in effect, the selection and nomination of the
Investment Company's non-interested Board members shall be committed to the
discretion of such non-interested Board members.
10. This Plan shall take effect on the 12th day of December, 1995.
This Plan and the terms and provisions thereof are hereby accepted and
agreed to by the Investment Company, on behalf of the Fund, and Distributors as
evidenced by their execution hereof.
FRANKLIN VALUE INVESTORS TRUST
on behalf of Franklin MicroCap Value Fund
By:_________________________
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
By:__________________________
FRANKLIN VALUE INVESTORS TRUST
on behalf of FRANKLIN VALUE FUND
Preamble to Distribution Plan
The following Distribution Plan (the "Plan") has been adopted pursuant
to Rule 12b-1 under the Investment Company Act of 1940 (the "Act") by
Franklin Value Investors Trust ("Trust") for the use of its series named
Franklin Value Fund (the "Fund"), which Plan shall take effect on the date
the shares of the Fund are first offered (the "Effective Date of the Plan").
The Plan has been approved by a majority of the Board of Trustees of the
Trust (the "Board"), including a majority of the trustees who are not
interested persons of the Trust and who have no direct or indirect financial
interest in the operation of the Plan (the "non-interested trustees"), cast
in person at a meeting called for the purpose of voting on such Plan.
In reviewing the Plan, the Board considered the schedule and nature of
payments and terms of the Management Agreement between the Trust on behalf of
the Fund and Franklin Advisers, Inc. ("Advisers") and the terms of the
Underwriting Agreement between the Trust on behalf of the Fund and
Franklin/Templeton Distributors, Inc. ("Distributors"). The Board concluded
that the compensation of Advisers, under the Management Agreement, and of
Distributors, under the Underwriting Agreement, was fair and not excessive;
however, the Board also recognized that uncertainty may exist from time to
time with respect to whether payments to be made by the Fund to Advisers,
Distributors, or others or by Advisers or Distributors to others may be
deemed to constitute distribution expenses of the Fund. Accordingly, the
Board determined that the Plan should provide for such payments and that
adoption of the Plan would be prudent and in the best interest of the Fund
and its shareholders. Such approval included a determination that in the
exercise of their reasonable business judgment and in light of their
fiduciary duties, there is a reasonable likelihood that the Plan will benefit
the Fund and its shareholders.
DISTRIBUTION PLAN
1. The Fund shall reimburse Distributors or others for all expenses
incurred by Distributors or others in the promotion and distribution of the
shares of the Fund, as well as for shareholder services provided for existing
shareholders of the Fund. These expenses may include, but are not limited
to, the expenses of the printing of prospectuses and reports used for sales
purposes, preparing and distributing sales literature and related expenses,
advertisements, recordkeeping services for employee benefit plan
shareholders, and other distribution-related expenses, including a prorated
portion of Distributors' overhead expenses attributable to the distribution
of Fund shares. These expenses may also include any distribution or service
fees paid to securities dealers or their firms or others. Agreements for the
payment of service fees to securities dealers or their firms or others shall
be in a form which has been approved from time to time by the Board,
including the non-interested trustees.
2. The maximum amount which may be reimbursed by the Fund to Distributors
or others pursuant to Paragraph 1 herein shall be 0.35% per annum of the
average daily net assets of the Fund. Said reimbursement shall be made
quarterly by the Fund to Distributors or others.
3. In addition to the payments which the Fund is authorized to make
pursuant to paragraphs 1 and 2 hereof, to the extent that the Fund, Advisers,
Distributors or other parties on behalf of the Fund, Advisers or Distributors
make payments that are deemed to be payments by the Fund for the financing of
any activity primarily intended to result in the sale of shares issued by the
Fund within the context of Rule 12b-1 under the Act, then such payments shall
be deemed to have been made pursuant to the Plan.
In no event shall the aggregate asset-based sales charges which include
payments specified in paragraphs 1 and 2, plus any other payments deemed to
be made pursuant to the Plan under this paragraph, exceed the amount
permitted to be paid pursuant to the Rules of Fair Practice of the National
Association of Securities Dealers, Inc., Article III, Section 26(d).
