As filed with the Securities and Exchange Commission on December 31, 1996.
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. 15 (X)
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 16 (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, CALIFORNIA 94404 (Address
of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (415) 312-2000
HARMON E. BURNS, 777 MARINERS ISLAND BVLD., SAN MATEO, CA 94403
(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)
[X] on January 1, 1997 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] 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 20, 1996.
FRANKLIN VALUE INVESTORS TRUST
CROSS REFERENCE SHEET
FORM N- 1A
PART A: INFORMATION REQUIRED IN PROSPECTUS
(Franklin Value Fund - Advisor Class)
N-1A Location in
ITEM NO. ITEM REGISTRATION STATEMENT
1. Cover Page Cover Page
2. Synopsis "Expense Summary"
3. Condensed Financial "How does the Fund Measure Performance?"
Information
4. General Description of "How is the Trust Organized?"; "How does the
Registrant Fund Invest its Assets?"; "What are the
Fund's Potential Risks?"
5. Management of the Fund "Who Manages the Fund?"
5A. Management's Discussion of Contained in Registrant's Annual Report to
Fund Performance Shareholders
6. Capital Stock and Other "How is the Trust Organized?"; "Services to
Securities Help You Manage Your Account"; "What
Distributions Might I Receive from the
Fund?"; "How Taxation Affects You and the
Fund"
7. Purchase of Securities "How Do I Buy Shares?"; "May I Exchange
Being Offered Shares for Shares of Another Fund?";
"Transaction Procedures and Special
Requirements"; "Services to Help You Manage
Your Account"; "Who Manages the Fund?";
"Useful Terms and Definitions"
8. Redemption or Repurchase "May I Exchange Shares for Shares of Another
Fund?"; "How Do I Sell Shares?";
"Transaction Procedures and Special
Requirements"; "Services to Help You Manage
Your Account"
9. Pending Legal Proceedings Not Applicable
FRANKLIN VALUE INVESTORS TRUST
CROSS REFERENCE SHEET
FORM N- 1A
PART B: INFORMATION REQUIRED IN STATEMENT OF ADDITIONAL INFORMATION
(Franklin Value Fund - Advisor Class)
10. Cover Page Cover Page
11. Table of Contents Contents
12. General Information and History Not Applicable
13. Investment Objectives and "How does the Fund Invest its Assets?";
Policies "Investment Restrictions"
14. Management of the Registrant "Officers and Trustees"; "Investment
Management and Other Services"
15. Control Persons and Principal "Officers and Trustees"; "Miscellaneous
Holders of Securities Information"
16. Investment Advisory and Other "Investment Management and Other
Services Services"; "The Fund's Underwriter"
17. Brokerage Allocation and Other "How does the Fund Purchase Securities
Practices for its Portfolio?"
18. Capital Stock and Other See Prospectus "How is the Trust
Securities Organized?"
19. Purchase, Redemption and "How Do I Buy, Sell and Exchange
Pricing of Securities Being Shares?"; "How are Fund Shares
Offered Valued?"; "Financial Statements"
20. Tax Status "Additional Information on
Distributions and Taxes"
21. Underwriters "The Fund's Underwriter"
22. Calculation of Performance Data "How does the Fund Measure
Performance?"
23. Financial Statements "Financial Statements"
PROSPECTUS & APPLICATION
FRANKLIN
VALUE
FUND
ADVISOR CLASS
INVESTMENT STRATEGY
GROWTH &INCOME
ADVISOR
- --------------------------------------------------------------------------------
JANUARY 1, 1997
FRANKLIN VALUE INVESTORS TRUST
This prospectus describes the Advisor Class shares of Franklin Value Fund (the
"Fund"). It contains information you should know before investing in the Fund.
Please keep it for future reference.
The Fund's Advisor Class SAI, dated January 1, 1997, as may be amended from time
to time, includes more information about the Fund's procedures and policies. It
has been filed with the SEC and is incorporated by reference into this
prospectus. For a free copy or a larger print version of this prospectus, call
1-800/DIAL BEN or write the Fund at the address shown.
Advisor Class shares are only available for purchase by certain persons,
including, among others, certain financial institutions (such as banks, trust
companies, savings institutions and credit unions); government and tax-exempt
entities; pension, profit sharing and employee benefit plans; certain qualified
groups, including family trusts, endowments, foundations and corporations;
Franklin Templeton Fund Allocator Series; and directors, trustees, officers and
full-time employees (and their family members) of Franklin Templeton Group and
the Franklin Templeton Group of Funds. See "About Your Account."
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE U.S.
GOVERNMENT. SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL.
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SEC OR ANY STATE SECURITIES COMMISSION NOR HAS THE SEC 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 DISTRIBUTORS.
FRANKLIN VALUE FUND
FRANKLIN
VALUE
FUND -
ADVISOR CLASS
- --------------------------------------------------------------------------------
JANUARY 1, 1997
WHEN READING THIS PROSPECTUS, YOU WILL SEE CERTAIN TERMS BEGINNING WITH CAPITAL
LETTERS. THIS MEANS THE TERM IS EXPLAINED IN OUR GLOSSARY SECTION.
TABLE OF CONTENTS
ABOUT THE FUND
Expense Summary ............................................ 2
How does the Fund Invest its Assets?........................ 3
What are the Fund's Potential Risks?........................ 9
Who Manages the Fund?....................................... 15
How does the Fund Measure Performance?...................... 17
How is the Trust Organized?................................. 17
How Taxation Affects You and the Fund....................... 18
ABOUT YOUR ACCOUNT
How Do I Buy Shares? ....................................... 19
May I Exchange Shares for Shares of Another Fund?........... 22
How Do I Sell Shares? ...................................... 24
What Distributions Might I Receive from the Fund?........... 25
Transaction Procedures and Special Requirements............. 26
Services to Help You Manage Your Account.................... 30
GLOSSARY
Useful Terms and Definitions................................ 33
APPENDIX
Description of Ratings...................................... 35
777 Mariners Island Blvd.
P.O. Box 7777
San Mateo
CA 94403-7777
1-800/DIAL BEN
Franklin Value Fund
ABOUT THE FUND
EXPENSE SUMMARY
This table is designed to help you understand the costs of investing in the
Fund. Because Advisor Class shares were not offered to the public before January
1, 1997, the table is based on the historical expenses of the Class I shares of
the Fund for the period March 11, 1996, to June 30, 1996+. Your actual expenses
may vary.
A. SHAREHOLDER TRANSACTION EXPENSES++
Maximum Sales Charge Imposed on Purchases None
B.ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.75%*
Rule 12b-1 Fees None
Other Expenses 0.51%
- --------------------------------------------------------------------------------
Total Fund Operating Expenses 1.26%*
- --------------------------------------------------------------------------------
C. Example
Assume the annual return for Advisor Class shares is 5% and operating expenses
are as described above. For each $1,000 investment, you would pay the
following projected expenses if you sold your shares after the number of years
shown.
1 YEAR 3 YEARS
- --------------------
$13 $40
THIS IS JUST AN EXAMPLE. IT DOES NOT REPRESENT PAST OR FUTURE EXPENSES OR
RETURNS. ACTUAL EXPENSES AND RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN. The
Fund pays its operating expenses. The effects of these expenses are reflected
in the Net Asset Value or the dividends paid on Advisor Class shares and are
not directly charged to your account.
+Unlike Advisor Class shares, the Class I shares of the Fund have a front-end
sales charge and Rule 12b-1 fees. ++If your transaction is processed through
your Securities Dealer, you may be charged a fee by your Securities Dealer for
these services.
*Advisory Services has agreed in advance to limit its management fees and make
certain payments to reduce the Fund's expenses. With this reduction,
contractual and expected management fees would be 0.49%.
HOW DOES THE FUND INVEST ITS ASSETS?
THE FUND'S INVESTMENT OBJECTIVE
The investment objective of the Fund is to seek long-term total return. The
objective is a fundamental policy of the Fund and may not be changed without
shareholder approval. Of course, there is no assurance that the Fund's objective
will be achieved.
TYPES OF SECURITIES IN WHICH THE FUND MAY INVEST
The Fund seeks to achieve its objective by investing at least 65% of its assets
in the securities of companies that Advisory Services believes are undervalued.
The securities the Fund may invest in include common and preferred stocks,
warrants, secured and unsecured bonds, and notes. Income is a secondary
consideration of the Fund, although it is not part of the Fund's investment
objective.
The Fund invests at least 65% of its assets in companies of various sizes that
Advisory Services believes are selling substantially below the underlying value
of their assets or their private market value. Private market value is what a
sophisticated investor would pay for the entire company. Advisory Services may
take into account a variety of factors in order to determine whether to buy or
hold securities, including: low price to earnings ratio relative to the market,
industry group or earnings growth; low price relative to book value or cash
flow; valuable franchises, patents, trademarks, trade names, distribution
channels or market share for particular products or services, tax loss
carryforwards, or other intangibles that may not be reflected in stock prices;
ownership of understated or underutilized tangible assets such as land, timber
or minerals; underutilized cash or investment assets; and unusually high current
income. These criteria and others, alone and in combination, may identify
companies that are attractive to financial or strategic acquirers (i.e. takeover
candidates). Purchases may include companies in cyclical businesses, turnarounds
and companies emerging from bankruptcy. Purchase decisions may also be
influenced by company and its insiders' stock buy-backs.
In anticipation of and during temporary defensive periods or when the type of
investments in which the Fund intends to invest are not available at prices that
Advisory Services believes are attractive, the Fund may invest up to 100% of its
total assets in: (1) securities of the U.S. government and certain of its
agencies or instrumentalities that 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 that are supported by the
full faith and credit of the U.S. government; (2) obligations issued or
guaranteed by other U.S. government agencies or instrumentalities, some of which
are supported by the right of the issuer to borrow from the U.S. government
(e.g., obligations of the Federal Home Loan Banks) and some of which are backed
by the credit of the issuer itself (e.g., obligations of the Student Loan
Marketing Association); (3) bank obligations, including negotiable and
non-negotiable CDs (subject to the 10% aggregate limit on the Fund's investment
in illiquid securities), letters of credit and bankers' acceptances, or
instruments secured by these types of obligations, issued by banks and savings
institutions that are subject to regulation by the U.S. government, its agencies
or instrumentalities and that have assets of over $1 billion, unless these types
of obligations are guaranteed by a parent bank that has total assets in excess
of $5 billion; (4) commercial paper considered by Advisory Services to be of
high quality, which must be rated within the two highest rating categories by
S&P or Moody's or, if unrated, issued by a company having an outstanding debt
issue rated at least AA by S&P or Aa by Moody's; and (5) corporate obligations
including, but not limited to, corporate notes, bonds and debentures considered
by Advisory Services to be high grade or that are rated within the two highest
rating categories by S&P or Moody's. Please see "Appendix" for a discussion of
ratings.