4. Distributors shall furnish to the Board, for its review, on a quarterly
basis, a written report of the monies reimbursed to it and to others under
the Plan, and shall furnish the Board with such other information as the
Board may reasonably request in connection with the payments made under the
Plan in order to enable the Board to make an informed determination of
whether the Plan should be continued.
5. The Plan shall continue in effect for a period of more than one year
only so long as such continuance is specifically approved at least annually
by a vote of the Board, including the non-interested trustees, cast in person
at a meeting called for the purpose of voting on the Plan.
6. The Plan, and any agreements entered into pursuant to this Plan, may be
terminated at any time, without penalty, by vote of a majority of the
outstanding voting securities of the Fund or by vote of a majority of the
non-interested trustees, on not more than sixty (60) days' written notice, or
by Distributors on not more than sixty (60) days' written notice, and shall
terminate automatically in the event of any act that constitutes an
assignment of the Management Agreement between the Trust on behalf of the
Fund and Advisers.
7. The Plan, and any agreements entered into pursuant to this Plan, may
not be amended to increase materially the amount to be spent for distribution
pursuant to Paragraph 2 hereof without approval by a majority of the Fund's
outstanding voting securities.
8. All material amendments to the Plan, or any agreements entered into
pursuant to this Plan, shall be approved by a vote of the non-interested
trustees cast in person at a meeting called for the purpose of voting on any
such amendment.
9. So long as the Plan is in effect, the selection and nomination of the
Trust's non-interested trustees shall be committed to the discretion of such
non-interested trustees.
This Plan and the terms and provisions thereof are hereby accepted and agreed
to by the Trust and Distributors as evidenced by their execution hereof.
FRANKLIN VALUE INVESTORS TRUST
on behalf of the Franklin Value Fund
By:
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
By:
Fund Name:
Period Ending: 12/31/94 12/31/94
MAX OFF NAV
1 Yr T.Return: -6.58% -2.41%
5 Yr T.Return: 61.27% 68.47%
10 Yr T.Return: NA NA
From Inception: 85.09% 93.24%
Inception Date: 05/04/87 05/04/87
SEC STANDARD TOTAL RETURN
AS OF: 12/31/94
MAX OFFER NAV
ONE YEAR -6.58% -2.41%
P= 1000.00 1000.00
T= -0.0658 -0.0241
n= 1 1
ERV= 934.20 975.90
FIVE YEAR 10.03% 11.00%
P= 1000.00 1000.00
T= 0.1003 0.1100
n= 5 5
ERV= 1612.71 1685.06
TEN YEAR 0.00% 0.00%
P= 1000.00 1000.00
T= 0.0000 0.0000
n= 10 10
ERV= 1000.00 1000.00
FROM INCEPTION 05/04/87 8.36% 8.97%
P= 1000.00 1000.00
T= 0.0836 0.0897
n= 7.6685 7.6685
ERV= 1850.94 1932.36
AGGREGATE TOTAL RETURN
1 YEAR -6.58% -2.41%
5 YEAR 61.27% 68.47%
10 YEAR NA NA
FROM INCEPTION 85.09% 93.24%
30-DAY SEC YIELD 10.15%
30-DAY SEC YIELD W/O NA
WAIVER
FISCAL YEAR-END 9.52%
DISTRIBUTION RATE (ON MAX
OFFERING)
FISCAL YEAR-END 9.93%
DISTRIBUTION RATE (ON
NAV)
FUND #
For the year ended 12/31/94
SEC - YIELD CALCULATION
a = interest/dividends earned 751,960
b = expenses accrued 58,736
c = avg # of shares o/s 10,026,685
d = maximum offering price 8.344
a - b 6
SEC Yield= 2[(---------------------------------- + 1) -1]
cd
751,960 - 58,736 6
= 2[(----------------------------------- + 1) -1]
10,026,685 * 8.344
693,224 6
= 2[(------------------------- + 1) -1]
83,662,660
6
= 2[( 1.00828594265330 ) -1]
= 2( 1.05075695727946 - 1)
= 0.1015139146
= 10.15%
POWER OF ATTORNEY
The undersigned officers and trustees of Franklin Value Investors Trust
(the "Registrant") hereby appoint MARK H. PLAFKER, HARMON E. BURNS, DEBORAH
R. GATZEK, KAREN L. SKIDMORE AND LARRY L. GREENE (with full power to each of
them to act alone) his attorney-in-fact and agent, in all capacities, to
execute, and to file any of the documents referred to below relating to
Post-Effective Amendments to the Registrant's registration statement on Form
N-1A under the Investment Company Act of 1940, as amended, and under the
Securities Act of 1933 covering the sale of shares by the Registrant under
prospectuses becoming effective after this date, including any amendment or
amendments increasing or decreasing the amount of securities for which
registration is being sought, with all exhibits and any and all documents
required to be filed with respect thereto with any regulatory authority.