Whether investing for value or for other reasons, Advisory Services may buy any
of the types of securities described below and in the SAI. The Fund currently
intends to invest primarily in domestic securities, but it may also invest its
assets in foreign securities.
COMMON AND PREFERRED CONVERTIBLE SECURITIES. The Fund may invest in convertible
securities. A convertible security is generally a debt obligation or preferred
stock that may be converted within a specified period of time into a certain
amount of common stock of the same or a different issuer. A convertible security
provides a fixed-income stream and the opportunity, through its conversion
feature, to participate in the capital appreciation resulting from a market
price advance in its underlying common stock. As with a straight fixed-income
security, a convertible security tends to increase in market value when interest
rates decline and decrease in value when interest rates rise. Like a common
stock, the value of a convertible security also tends to increase as the market
value of the underlying stock rises, and it tends to decrease as the market
value of the underlying stock declines. Because its value can be influenced by
both interest rate and market movements, a convertible security is not as
sensitive to interest rates as a similar fixed-income security, nor is it as
sensitive to changes in share price as its underlying stock. The Fund may also
invest in convertible preferred stocks that offer enhanced yield features, such
as Preferred Equity Redemption Cumulative Stock ("PERCS"), and in synthetic
convertible securities.
FOREIGN SECURITIES. The Fund may invest in foreign securities if these
investments are consistent with the Fund's investment objective. The Fund may
buy sponsored or unsponsored American Depositary Receipts ("ADRs"), Global
Depositary Receipts ("GDRs"), and European Depositary Receipts ("EDRs"). ADRs
are certificates issued by U.S. banks representing the right to receive
securities of a foreign issuer deposited with that bank or a correspondent bank.
GDRs and EDRs are typically issued by foreign banks or trust companies and
evidence ownership of underlying securities issued by either a foreign or a U.S.
corporation. The Fund may also buy the securities of foreign issuers directly in
foreign markets, and may buy the securities of issuers in developing nations.
Please see "What are the Fund's Potential Risks? - Foreign Securities" in this
Prospectus.
OPTIONS. The Fund may write (sell) call options on securities that are listed on
a national securities exchange or traded over-the-counter ("OTC") and buy listed
and OTC call and put options on securities and securities indices. The Fund may
write a call option only if the option is "covered," which means so long as the
Fund is obligated as the writer of a call option, it will either own (i) the
underlying security subject to the call or (ii) a call on the same security
where the exercise price of the call held is equal to or less than the exercise
price of the call written. The Fund will not invest in any stock options or
stock index options, other than for hedging or in covered positions, if the
option premiums paid on its open positions exceed 5% of the value of the Fund's
total assets. The Fund may enter into closing purchase transactions with respect
to its open option positions.
An option on a security is a contract that allows the buyer of the option, in
return for the premium paid, the right to buy a specified security (call option)
or to sell a specified security (put option) from or to the writer of the option
at a designated price during the term of the option. Options on securities
indices are similar to options on securities except that, rather than the right
to buy or sell particular securities at a specified price, options on a
securities index give the holder the right to receive, upon exercise of the
option, an amount of cash if the closing level of the underlying stock index is
greater than (for calls, or less than, for puts) the exercise price of the
option. The Fund may also engage in spread and straddle transactions, although
it intends to limit these transactions to no more than 5% of the Fund's net
assets. Please see "What are the Fund's Potential Risks?" below for more
information about options.
FUTURES. The Fund may enter into (i) contracts for the purchase or sale for
future delivery of securities, (ii) contracts based on securities indices and
(iii) options on these contracts. At the present time, the Fund intends to limit
these investments to no more than 5% of its net assets.
Options, futures and options on futures are generally considered "derivative
securities." The Fund's investment in options, futures and options on futures
will be for portfolio hedging or other appropriate risk management purposes in
an effort to stabilize principal fluctuations to achieve the Fund's investment
objective and not for speculation.
STRUCTURED NOTES. The Fund may invest in structured notes. Structured notes
entitle their holders to receive some portion of the principal or interest
payments that would be due on traditional debt obligations. A zero coupon bond,
which is the right to receive only the principal portion of a debt security, is
a simple form of structured note. A structured note's performance or value may
be linked to a change in return, interest rate, or value at maturity of the
change in an identified or "linked" equity security, currency, interest rate,
index or other financial indicator. The holder's right to receive principal or
interest payments on a structured note may also vary in timing or amount,
depending on changes in certain rates of interest or other external events.
LOAN PARTICIPATIONS. Through a loan participation, the Fund can buy from a
lender a portion of a larger loan that it has made to a borrower. By buying loan
participations, the Fund may be able to acquire interests in loans from
financially strong borrowers that the Fund could not otherwise acquire. These
instruments are typically interests in floating or variable rate senior loans to
U.S. corporations, partnerships, and other entities. Generally, loan
participations are sold without guarantee or recourse to the lending institution
and are subject to the credit risks of both the borrower and the lending
institution. While loan participations generally trade at par value, if the
borrowers have credit problems, some may sell at discounts. To the extent the
borrower's credit problems are resolved, the loan participations may then
appreciate in value. These loan participations, however, carry substantially the
same risk as that for defaulted debt obligations and may cause loss of the
entire investment. Most loan participations are illiquid and therefore will be
included in the Fund's limitation on illiquid investments.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. The Fund may invest in
mortgage-backed securities, including collateralized mortgage obligations, which
represent direct or indirect participation in, or are collateralized by and
payable from, mortgage loans secured by real property. In addition, the Fund may
buy asset-backed securities, which represent participation in, or are secured by
and payable from, assets such as motor vehicle installment sale contracts,
installment loan contracts, leases of various types of real and personal
property, receivables from revolving credit (credit card) agreements and other
categories of receivables. These securities are generally issued by trusts and
special purpose corporations. Please see "What are the Fund's Potential Risks? -
Mortgage-Backed and Asset-Backed Securities" below for more information.
TRADE CLAIMS. The Fund may invest in trade claims, which are purchased from
creditors of companies in financial difficulty who seek to reduce the number of
debt obligations they are owed. At the present time, however, the Fund intends
to limit these investments to no more than 5% of the Fund's net assets.
SMALL COMPANIES. The Fund may invest in companies that have relatively small
revenues, limited product lines, and a small share of the market for their
products or services. Small companies may lack depth of management, the ability
to internally generate funds necessary for growth or potential development, or
the ability to generate funds through external financing on favorable terms.
They may also attempt to develop or market new products or services for which
markets are not yet established and may never become established. Due to these
and other factors, small companies may suffer significant losses, as well as
realize substantial growth. Please see "What are the Fund's Potential Risks? -
Small Companies" below for more information.
HIGH YIELDING, FIXED-INCOME SECURITIES. The Fund may invest up to 35% of its net
assets in lower rated, fixed-income and convertible securities (those rated BB
or lower by S&P or Ba or lower by Moody's) and unrated securities of comparable
quality, which Advisory Services believes possess intrinsic values in excess of
the current market prices of such securities. Lower rated bonds are commonly
called "junk bonds." Lower rated securities are considered by S&P, on balance,
to be predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of the obligation, and
they generally involve more credit risk than securities in the higher rating
categories. Lower rated securities in which the Fund may invest include
securities rated D, the lowest rating category of S&P, or unrated securities of
comparable quality. Debt obligations rated D are in default and the payment of
interest and/or repayment of principal is in arrears. Please see "What are the
Fund's Potential Risks?" below for more information.
ZERO COUPON SECURITIES AND PAY-IN-KIND BONDS. Zero coupon or deferred interest
securities are debt obligations that do not entitle the holder to any periodic
payments of interest before maturity or a specified date when the securities
begin paying current interest (the "cash payment date") and therefore are
generally issued and traded at a discount from their face amounts or par value.
The discount varies depending on the time remaining until maturity or cash
payment date, prevailing interest rates, liquidity of the security and the
perceived credit quality of the issuer. The discount, in the absence of
financial difficulties of the issuer, typically decreases as the final maturity
or cash payment date of the security approaches. The market prices of zero
coupon securities are generally more volatile than the market prices of
securities that pay interest periodically and are likely to respond to changes
in interest rates to a greater degree than do non-zero coupon or deferred
interest securities having similar maturities and credit quality. Current
federal income tax law requires that a holder of a zero coupon security report
as income each year the portion of the original issue discount on the security
that accrues that year, even though the holder receives no cash payments of
interest during the year.
Pay-in-kind bonds are securities that pay interest through the issuance of
additional bonds. The Fund will be deemed to receive interest over the life of
the bonds and be treated as if interest were paid on a current basis for federal
income tax purposes, although no cash interest payments are received by the Fund
until the cash payment date or until the bonds mature. More information is
included under "What are the Fund's Potential Risks?" and in the tax section of
the SAI.
RESTRICTED SECURITIES. Some of the securities the Fund buys are considered
"restricted securities." The Fund's investment in restricted securities may not
exceed 15% of its net assets. Restricted securities are securities with legal or
contractual restrictions on resale, including securities that are not registered
under the 1933 Act. Securities not registered under the 1933 Act may not be sold
without first being registered, unless there is an available exemption under the
1933 Act. Normally the costs of registering these securities is borne by the
issuer. Restricted securities involve certain risks, including the risk that a
secondary market may not exist when a holder wants to sell them. In addition,
the price and valuation of these securities may reflect a discount because they
are perceived as having less liquidity than similar securities that are not
restricted.
As with other securities in the Fund's portfolio, if no readily available market
quotations exist for restricted securities, they will be valued at fair value in
accordance with procedures adopted by the Board. If the Fund suddenly has to
sell restricted securities, time constraints or a lack of interested, qualified
buyers may prevent the Fund from receiving the carrying value of the securities
at the time of the sale. Alternatively, Advisory Services may sell unrestricted
securities it might have retained if the Fund had only held unrestricted
securities.
OTHER INVESTMENT POLICIES OF THE FUND
Loans of Portfolio Securities. Consistent with procedures approved by the Board
and subject to the following conditions, the Fund may lend its portfolio
securities to qualified securities dealers or other institutional investors,
provided that such loans do not exceed 25% of the value of the Fund's total
assets at the time of the most recent loan. The borrower must deposit with the
Fund's custodian bank collateral with an initial market value of at least 102%
of the initial market value of the securities loaned, including any accrued
interest, with the value of the collateral and loaned securities
marked-to-market daily to maintain collateral coverage of at least 100%. This
collateral shall consist of cash, securities issued by the U.S. government, its
agencies or instrumentalities, or irrevocable letters of credit.
REPURCHASE AGREEMENTS. The Fund may engage in repurchase transactions in which
the Fund buys 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 that are deemed creditworthy by Advisory
Services. 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 bank approved by the Board and will
be held pursuant to a written agreement.
BORROWING. The Fund does not borrow money or mortgage or pledge any of its
assets, except that it may borrow up to 331/3% of its total assets (including
the amount borrowed) in order to meet redemption requests that might otherwise
require the untimely disposition of portfolio securities or for other temporary
or emergency purposes and may pledge its assets in connection therewith. The
Fund will not make any additional investments while any borrowings exceed 5% of
its total assets.
ILLIQUID INVESTMENTS. The Fund's policy is not to invest more than 10% of its
net assets, at the time of purchase, in illiquid securities. Illiquid securities
are generally securities that cannot be sold within seven days in the normal
course of business at approximately the amount at which the Fund has valued
them.
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.
PERCENTAGE RESTRICTIONS. If a percentage restriction noted above is adhered to
at the time of investment, a later increase or decrease in the percentage
resulting from a change in value of portfolio securities or the amount of net
assets will not be considered a violation of any of the foregoing policies.
OTHER POLICIES AND RESTRICTIONS. The Fund has a number of additional investment
restrictions that limit its activities to some extent. Some of these
restrictions may only be changed with shareholder approval. For a list of these
restrictions and more information about the Fund's investment policies, please
see "How does the Fund Invest its Assets?" and "Investment Restrictions" in the
SAI.
WHAT ARE THE FUND'S POTENTIAL RISKS?
The value of your shares will increase as the value of the securities owned by
the Fund increases and will decrease as the value of the Fund's investments
decrease. In this way, you participate in any change in the value of the
securities owned by the Fund. In addition to the factors that affect the value
of any particular security that the Fund owns, the value of Fund shares may also
change with movements in the stock and bond markets as a whole.
The Fund will invest principally in the securities of companies believed by
Advisory Services to be undervalued. Securities of a company may be undervalued
as a result of overreaction by investors to unfavorable news about a company,
industry, or the stock market in general, or as a result of a market decline,
poor economic conditions, tax-loss selling or actual or anticipated unfavorable
developments affecting a company. Often these companies are attempting to
recover from business setbacks or adverse events (turnarounds), cyclical
downturns, or, in certain cases, bankruptcy.
Cyclical stocks in which the Fund may invest tend to increase in value more
quickly during economic upturns than noncyclical stocks, but they also tend to
lose value more quickly in economic downturns. As with all investments, there is
always the possibility when investing in these securities that Advisory Services
may be incorrect in its assessment of a particular industry or company or that
Advisory Services may not buy these securities at their lowest possible prices
or sell them at their highest.
The Fund's purchase of securities of companies emerging from bankruptcy may
present risks that do not exist with other investments. Companies emerging from
bankruptcy may have some difficulty retaining customers and suppliers who prefer
transacting with solvent organizations. If new management is installed in a
company emerging from bankruptcy, the management may be considered untested; if
the existing management is retained, the management may be considered
incompetent. Further, even when a company has emerged from bankruptcy with a
lower level of debt, it may still retain a relatively weak balance sheet. During
economic downturns these companies may not have sufficient cash flow to pay
their debt obligations and may also have difficulty finding additional
financing. In addition, reduced liquidity in the secondary market may make it
difficult for the Fund to sell the securities or to value them based on actual
trades.
The Fund's policy of investing in securities that may be out of favor, including
turnarounds, cyclicals and companies emerging from bankruptcy, companies
reporting poor earnings, and companies whose share prices have declined sharply
or that are not widely followed, differs from the approach followed by many
other mutual funds. Advisory Services believes, however, that these securities
may provide a greater total investment return than securities whose prices
appear to reflect anticipated favorable developments.
NON-DIVERSIFICATION. As a non-diversified investment company under 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. 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. 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 intends to comply with the
diversification and other requirements applicable to regulated investment
companies under the Code. For more information, please see "How does the Fund
Invest Its Assets?- Non-diversification" in the SAI.
FOREIGN SECURITIES. Investments in the securities of companies organized outside
the U.S. or whose securities are principally traded outside the U.S. ("foreign
issuers") may offer potential benefits not available from investments solely in
securities of U.S. issuers. These benefits may include the opportunity to invest
in foreign issuers that appear, in the opinion of Advisory Services, to offer
more potential for long-term capital appreciation or current earnings than
investments in U.S. issuers, the opportunity to invest in foreign countries with
economic policies or business cycles different from those of the U.S., and the
opportunity to reduce fluctuations in portfolio value by taking advantage of
foreign securities markets that do not necessarily move in a manner parallel to
U.S. markets.
Investments in securities of foreign issuers involve significant risks,
including possible losses that are not typically associated with investments in
securities of U.S. issuers. These risks include political, social or economic
instability in the country of the issuer, the difficulty of predicting
international trade patterns, the possibility of the imposition of exchange
controls, expropriation, limits on removal of currency or other assets,
nationalization of assets, foreign withholding and income taxation and foreign
trading practices (including higher trading commissions, custodial charges and
delayed settlements). Changes in government administrations and economic or
monetary policies in the U.S. or abroad, changes in circumstances surrounding
dealings between nations, and changes in currency convertibility or exchange
rates could also result in investment losses for the Fund. Other risks include
the possibility that public information may not be as readily available for a
foreign company as it is for a U.S.-domiciled company, that foreign companies
are generally not subject to uniform accounting, auditing and financial
reporting standards comparable to those applicable to U.S. companies, and that
there is usually less government regulation of securities exchanges, brokers and
listed companies. Confiscatory taxation or diplomatic developments could also
affect these investments.
Investments in foreign securities where delivery takes place outside the U.S.
will be made in compliance with applicable U.S. and foreign currency
restrictions and other laws limiting the amount and type of foreign investments.
The Fund may buy securities in any foreign country, developed or developing, but
investments will not be made in any securities issued without stock certificates
or comparable stock documents.
Foreign securities may be subject to greater fluctuations in price than U.S.
securities. The markets on which foreign securities trade may also have less
volume and liquidity. Securities acquired by the Fund outside the U.S. and that
are publicly traded in the U.S. or on a foreign securities exchange or in a
foreign securities market will not be considered illiquid so long as the Fund
acquires and holds the security with the intention of reselling the security in
the foreign trading market, the Fund reasonably believes it can readily dispose
of the security for cash in the U.S. or foreign market, and current market
quotations are readily available.
You should carefully consider the substantial risks involved in investing in
securities of foreign issuers - risks that are often heightened for investments
in developing markets. For example, the small size, inexperience and limited
volume of trading on securities markets in certain developing countries may make
the Fund's investments in developing countries illiquid and more volatile than
investments in more developed countries, and the Fund may be required to
establish special custody or other arrangements before making certain
investments in these countries. The laws of some foreign countries may also
limit the ability of the Fund to invest in securities of certain issuers located
in those countries.
OPTIONS. The purchase and sale of stock options and stock index options,
including the writing of covered call options, involve risks different from
those involved with direct investments in securities. A liquid secondary market
for any particular option may not be available when a position is sought to be
closed and the inability to close a position may have an adverse impact on the
Fund's ability to effectively hedge securities. In addition, there may be an
imperfect correlation between movements in the securities on which an option
contract is based and movements in the securities in the Fund's portfolio.
Successful use of option contracts is further dependent on Advisory Services'
ability to correctly predict movements in the securities markets, but no
assurance can be given that Advisory Services' judgment will be correct.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. Mortgage-backed and asset-backed
securities are often subject to more rapid repayment than their stated maturity
dates would indicate because of the pass-through of prepayments of principal on
the underlying loans. During periods of declining interest rates, prepayment of
loans underlying mortgage-backed and asset-backed securities can be expected to
accelerate, and thus impair the Fund's ability to reinvest the returns of
principal at comparable yields. Accordingly, the market value of these
securities will vary with changes in market interest rates generally and in
yield differentials among various kinds of U.S. government securities and other
mortgage-backed and asset-backed securities. Asset-backed securities present
certain additional risks that are not presented by mortgage-backed securities
because asset-backed securities generally do not have the benefit of a security
interest in collateral that is comparable to mortgage assets. There is the
possibility that, in some cases, recoveries on repossessed collateral may not be
available to support payments on these securities.
SMALL COMPANIES. Historically, small capitalization stocks have been more
volatile in price than larger capitalization stocks. Among the reasons for the
greater price volatility of these securities are the less certain growth
prospects of smaller firms, the lower degree of liquidity in the markets for
these stocks, and the greater sensitivity of small companies to changing
economic conditions. Besides exhibiting greater volatility, small company stocks
may, to a degree, fluctuate independently of larger company stocks. Small
company stocks may decline in price as large company stocks rise, or rise in
price as large company stocks decline. You should therefore expect that the
shares of a fund that invests a substantial portion of its net assets in small
company stocks to be more volatile than the shares of a fund that invests solely
in larger capitalization stocks.
HIGH YIELDING, FIXED-INCOME SECURITIES. Because of the Fund's policy of
investing in higher yielding, higher risk securities, an investment in the Fund
is accompanied by a higher degree of risk than is present with an investment in
higher rated, lower yielding securities. Accordingly, an investment in the Fund
should not be considered a complete investment program and should be carefully
evaluated for its appropriateness in light of your overall investment needs and
goals. If you are on a fixed income or retired, you should also consider the
increased risk of loss to principal that is present with an investment in higher
risk securities such as those in which the Fund invests.
The market value of lower rated, fixed-income securities and unrated securities
of comparable quality, commonly known as junk bonds, tends to reflect individual
developments affecting the issuer to a greater extent than the market value of
higher rated securities, which react primarily to fluctuations in the general
level of interest rates. Lower rated securities also tend to be more sensitive
to economic conditions than higher rated securities. These lower rated,
fixed-income securities are considered by the rating agencies, on balance, to be
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation and will
generally involve more credit risk than securities in the higher rating
categories. Even securities rated BBB by S&P or Baa by Moody's, ratings which
are considered investment grade, possess some speculative characteristics.