Each of the undersigned grants to each of said attorneys, full authority to
do every act necessary to be done in order to effectuate the same as fully,
to all intents and purposes as he could do if personally present, thereby
ratifying all that said attorneys-in-fact and agents, may lawfully do or
cause to be done by virtue hereof.
The undersigned officers and trustees hereby execute this Power of
Attorney as of this 11th day of December, 1995.
/s/ William J. Lippman /s/ Frank T. Crohn
William J. Lippman, Principal Frank T. Crohn,
Executive Officer Trustee
and Trustee
/s/ Charles Rubens, II /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 Value
Investors Trust (the "Trust").
As Secretary of the Trust, I further certify that the following
resolution was adopted by a majority of the Trustees of the Trust.
RESOLVED, that a Power of Attorney, substantially in the form of
the Power of Attorney presented to this Board, appointing Harmon
E. Burns, Deborah R. Gatzek, Karen L. Skidmore, Larry L. Greene
and Mark H. Plafker as attorneys-in-fact for the purpose of
filing documents with the Securities and Exchange Commission, be
executed by each Trustee and designated officer.
I declare under penalty of perjury that the matters set forth in this
certificate are true and correct of my own knowledge.
Dated: December 11, 1995 /s/ Deborah R. Gatzek
Deborah R. Gatzek
Secretary
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FRANKLIN
VALUE INVESTORS TRUST OCTOBER 31, 1995 ANNUAL REPORT AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 011
<NAME> FRANKLIN BALANCE SHEET INVESTMENT FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 365,415,392
<INVESTMENTS-AT-VALUE> 389,119,812
<RECEIVABLES> 2,201,226
<ASSETS-OTHER> 913,139
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 392,234,177
<PAYABLE-FOR-SECURITIES> 3,926,508
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 768,137
<TOTAL-LIABILITIES> 4,694,645
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 346,379,368
<SHARES-COMMON-STOCK> 14,713,128
<SHARES-COMMON-PRIOR> 5,920,637
<ACCUMULATED-NII-CURRENT> 440,664
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 17,015,080
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 23,704,420
<NET-ASSETS> 387,539,532
<DIVIDEND-INCOME> 4,061,720
<INTEREST-INCOME> 1,945,976
<OTHER-INCOME> 0
<EXPENSES-NET> (2,841,410)
<NET-INVESTMENT-INCOME> 3,166,286
<REALIZED-GAINS-CURRENT> 17,015,080
<APPREC-INCREASE-CURRENT> 20,720,103
<NET-CHANGE-FROM-OPS> 40,901,469
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,726,560)
<DISTRIBUTIONS-OF-GAINS> (2,224,227)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10,269,060
<NUMBER-OF-SHARES-REDEEMED> (1,657,126)
<SHARES-REINVESTED> 180,557
<NET-CHANGE-IN-ASSETS> 253,284,675
<ACCUMULATED-NII-PRIOR> 938
<ACCUMULATED-GAINS-PRIOR> 2,224,227
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,325,910
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,841,410
<AVERAGE-NET-ASSETS> 243,748,054
<PER-SHARE-NAV-BEGIN> 22.680
<PER-SHARE-NII> .300
<PER-SHARE-GAIN-APPREC> 3.980
<PER-SHARE-DIVIDEND> (.270)
<PER-SHARE-DISTRIBUTIONS> (.350)
<RETURNS-OF-CAPITAL> .000
<PER-SHARE-NAV-END> 26.340
<EXPENSE-RATIO> 1.170
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