Issuers of high yielding, fixed-income securities are often highly leveraged and
may not have more traditional methods of financing available to them. Therefore,
the risk associated with acquiring the securities of these issuers is generally
greater than is the case with higher rated securities. For example, during an
economic downturn or a sustained period of rising interest rates, highly
leveraged issuers of high yielding securities may experience financial stress.
During these periods, these issuers may not have sufficient cash flow to meet
their interest payment obligations. The issuer's ability to service its debt
obligations may also be adversely affected by specific developments affecting
the issuer, the issuer's inability to meet specific projected business
forecasts, or the unavailability of additional financing. The risk of loss due
to default by the issuer may be significantly greater for the holders of high
yielding securities because the securities are generally unsecured and are often
subordinated to other creditors of the issuer. Current prices for defaulted
bonds are generally significantly lower than their purchase price, and the Fund
may have unrealized losses on defaulted securities that are reflected in the
price of the Fund's shares. In general, securities that default lose much of
their value in the time period before the actual default so that the Fund's net
assets are impacted before the default. The Fund may retain an issue that has
defaulted because the issue may present an opportunity for subsequent price
recovery.
High yielding, fixed-income securities frequently have call or buy-back features
that permit an issuer to call or repurchase the securities from the Fund.
Although these securities are typically not callable for a period from three to
five years after their issuance, if a call were exercised by the issuer during
periods of declining interest rates, Advisory Services may find it necessary to
replace the securities with lower yielding securities, which could result in
less net investment income to the Fund.
The Fund may have difficulty disposing of certain high yielding securities
because there may be a thin trading market for a particular security at any
given time. The market for lower rated, fixed-income securities generally tends
to be concentrated among a smaller number of dealers than is the case for
securities that trade in a broader secondary retail market. Reduced liquidity in
the secondary market may have an adverse impact on market price and the Fund's
ability to dispose of particular issues, when necessary, to meet the Fund's
liquidity needs or in response to a specific economic event, such as a
deterioration in the creditworthiness of the issuer. Reduced liquidity in the
secondary market for certain securities may also make it more difficult for the
Fund to obtain market quotations based on actual trades for purposes of valuing
the Fund's portfolio. Current values for these high yield issues are obtained
from pricing services and/or a limited number of dealers and may be based upon
factors other than actual sales. For more information, please see "How are Fund
Shares Valued?" in the SAI.
The Fund is authorized to acquire high yielding, fixed-income securities that
are sold without registration under the federal securities laws and therefore
carry restrictions on resale. The Fund may acquire high yielding, fixed-income
securities during an initial underwriting. These securities involve special
risks because they are new issues. The Fund has no arrangement with its
underwriter or any other person concerning the acquisition of these securities.
ZERO COUPON SECURITIES AND PAY-IN-KIND BONDS. The credit risk factors pertaining
to lower rated securities also apply to lower rated zero coupon, deferred
interest and pay-in-kind bonds. These bonds carry an additional risk in that,
unlike bonds that pay interest throughout the period to maturity, the Fund will
realize no cash until the cash payment date and, if the issuer defaults, the
Fund may obtain no return at all on its investment. Zero coupon, deferred
interest and pay-in-kind bonds involve additional special considerations. During
periods when the Fund receives no cash interest payments on its zero coupon
securities or deferred interest or pay-in-kind bonds, it may be required to
dispose of portfolio securities to meet the distribution requirements and such
sales may be subject to the risk factors discussed above. The Fund is not
limited in the amount of its assets that may be invested in these types of
securities. For more information, please see "How Taxation Affects You and the
Fund."
Interest Rate, Currency and Market Risk. To the extent the Fund invests in debt
securities, changes in interest rates in any country where the Fund is invested
will affect the value of the Fund's portfolio and its share price. Rising
interest rates, which often occur during times of inflation or a growing
economy, are likely to have a negative effect on the value of the Fund's shares.
To the extent the Fund invests in common stocks, a general market decline in any
country where the Fund is invested, may also cause the Fund's share price to
decline. Changes in currency valuations will also affect the price of Fund
shares. The value of worldwide stock markets, currency valuations and interest
rates has increased and decreased in the past. These changes are unpredictable
and may happen again in the future.
WHO MANAGES THE FUND?
THE BOARD. The Board oversees the management of the Fund and elects its
officers. The officers are responsible for the Fund's day-to-day operations. The
Board also monitors the Fund to ensure no material conflicts exist among the
classes of shares. While none is expected, the Board will act appropriately to
resolve any material conflict that may arise.
INVESTMENT MANAGER. As of July 1, 1996, Advisory Services manages the Fund's
assets and makes its investment decisions. Advisory Services also performs
similar services for other funds. It is wholly owned by Resources, a publicly
owned company engaged in the financial services industry through its
subsidiaries. Charles B. Johnson and Rupert H. Johnson, Jr. are the principal
shareholders of Resources. Together, Advisory Services and its affiliates manage
over $150 billion in assets. Advisory Services employs the same individuals to
manage the Fund's portfolio as the previous manager. The terms and conditions of
the management services provided to the Fund are also the same. Please see
"Investment Management and Other Services" and "Miscellaneous Information" in
the SAI for information on securities transactions and a summary of the Fund's
Code of Ethics.
MANAGEMENT TEAM. The team responsible for the day-to-day management of the
Fund's portfolio since its inception is:
William Lippman
President of Advisory Services
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 the
Franklin Templeton Group since 1988.
Margaret McGee
Vice President of Advisory Services
Ms. McGee holds a bachelor of arts degree from William Paterson College. She has
been with the Franklin Templeton Group since 1988.
Bruce C. Baughman
Vice President of Advisory Services
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 the Franklin Templeton Group since 1988.
MANAGEMENT FEES. The Fund pays its own operating expenses. These expenses
include Advisory Services' management fees; taxes, if any; custodian, legal and
auditing fees; the fees and expenses of Board members who are not members of,
affiliated with, or interested persons of Advisory Services; salaries of any
personnel not affiliated with Advisory Services; insurance premiums; trade
association dues; expenses of obtaining quotations for calculating the Fund's
Net Asset Value; and printing and other expenses that are not expressly assumed
by Advisory Services.
Under its management agreement, the Fund pays Advisory Services a management fee
equal to an annual rate of 0.75% on the first $500 million of the average daily
net assets of the Fund, 0.625% per year on the next $500 million of the average
daily net assets of the Fund, and 0.50% per year on the average daily net assets
of the Fund in excess of $1 billion. The fee is computed daily and paid monthly.
During the Fund's start-up period, Advisory Services agreed in advance to waive
a portion of its management fees. Advisory Services may terminate this
arrangement at any time.
PORTFOLIO TRANSACTIONS. Advisory Services tries to obtain the best execution on
all transactions. If Advisory Services believes more than one broker or dealer
can provide the best execution, consistent with internal policies it may
consider research and related services and the sale of Fund shares, as well as
shares of other funds in the Franklin Templeton Group of Funds, when selecting a
broker or dealer. Please see "How does the Fund Buy Securities for its
Portfolio?" in the SAI for more information.
ADMINISTRATIVE SERVICES. Under an agreement with Advisory Services, FT Services
provides certain administrative services and facilities for the Fund. Please see
"Investment Management and Other Services" in the SAI for more information.
HOW DOES THE FUND MEASURE PERFORMANCE?
From time to time, each class of the Fund advertises its performance. The more
commonly used measures of performance are total return, current yield and
current distribution rate. Performance figures are usually calculated using the
maximum sales charge, if applicable. Certain performance figures may not include
any applicable sales charge or Rule 12b-1 fees.
Total return is the change in value of an investment over a given period. It
assumes any dividends and capital gains are reinvested. Current yield for each
class shows the income per share earned by that class. The current distribution
rate shows the dividends or distributions paid to shareholders of a class. This
rate is usually computed by annualizing the dividends paid per share during a
certain period and dividing that amount by the current Offering Price of the
class or, in the case of Advisor Class shares, the Net Asset Value of the class.
Unlike current yield, the current distribution rate may include income
distributions from sources other than dividends and interest received by the
Fund.
The investment results of each class will vary. Performance figures are always
based on past performance and do not guarantee future results. For a more
detailed description of how the Fund calculates its performance figures, please
see "How does the Fund Measure Performance?" in the SAI.
HOW IS THE TRUST ORGANIZED?
The Fund is a non-diversified series of Franklin Value Investors Trust (the
"Trust"), an open-end management investment company, commonly called a mutual
fund. It was organized as a Massachusetts business trust on September 11, 1989,
and is registered with the SEC under the 1940 Act.
The Fund began offering two classes of shares on September 1, 1996: Franklin
Value Fund - Class I and Franklin Value Fund - Class II. All shares purchased
before that time are considered Class I shares. The Fund began offering a third
class of shares on January 1, 1997: Franklin Value Fund - Advisor Class. Class
I, Class II and Advisor Class shares differ as to sales charges, expenses and
services. Different fees and expenses will affect performance. Additional
classes and series of shares may be offered in the future. A further description
of Class I and Class II is set forth below.
Each class will vote separately on matters (1) affecting only that class, (2)
expressly required to be voted on separately by state law, or (3) required to be
voted on separately by the 1940 Act. Shares of each class of a series represent
proportionate interests in the assets of the Fund and have the same voting and
other rights and preferences as any other class of the Fund on matters that
affect the Fund as a whole.
The Trust has noncumulative voting rights. This gives holders of more than 50%
of the shares voting the ability to elect all of the members of the Board. If
this happens, holders of the remaining shares voting will not be able to elect
anyone to the Board.
The Trust does not intend to hold annual shareholder meetings. It may hold a
special meeting of a series, however, for matters requiring shareholder approval
under the 1940 Act. A meeting may also be called by the Board in its discretion
or by shareholders holding at least 10% of the outstanding shares. The 1940 Act
requires that we help you communicate with other shareholders in connection with
removing members of the Board.
CLASS I AND CLASS II. Class I and Class II shares of the Fund are described in a
separate prospectus relating only to those classes. You may buy Class I and
Class II shares through your investment representative or directly by contacting
the Trust. If you would like a prospectus relating to the Fund's Class I and
Class II shares, contact your investment representative or Distributors.
Class I and Class II shares of the Fund have sales charges and Rule 12b-1
charges that may affect performance. Class I shares have a front-end sales
charge of 4.50% (4.71% of the net amount invested) that is reduced on certain
transactions of $100,000 or more. Class I shares are subject to Rule 12b-1 fees
up to a maximum of 35% per year of Class I's average daily net assets. Class II
shares have a 1.00% (1.01% of the amount invested) front-end sales charge and
are subject to Rule 12b-1 fees up to a maximum of 1.00% per year of Class II's
average daily net assets. Shares of Class I may be subject to, and shares of
Class II are generally subject to, a Contingent Deferred Sales Charge upon
redemption.
HOW TAXATION AFFECTS YOU AND THE FUND
The following discussion reflects some of the tax considerations that affect
mutual funds and their shareholders. For more information on tax matters
relating to the Fund and its shareholders, see "Additional Information on
Distributions and Taxes" in the SAI.
The Fund has elected and intends to continue to qualify 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 that you receive 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 you have 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 you have 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 you
until the following January, will be treated for tax purposes as if paid by the
Fund and received by you on December 31 of the calendar year in which they are
declared.
Redemptions and exchanges of Fund shares are taxable events on which you may
realize a gain or a loss. Any loss incurred on the sale or exchange of Fund
shares, held for six months or less, will be treated as a long-term capital loss
to the extent of capital gain dividends received with respect to such shares.
The Fund will inform you of the source of your dividends and distributions at
the time they are paid, and will promptly after the close of each calendar year
advise you of the tax status for federal income tax purposes of these dividends
and distributions.
If you are not considered a U.S. person for federal income tax purposes, you
should consult with your financial or tax advisor regarding the applicability of
U.S. withholding or other taxes on distributions received by you from the Fund
and the application of foreign tax laws to these distributions.
You should consult your tax advisor with respect to the applicability of state
and local intangible property or income taxes to your shares in the Fund and to
distributions and redemption proceeds received from the Fund.
ABOUT YOUR ACCOUNT
HOW DO I BUY SHARES?
OPENING YOUR ACCOUNT
You may buy shares with a minimum initial investment of $5 million (in the
aggregate) in one or more Advisor Class shares of the Franklin Templeton Funds
($25 for subsequent investments) except if you fall in one of the following
categories of investors satisfying one of the following criteria:
(a) Broker-dealers, qualified registered investment advisors or certified
financial planners who have entered into a supplemental agreement with
Distributors for clients participating in comprehensive fee programs; (b)
Qualified registered investment advisors or registered certified financial
planners who have clients invested in Mutual Series on October 31, 1996;
(c) Qualified registered investment advisors or registered certified financial
planners who did not have clients invested in Mutual Series on October 31, 1996
may buy through a broker-dealer or service agent who has entered into an
agreement with Distributors;
(d) Employer stock, bonus, pension or profit-sharing plans that meet the
requirements for qualification under Section 401 of the Code, including salary
reduction plans qualified under Section 401(k) of the Code, are subject to no
initial investment requirement if the number of employees is 5,000 or more or
the plan has assets of $50 million or more;
(e) Effective on or about February 1, 1997, participants in Franklin Templeton's
401(k) and Franklin Templeton's Profit Sharing Plans;
(f) Trust companies and bank trust departments initially investing in any of the
Franklin Templeton Funds at least $1 million of assets held in a fiduciary,
agency, advisory, custodial or similar capacity and over which the trust
companies, bank trust departments or other plan fiduciaries or participants, in
the case of certain retirement plans, have full or shared investment discretion;
(g) Governments, municipalities and tax-exempt entities that meet the
requirements for qualification under Section 501 of the Code (subject to an
initial investment
in Advisor Class shares of $1 million);
(h) Any other investor, including a private investment vehicle such as a family
trust or foundation, who is a member of a qualified group may also purchase
Advisor Class shares of the Fund if the group as a whole meets the required
minimum initial investment of $5 million;
(i) Directors, trustees, officers and full-time employees (and members of their
immediate family) of Franklin Templeton Group and Franklin Templeton Group of
Funds who invest $100 or more;
(j) Accounts managed by the Franklin Templeton Group;
(k) Class I shareholders of the Fund who qualify under one of the above
categories, may have their existing Class I shares invested into the Fund's
Advisor Class by sending written instructions indicating that they wish to do
so, by June 30, 1997. Instructions should be addressed to Investor Services.
Generally, for federal income tax purposes, there will be no recognition of gain
or loss associated with such a transaction. You may wish to consult with your
tax advisor to determine whether there are any state income tax consequences to
such a transaction.
(l) Each series of Franklin Templeton Fund Allocator Series that invests $1,000
or more.
The qualified group referred to in Item (h) above, is one that:
o Was formed at least six months ago,
o Has a purpose other than buying Fund shares at a discount,
o Has more than 10 members,
o Can arrange for meetings between our representatives and group members,
o Agrees to include sales and other Franklin Templeton Fund materials in
publications and mailings to its members at reduced or no cost to Distributors,
o Agrees to arrange for payroll deduction or other bulk transmission of
investments to the Fund, and
o Meets other uniform criteria that allow Distributors to achieve cost savings
in distributing shares.
If you are subject to the $5 million minimum investment requirement, the cost or
current value (whichever is higher) of your investment in other funds in the
Franklin Templeton Funds will be included for purposes of determining compliance
with the required minimum investment amount, provided that at least $1 million
is invested in Advisor Class shares of the Franklin Templeton Funds.
The minimum for subsequent investments in Advisor Class shares is; $25 for most
purchases of Advisor Class shares of the Fund and for purchases by directors,
trustees, officers and full-time employees (and members of their immediate
family) of Franklin Templeton Group and Franklin Templeton Funds; and $1,000 for
each series of Franklin Templeton Fund Allocator Series.
PURCHASE PRICE OF FUND SHARES
Advisor Class shares are purchased at Net Asset Value without a sales charge.
Securities Dealers may receive compensation up to 0.25% of the amount invested
from Distributors or an affiliated company.
HOW DO I BUY SHARES IN CONNECTION WITH RETIREMENT PLANS?
Your individual or employer-sponsored retirement plan may invest in the Fund.
Plan documents are required for all retirement plans. Trust Company can provide
the plan documents for you and serve as custodian or trustee.
Trust Company can provide you with brochures containing important information
about its plans. To establish a Trust Company retirement plan, you will need an
application other than the one included in this prospectus. For a retirement
plan brochure or application, please call our Retirement Plans Department.
Please consult your legal, tax or retirement plan specialist before choosing a
retirement plan. Your investment representative or advisor can help you make
investment decisions within your plan.
MAY I EXCHANGE SHARES FOR SHARES OF ANOTHER FUND?
We offer a wide variety of funds. If you would like, you can move your
investment from your Fund account to an existing or new account in another
Franklin Templeton Fund (an "exchange"). Because it is technically a sale and a
purchase of shares, an exchange is a taxable transaction for taxable investors.
Before making an exchange, please read the prospectus of the fund you are
interested in. This will help you learn about the fund and its rules and
requirements for exchanges. For example, some Franklin Templeton Funds do not
accept exchanges and others may have different investment minimums. Some
Franklin Templeton Funds do not offer Advisor Class shares.
METHOD STEPS TO FOLLOW
- --------------------------------------------------------------------------------
BY MAIL 1. Send us written instructions signed by all account owners
2. Include any outstanding share certificates for the shares
you're exchanging
- --------------------------------------------------------------------------------
BY PHONE Call Shareholder Services
If you do not want the ability to exchange by phone to apply
to your account, please let us know.
- --------------------------------------------------------------------------------
THROUGH YOUR DEALER Call your investment representative
Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to exchange shares.
HOW WE PROCESS YOUR EXCHANGE
If you are exchanging your Advisor Class shares of the Fund you may:
o exchange into any of our money funds except Franklin Templeton Money Fund II.
o exchange into the other Advisor Class shares of the Franklin Templeton Funds
(excluding Templeton Developing Markets Trust, Templeton Foreign Fund and
Templeton Growth Fund, except as described below), Mutual Series Class Z shares
and Templeton Institutional Funds, Inc., if you meet the investment requirements
of the fund to be acquired.
o exchange into the Advisor Class shares of Templeton Developing Markets Trust,
Templeton Foreign Fund and Templeton Growth Fund if you fall into one of the
following categories: (i) you are a broker-dealer or a qualified registered
investment advisor who has entered into a special agreement with Distributors
for your clients who are participating in comprehensive fee programs; (ii) you
are a qualified registered investment advisor or certified financial planner who
has clients invested in Mutual Series on October 31, 1996; (iii) you are a
qualified registered investment advisor or certified financial planner who did
not have clients invested in Mutual Series on October 31, 1996 and are buying
through a broker-dealer or service agent who has entered into an agreement with
Distributors; (iv) you are a director, trustee, officer or full-time employee
(or a family member) of the Franklin Templeton Group or the Franklin Templeton
Funds; (v) you are a participant in Franklin Templeton's 401(k) or Franklin
Templeton's Profit Sharing Plans; (vi) the exchanging shareholder is an account
managed by the Franklin Templeton Group; (vii) the exchanging shareholder is a
series of the Franklin Templeton Fund Allocator Series.
o If the fund you are exchanging into does not offer Advisor Class shares, you
may exchange into the Class I shares of the fund at Net Asset Value.
Please be aware that the following restrictions may apply to exchanges:
o The accounts must be identically registered. You may exchange shares from a
Fund account requiring two or more signatures into an identically registered
money fund account requiring only one signature for all transactions. Please
notify us in writing if you do not want this option to be available on your
account(s). Additional procedures may apply. Please see "Transaction Procedures
and Special Requirements."
o Trust Company IRA or 403(b) retirement plan accounts may exchange shares as
described above. Restrictions may apply to other types of retirement plans.
Please contact our Retirement Plans Department for information on exchanges
within these plans.
o The fund you are exchanging into must be eligible for sale in your state.
o We may modify or discontinue our exchange policy upon 60 days' written notice.
o Currently, the Fund does not allow investments by Market Timers.
Because excessive trading can hurt Fund performance and shareholders, we may
refuse any exchange purchase if (i) we believe the Fund would be harmed or
unable to invest effectively, or (ii) the Fund receives or anticipates
simultaneous orders that may significantly affect the Fund.
HOW DO I SELL SHARES?
You may sell (redeem) your shares at any time.
METHOD STEPS TO FOLLOW
- --------------------------------------------------------------------------------
BY MAIL 1. Send us written instructions signed by all account owners
2. Include any outstanding share certificates for the shares you
are selling
3. Provide a signature guarantee if required
4. Corporate, partnership and trust accounts may need to send
additional documents. Accounts under court jurisdiction may
have additional requirements.
- --------------------------------------------------------------------------------
BY PHONE Call Shareholder Services
(Only available Telephone requests will be accepted:
if you have o If the request is $50,000 or less. Institutional
completed and sent accounts may exceed $50,000 by completing a separate
to us the telephone agreement. Call Institutional Services to receive a copy.
redemption agreement o If there are no share certificates issued for the shares
included with this you want to sell or you have already returned them to
prospectus) the Fund
o Unless you are selling shares in a Trust Company
retirement plan account
o Unless the address on your account was changed by phone
within the last 30 days
o Beginning on or about May 1, 1997, you will automatically
be able to redeem shares by telephone without completing
a telephone redemption agreement. Please notify us if you
do not want this option to be available on your account.
If you later decide you would like this option, send us
written instructions signed by all account owners.
- --------------------------------------------------------------------------------
Through Your Dealer Call your investment representative
- --------------------------------------------------------------------------------
We will send your redemption check within seven days after we receive your
request in proper form. If you sell your shares by phone, the check may only be
made payable to all registered owners on the account and sent to the address of
record. We are not able to receive or pay out cash in the form of currency.
If you sell shares you just purchased with a check or draft, we may delay
sending you the proceeds for up to 15 days or more to allow the check or draft
to clear. A certified or cashier's check may clear in less time.
Under unusual circumstances, we may suspend redemptions or postpone payment for
more than seven days as permitted by federal securities law.
Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to sell shares.
TRUST COMPANY RETIREMENT PLAN ACCOUNTS
To comply with IRS regulations, you need to complete additional forms before
selling shares in a Trust Company retirement plan account. Tax penalties
generally apply to any distribution from these plans to a participant under age
591/2, unless the distribution meets an exception stated in the Code. To obtain
the necessary forms, please call our Retirement Plans Department.
WHAT DISTRIBUTIONS MIGHT I RECEIVE FROM THE FUND?
The Fund declares dividends from its net investment income quarterly, payable in
March, June, September and December, to shareholders of record on the first
business day before the 15th of that month and pays them on or about the last
day of that month.
Dividends and capital gains are calculated and distributed the same way for each
class. The amount of any income dividends per share will differ, however,
generally due to the difference in the applicable Rule 12b-1 fees of any class.
Advisor Class shares are not subject to Rule 12b-1 fees.
Dividend payments are not guaranteed, are subject to the Board's discretion and
may vary with each payment. THE FUND DOES NOT PAY "INTEREST" OR GUARANTEE ANY
FIXED RATE OF RETURN ON AN INVESTMENT IN ITS SHARES.
If you buy shares shortly before the record date, please keep in mind that any
distribution will lower the value of the Fund's shares by the amount of the
distribution.
DISTRIBUTION OPTIONS
You may receive your distributions from the Fund in any of these ways:
1. BUY ADDITIONAL SHARES OF THE FUND - You may buy additional shares of the same
class of the Fund 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. BUY SHARES OF OTHER FRANKLIN TEMPLETON FUNDS - You may direct your
distributions to buy Advisor Class shares or Class I shares of another Franklin
Templeton Fund. Many shareholders find this a convenient way to diversify their
investments.
3. RECEIVE DISTRIBUTIONS IN CASH - You may receive dividends, or both dividend
and capital gain distributions in cash. If you have the money sent to another
person or to a checking account, you may need a signature guarantee.
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 YOU DO NOT SELECT AN OPTION, WE WILL
AUTOMATICALLY REINVEST DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS IN THE ADVISOR
CLASS SHARES OF THE FUND. For Trust Company retirement plans, special forms are
required to receive distributions in cash. You may change your distribution
option at any time by notifying us by mail or phone. Please allow at least seven
days prior to the record date for us to process the new option.
TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
HOW AND WHEN SHARES ARE PRICED
The Fund is open for business each day the Exchange is open. We determine the
Net Asset Value per share of each class as of the scheduled close of the
Exchange, generally 1:00 p.m. Pacific time. You can find the prior day's closing
Net Asset Value and Offering Price for each class in many newspapers.
The Net Asset Value of all outstanding shares of each class is calculated on a
pro rata basis. It is based on each class' proportionate participation in the
Fund, determined by the value of the shares of each class. To calculate Net
Asset Value per share of each class, the assets of each class are valued and
totaled, liabilities are subtracted, and the balance, called net assets, is
divided by the number of shares of the class outstanding. The Fund's assets are
valued as described under "How are Fund Shares Valued?" in the SAI.
THE PRICE WE USE WHEN YOU BUY OR SELL SHARES
You buy shares of Advisor Class at the Net Asset Value per share. We calculate
it to two decimal places using standard rounding criteria. You also sell shares
at Net Asset Value.
We will use the Net Asset Value next calculated after we receive your
transaction request in proper form. If you buy or sell shares through your
Securities Dealer, however, we will use the Net Asset Value next calculated
after your Securities Dealer receives your request, which is promptly
transmitted to the Fund. Your redemption proceeds will not earn interest between
the time we receive the order from your dealer and the time we receive any
required documents.
PROPER FORM
An order to buy shares is in proper form when we receive your signed shareholder
application and check. Written requests to sell or exchange shares are in proper
form when we receive written instructions signed by all registered owners, with
a signature guarantee if necessary. We must also receive any outstanding share
certificates for those shares.
WRITTEN INSTRUCTIONS
Written instructions must be signed by all registered owners. To avoid any delay
in processing your transaction, they should include:
o Your name,
o The Fund's name,
o The class of shares,
o A description of the request,
o For exchanges, the name of the fund you're exchanging into,
o Your account number,
o The dollar amount or number of shares, and
o A telephone number where we may reach you during the day, or in the evening if
preferred.
SIGNATURE GUARANTEES
For our mutual protection, we require a signature guarantee in the following
situations:
1) You wish to sell over $50,000 worth of shares,
2) You want the proceeds to be paid to someone other than the registered owners,
3) The proceeds are not being sent to the address of record, preauthorized bank
account, or preauthorized brokerage firm account,
4) We receive instructions from an agent, not the registered owners, 5) We
believe a signature guarantee would protect us against potential claims based on
the instructions received.
A signature guarantee verifies the authenticity of your signature and may be
obtained from certain banks, brokers or other eligible guarantors. YOU SHOULD
VERIFY THAT THE INSTITUTION IS AN ELIGIBLE GUARANTOR PRIOR TO SIGNING. A
NOTARIZED SIGNATURE IS NOT SUFFICIENT.
SHARE CERTIFICATES
We will credit your shares to your Fund account. We do not issue share
certificates unless you specifically request them. This eliminates the costly
problem of replacing lost, stolen or destroyed certificates. If a certificate is
lost, stolen or destroyed, you may have to pay an insurance premium of up to 2%
of the value of the certificate to replace it.
Any outstanding share certificates must be returned to the Fund if you want to
sell or exchange those shares or if you would like to start a systematic
withdrawal plan. The certificates should be properly endorsed. You can do this
either by signing the back of the certificate or by completing a share
assignment form. For your protection, you may prefer to complete a share
assignment form. In this case, you should send the certificate and assignment
form in separate envelopes.
TELEPHONE TRANSACTIONS
You may initiate many transactions by phone. Please refer to the sections of
this prospectus that discuss the transaction you would like to make or call
Shareholder Services.
When you call, we will request personal or other identifying information to
confirm that instructions are genuine. We will also record calls. We will not be
liable for following instructions communicated by telephone if we reasonably
believe they are genuine. For your protection, we may delay a transaction or not
implement one if we are not reasonably satisfied that the instructions are
genuine. If this occurs, we will not be liable for any loss.
TRUST COMPANY RETIREMENT PLAN ACCOUNTS. You may not sell shares or change
distribution options on Trust Company retirement plans by phone. While you may
exchange shares of Trust Company IRA and 403(b) retirement accounts by phone,
certain restrictions may be imposed on other retirement plans.
To obtain any required forms or more information about distribution or transfer
procedures, please call our Retirement Plans Department.
ACCOUNT REGISTRATIONS AND REQUIRED DOCUMENTS
When you open an account, you need to tell us how you want your shares
registered. How you register your account will affect your ownership rights and
ability to make certain transactions. If you have questions about how to
register your account, you should consult your investment representative or
legal advisor. Please keep the following information in mind when registering
your account.
JOINT OWNERSHIP. If you open an account with two or more owners, we register the
account as "joint tenants with rights of survivorship" unless you tell us
otherwise. An account registered as "joint tenants with rights of survivorship"
is shown as "Jt Ten" on your account statement. For any account with two or more
owners, all owners must sign instructions to process transactions and changes to
the account. Even if the law in your state says otherwise, you will not be able
to change owners on the account unless all owners agree in writing. If you would
like another person or owner to sign for you, please send us a current power of
attorney.
GIFTS AND TRANSFERS TO MINORS. You may set up a custodial account for a minor
under your state's Uniform Gifts/Transfers to Minors Act. Other than this form
of registration, a minor may not be named as an account owner.
TRUSTS. If you register your account as a trust, you should have a valid written
trust document to avoid future disputes or possible court action over who owns
the account.
REQUIRED DOCUMENTS. For corporate, partnership and trust accounts, please send
us the following documents when you open your account. This will help avoid
delays in processing your transactions while we verify who may sign on the
account.
TYPE OF ACCOUNT DOCUMENTS REQUIRED
- --------------------------------------------------------------------------------
Corporation Corporate Resolution
- --------------------------------------------------------------------------------
Partnership 1. The pages from the partnership agreement that identify the
general partners, or
2. A certification for a partnership agreement
- --------------------------------------------------------------------------------
Trust 1. The pages from the trust document that identify the
trustees, or
2. A certification for trust
- --------------------------------------------------------------------------------
STREET OR NOMINEE ACCOUNTS. If you have Fund shares held in a "street" or
"nominee" name account with your Securities Dealer, you may transfer the shares
to the street or nominee name account of another Securities Dealer. Both dealers
must have an agreement with Distributors or we will not process the transfer.
Contact your Securities Dealer to initiate the transfer. We will process the
transfer after we receive authorization in proper form from your delivering
Securities Dealer. Accounts may be transferred electronically through the NSCC.
For accounts registered in street or nominee name, we may take instructions
directly from the Securities Dealer or your nominee.
ELECTRONIC INSTRUCTIONS. If there is a Securities Dealer or other representative
of record on your account, we are authorized to use and execute electronic
instructions received directly from your dealer or representative without
further inquiry. Electronic instructions may be processed through the services
of the NSCC, which currently include the NSCC's "Networking," "Fund/SERV," and
"ACATS" systems, or through Franklin/Templeton's PCTrades II(TM) System.
TAX IDENTIFICATION NUMBER
For tax reasons, we must have your correct Social Security or tax identification
number on a signed shareholder application or applicable tax form. Federal law
requires us to withhold 31% of your taxable distributions and sale proceeds if
(i) you have not furnished a certified correct taxpayer identification number,
(ii) you have not certified that withholding does not apply, (iii) the IRS or a
Securities Dealer notifies the Fund that the number you gave us is incorrect, or
(iv) you are subject to backup withholding.
We may refuse to open an account if you fail to provide the required tax
identification number and certifications. We may also close your account if the
IRS notifies us that your tax identification number is incorrect. If you
complete an "awaiting TIN" certification, we must receive a correct tax
identification number within 60 days of your initial purchase to keep your
account open.
KEEPING YOUR ACCOUNT OPEN
Due to the relatively high cost of maintaining a small account, we may close
your account if the value of your shares is $50 or less, except for investors
under categories (d), (e), (j) and (l) under "Opening Your Account." We will do
this if the value of your account falls below this minimum because you
voluntarily sold your shares and your account has been inactive (except for the
reinvestment of distributions) for at least six months. Before we close your
account, we will notify you and give you 30 days to increase the value of your
account to at least $100.
SERVICES TO HELP YOU MANAGE YOUR ACCOUNT
AUTOMATIC INVESTMENT PLAN
Our automatic investment plan offers a convenient way to invest in the Fund.
Under the plan, you can have money transferred automatically from your checking
account to the Fund each month to buy additional shares. If you are interested
in this program, please refer to the application included with this prospectus
or contact your investment representative. 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 discontinue the program at any time by
notifying Investor Services by mail or phone.
SYSTEMATIC WITHDRAWAL PLAN
Our systematic withdrawal plan allows you to sell your shares and receive
regular payments from your account on a monthly, quarterly, semiannual or annual
basis. The value of your account must be at least $5,000 and the minimum payment
amount for each withdrawal must be at least $50. For retirement plans subject to
mandatory distribution requirements, the $50 minimum will not apply.
If you would like to establish a systematic withdrawal plan, please complete the
systematic withdrawal plan section of the shareholder application included with
this prospectus and indicate how you would like to receive your payments. You
may choose to direct your payments to buy the same class of shares of another
Franklin Templeton Fund or have the money sent directly to you, to another
person, or to a checking account.
You will generally receive your payment by the fifth business day of the month
in which a payment is scheduled. Beginning with your February 1997 payment,
however, you will generally receive your payment by the end of the month in
which a payment is scheduled. When you sell your shares under a systematic
withdrawal plan, it is a
taxable transaction.
You may discontinue a systematic withdrawal plan, change the amount and schedule
of withdrawal payments, or suspend one payment by notifying us in writing at
least seven business days before the end of the month preceding a scheduled
payment. Please see "How Do I Buy, Sell and Exchange Shares? - Systematic
Withdrawal Plan" in the SAI for more information.
STATEMENTS AND REPORTS TO SHAREHOLDERS
We will send you the following statements and reports on a regular basis:
o Confirmation and account statements reflecting transactions in your account,
including additional purchases and dividend reinvestments. PLEASE VERIFY THE
ACCURACY OF YOUR STATEMENTS WHEN YOU RECEIVE THEM.
o Financial reports of the Fund will be sent every six months. To reduce Fund
expenses, we attempt to identify related shareholders within a household and
send only one copy of a report. Call Fund Information if you would like an
additional free copy of the Fund's financial reports or an interim quarterly
report.
BROKERS AND DEALERS AND PLAN ADMINISTRATORS
You may buy and sell Fund shares through registered broker-dealers. The Fund
does not impose a sales or service charge but your broker-dealer may charge you
a transaction fee. Transaction fees and services may vary among broker-dealers,
and your broker-dealer may impose higher initial or subsequent investment
requirements than those established by the Fund. Services provided by
broker-dealers may include allowing you to establish a margin account and borrow
on the value of the Fund's shares in that account. If your broker-dealer
receives your order before pricing on a given day, the broker-dealer is required
to forward the order to the Fund before pricing closes on that day. A
broker-dealer's failure to timely forward an order may give rise to a claim by
the investor against the broker.
Third party plan administrators of tax-qualified retirement plans and other
entities may provide sub-transfer agent services to the Fund. In such cases, the
Fund may pay the third party an annual sub-transfer agency fee that is not
greater than the Fund otherwise would have paid for such services.
INSTITUTIONAL ACCOUNTS
Institutional investors will likely be required to complete an institutional
account application. There may be additional methods of opening accounts and
purchasing, redeeming or exchanging shares of the Fund available for
institutional accounts. To obtain an institutional application or additional
information regarding institutional accounts, contact Franklin Templeton
Institutional Services at 1-800/321-8563 Monday through Friday, from 6:00 a.m.
to 5:00 p.m. Pacific time.
AVAILABILITY OF THESE SERVICES
The services above are available to most shareholders. If, however, your shares
are held by a financial institution, in a street name account, or networked
through the NSCC, the Fund may not be able to offer these services directly to
you. Please contact your investment representative.
WHAT IF I HAVE QUESTIONS ABOUT MY ACCOUNT?
If you have any questions about your account, you may write to Investor Services
at 777 Mariners Island Blvd., P.O. Box 7777, San Mateo, California 94403-7777.
The Fund and Distributors are also located at this address. Advisory Services is
located at One Parker Plaza, Sixteenth Floor, Fort Lee, New Jersey 07024. You
may also contact us by phone at one of the numbers listed below.
HOURS OF OPERATION (PACIFIC TIME)
DEPARTMENT NAME TELEPHONE NO. (MONDAY THROUGH FRIDAY)
- --------------------------------------------------------------------------------
Shareholder Services 1-800/632-2301 5:30 a.m. to 5:00 p.m.
Dealer Services 1-800/524-4040 5:30 a.m. to 5:00 p.m.
Fund Information 1-800/DIAL BEN 5:30 a.m. to 8:00 p.m.
(1-800/342-5236) 6:30 a.m. to 2:30 p.m. (Saturday)
Retirement Plans 1-800/527-2020 5:30 a.m. to 5:00 p.m.
Institutional Services 1-800/321-8563 6:00 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 5:30 a.m. to 5:00 p.m.
Your phone call may be monitored or recorded to ensure we provide you with high
quality service. You will hear a regular beeping tone if your call is being
recorded.
GLOSSARY
USEFUL TERMS AND DEFINITIONS
1940 ACT - Investment Company Act of 1940, as amended
ADVISORY SERVICES - Franklin Advisory Services, Inc., the Fund's investment
manager
BOARD - The Board of Trustees of the Trust
CD - Certificate of deposit
CLASS I, CLASS II AND ADVISOR CLASS - The Fund offers three classes of shares,
designated "Class I," "Class II" and "Advisor Class." The three classes have
proportionate interests in the Fund's portfolio. Class I and Class II differ,
however, primarily in their sales charge structures and Rule 12b-1 plans.
Advisor Class shares are purchased without a sales charge and do not have a Rule
12b-1 plan.
CODE - Internal Revenue Code of 1986, as amended
CONTINGENCY PERIOD - For Class I shares, the 12 month period during which a
Contingent Deferred Sales Charge may apply. For Class II shares, the contingency
period is 18 months. Regardless of when during the month you purchased shares,
they will age one month on the last day of that month and each following month.
CONTINGENT DEFERRED SALES CHARGE (CDSC) - A sales charge of 1% that may apply if
you sell your shares within the Contingency Period.
DISTRIBUTORS - Franklin/Templeton Distributors, Inc., the Fund's principal
underwriter. The SAI lists the officers and Board members who are affiliated
with Distributors. See "Officers and Trustees."
EXCHANGE - New York Stock Exchange
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 GROUP OF FUNDS - All U.S. registered investment companies in
the Franklin Group of Funds(R) and the Templeton Group of Funds
FT SERVICES - Franklin Templeton Services, Inc., the Fund's administrator
INVESTOR SERVICES - Franklin/Templeton Investor Services, Inc., the Fund's
shareholder servicing and transfer agent
IRS - Internal Revenue Service
MARKET TIMER(S) - Market Timers generally include market timing or allocation
services, accounts administered so as to buy, sell or exchange shares based on
predetermined market indicators, or any person or group whose transactions seem
to follow a timing pattern.
MOODY'S - Moody's Investors Services, Inc.
MUTUAL SERIES - Franklin Mutual Series Fund Inc., a member of the Franklin Group
of Funds, formerly the Mutual Series Fund Inc., a member of the Franklin Group
of Funds, formerly the Mutual Series Fund Inc. Each series of Mutual Series
began offering three classes of shares on November 1, 1996, Class I, Class II
and Class Z. All shares sold before that time are designated Class Z shares.
NASD - National Association of Securities Dealers, Inc.
NET ASSET VALUE (NAV) - The value of a mutual fund is determined by deducting
the fund's liabilities from the total assets of the portfolio. The net asset
value per share is determined by dividing the net asset value of the fund by the
number of shares outstanding.
NSCC - National Securities Clearing Corporation
OFFERING PRICE - The public offering price is based on the Net Asset Value per
share of the class and includes the front-end sales charge, if applicable. The
maximum front-end sales charge is 4.50% for Class I and 1% for Class II. Adivsor
Class has no front-end sales charge.
RESOURCES - Franklin Resources, Inc.
S&P - Standard & Poor's Corporation
SAI - Statement of Additional Information
SEC - U.S. Securities and Exchange Commission
SECURITIES DEALER - A financial institution that, either directly or through
affiliates, has an agreement with Distributors to handle customer orders and
accounts with the 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. Trust Company is an affiliate
of Distributors and both are wholly owned subsidiaries of Resources.
U.S. - United States
WE/OUR/US - Unless the context indicates a different meaning, these terms refer
to the Fund and/or Investor Services, Distributors, or other wholly owned
subsidiaries of Resources.
APPENDIX
DESCRIPTION OF RATINGS
Corporate Bond Ratings
MOODY'S
Aaa - Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa - Bonds rated Aa are judged to be of high quality by all standards. Together
with the Aaa group they comprise what are generally known as high grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large, fluctuation of protective elements may be of greater amplitude, or
there may be other elements present which make the long-term risks appear
somewhat larger.
A - Bonds rated A possess many favorable investment attributes and are
considered upper medium grade obligations. Factors giving security to principal
and interest are considered adequate but elements may be present which suggest a
susceptibility to
impairment sometime in the future.
Baa - Bonds rated Baa are considered medium grade obligations. They are neither
highly protected nor poorly secured. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have speculative
characteristics as well.
Ba - Bonds rated Ba are judged to have predominantly speculative elements and
their future cannot be considered well assured. Often the protection of interest
and principal payments is very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B - Bonds rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
Caa - Bonds rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
Ca - Bonds rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
C - Bonds rated C are the lowest rated class of bonds and can be regarded as
having extremely poor prospects of ever attaining any real investment standing.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond ratings. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category; modifier 2 indicates a mid-range ranking; and modifier 3 indicates
that the issue ranks in the lower end of its generic rating category.
S&P
AAA - This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.
AA - Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong and, in the majority of instances,
differ from AAA issues only in small degree.
A - Bonds rated A have a strong capacity to pay principal and interest, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay principal and interest for bonds in this category
than for bonds in the A category.
BB, B, CCC, CC - Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligations. BB
indicates the lowest degree of speculation and CC the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
C - Bonds rated C are typically subordinated debt to senior debt that is
assigned an actual or implied CCC- rating. The C rating may also reflect the
filing of a bankruptcy petition under circumstances where debt service payments
are continuing. The C1 rating is reserved for income bonds on which no interest
is being paid.
D - Debt rated D is in default and payment of interest and/or repayment of
principal is in arrears.
Commercial Paper Ratings
Moody's
Moody's commercial paper ratings are opinions of the ability of issuers to repay
punctually their promissory obligations not having an original maturity in
excess of nine months. Moody's employs the following designations, all judged to
be investment grade, to indicate the relative repayment capacity of rated
issuers:
P-1 (Prime-1): Superior capacity for repayment.
P-2 (Prime-2): Strong capacity for repayment.
S&P
S&P's ratings are a current assessment of the likelihood of timely payment of
debt having an original maturity of no more than 365 days. Ratings are graded
into four categories, ranging from "A" for the highest quality obligations to
"D" for the lowest. Issues within the "A" category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety, as follows:
A-1: This designation indicates the degree of safety regarding timely payment is
very strong. A "plus" (+) designation indicates an even stronger likelihood of
timely payment.
A-2: Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as overwhelming as for issues
designated A-1.
A-3: Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
FRANKLIN
VALUE FUND
ADVISOR CLASS
FRANKLIN VALUE INVESTORS TRUST
STATEMENT OF
ADDITIONAL INFORMATION
JANUARY 1, 1997
777 Mariners Island Blvd., P.O. Box 7777
San Mateo, CA 94403-7777 1-800/DIAL BEN
Table of Contents
How does the Fund Invest its Assets? ................. 2
What are the Fund's Potential Risks? ................. 7
Investment Restrictions .............................. 10
Officers and Trustees ................................ 11
Investment Management
and Other Services .................................. 13
How does the Fund Buy Securities
For its Portfolio?................................... 14
How Do I Buy, Sell and Exchange Shares?............... 15
How are Fund Shares Valued? .......................... 17
Additional Information on
Distributions and Taxes.............................. 18
The Fund's Underwriter ............................... 20
How does the Fund
Measure Performance?................................. 21
Miscellaneous Information ............................ 23
Useful Terms and Definitions ......................... 24
Financial Statements ................................. 25
When reading this SAI, you will see certain terms beginning with capital
letters. This means the term is explained under "Useful Terms and Definitions."
Franklin Value Fund (the "Fund") is a non-diversified series of Franklin Value
Investors Trust (the "Trust"), an open-end management investment company. This
SAI relates to the Advisor Class shares of the Fund. The Fund's investment
objective is to earn a high level of current income. The Fund also seeks capital
appreciation as a secondary objective. The Fund seeks to achieve its objectives
by investing in both fixed-income debt securities and dividend- paying common or
preferred stocks.
Advisor Class shares are only available for purchase by certain persons,
including, among others, certain financial institutions (such as banks, trust
companies, savings institutions and credit unions); government and tax-exempt
entities; pension, profit sharing and employee benefit plans; certain qualified
groups, including family trusts, endowments, foundations and corporations;
Franklin Templeton Fund Allocator Series; and directors, trustees, officers and
full time employees (and their family members) of Franklin Templeton Group and
the Franklin Templeton Group of Funds.
The Prospectus, dated January 1, 1997, as may be amended from time to time,
contains the basic information you should know before investing in the Fund. For
a free copy, call 1-800/DIAL BEN or write the Fund at the address shown.
THIS 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 PROSPECTUS.
MUTUAL FUNDS, ANNUITIES, AND OTHER INVESTMENT PRODUCTS:
O ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE U.S. GOVERNMENT;
O ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY ANY BANK;
O ARE SUBJECT TO INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
How does the Fund Invest its Assets?
The Fund seeks long-term total return. The Fund seeks to achieve its objective
by investing at least 65% of its assets in the securities of companies that the
Fund's investment manager believes are undervalued. As with any other
investment, there can be no assurance that this technique will be successful for
the Fund or that the Fund will achieve its investment objective. Income is a
secondary consideration of the Fund, although it is not part of the Fund's
investment objective.
The following information supplements "How does the Fund Invest its Assets?" in
the Prospectus.
OPTIONS AND FUTURES
Options. The Fund may write covered call options that are listed on a national
securities exchange and buy listed options on securities and securities indices
for portfolio hedging purposes. The Fund may also write covered call options and
buy put options that are traded over-the-counter ("OTC"). In addition, the Fund
may enter into closing transactions with respect to its open option positions.
Call Options. The Fund may buy call options on securities which it intends to
buy. By buying these options, the Fund limits the risk of a substantial increase
in the market price of these securities. The Fund may also buy call options on
securities held in its portfolio and on which it has written call options as
described below.
A writer of a call option retains the amount of the premium paid by the buyer of
the option regardless of whether it is exercised. The premium amount reflects,
among other things, the relationship of the exercise price to the market price,
the volatility of the underlying security, the remaining term of the option,
supply and demand, and interest rates. A premium received by the writer of a
covered call option may be offset by a decline in the market value of the
underlying security during the option period. Because the writer of a call
option may be assigned an exercise notice at any time before the termination of
the call, the writer may have no control over when the underlying securities
must be sold. If a call option is exercised, the writer experiences a profit or
loss from the sale of the underlying security. Also, by writing a covered call
option, the Fund gives up the opportunity to profit from any price increase in
the underlying security above the option exercise price while the option is in
effect.
Unless a writer of an option has already been notified of the exercise of an
option, the writer may terminate its obligation by buying an option of the same
series as the option previously written. This is known as a "closing purchase
transaction," and it allows the writer's position to be canceled by the clearing
corporation. A holder of an option liquidates its position by selling an option
of the same series as the option previously purchased, which is known as a
"closing sale transaction." There is no guarantee that either a closing purchase
or a closing sale transaction can be completed.
The Fund may conduct a closing transaction on a written call option to permit
the Fund to (i) write another call option on the underlying security with either
a different exercise price, expiration date or both or (ii) use the cash or
proceeds from the sale of the underlying security for other Fund investments. If
the Fund wants to sell a security from its portfolio on which it has written a
call option, it may conduct a closing transaction before or at the same time as
it sells the security. Profit or loss from such a sale will depend on whether
the amount received is more or less than the premium paid for the call option
plus any related transaction costs.
If the price of a closing transaction is less than the premium received from
writing the option or the premium paid to buy the option, the Fund makes a
profit on the transaction; if the price is more, the Fund realizes a loss.
Because increases in the market price of a call option will generally reflect
increases in the market price of the underlying security, any loss resulting
from the purchase of a call option is likely to be offset by appreciation of the
underlying security owned by the Fund.
Put Options. The Fund may also buy put options. The Fund may enter into closing
sale transactions with respect to such options, exercise them, or permit them to
expire. The Fund may buy a put option on an underlying security (a "protective
put") owned by the Fund as a hedging technique in order to protect against an
anticipated decline in the value of the security. This allows the Fund to sell
the underlying security at the put exercise price, regardless of any decline in
the underlying security's market price, until the put expires. If the investment
manger decides to hold the underlying security for tax considerations, for
example, a put option may be purchased in order to protect any unrealized
appreciation. Of course any capital gain realized when the security is sold
would be reduced by the premium paid for the put option and any transaction
costs.
Options on Indices. Options on indices, which are described in the Prospectus,
give the holder the right to receive cash equal to the difference between the
closing price of the index and the exercise price of the option, expressed in
dollars, multiplied by a specified number. Options on indices differ from
options on individual securities in that all settlements are in cash, and gain
or loss depends on price movements in the stock market generally (or in a
particular industry or segment of the market) rather than on price movements in
individual securities.
Forward Conversions. In a forward conversion, the Fund buys securities and
writes call options and buys put options on such securities. By purchasing puts,
the Fund protects the underlying security from depreciation in value. By selling
or writing calls on the same security, the Fund receives premiums which may
offset part or all of the cost of purchasing the puts while forgoing the
opportunity for appreciation in the value of the underlying security. The Fund
will not exercise a put it has purchased while a call option on the same
security is outstanding.
Forward conversions are intended to hedge against fluctuations in the market
value of the underlying security. Although it is generally intended that the
exercise price of put and call options would be identical, situations might
occur in which some option positions are acquired with different exercise
prices. Therefore, the Fund's return may depend in part on movements in the
price of the underlying security. The Fund's return on forward conversions may
be greater or less than it would otherwise have been if it had hedged the
security only by purchasing put options.
Spread and Straddle Options Transactions. In "spread" transactions, the Fund
buys and writes a put or buys and writes a call on the same underlying security
with the options having different exercise prices and/or expiration dates. In
"straddles," the Fund purchases or writes combinations of put and call options
on the same security. When the Fund engages in spread and straddle transactions,
it seeks to profit from differentials in the option premiums paid and received
and in the market prices of the related options positions when they are closed
out or sold. Because these transactions require the Fund to buy and/or write
more than one option simultaneously, the Fund's ability to enter into such
transactions and to liquidate its positions when necessary or deemed advisable
may be more limited than if the Fund was to buy or sell a single option.
Similarly, costs incurred by the Fund in connection with these transactions will
in many cases be greater than if the Fund was to buy or sell a single option.
Futures. The Fund may enter into contracts for the purchase or sale for future
delivery of securities, contracts based upon financial indices, and the Fund may
buy options on such contracts ("financial futures"). Financial futures contracts
are contracts that obligate the long or short holder to take or make delivery of
a specified quantity of a financial instrument, such as a security, or the cash
value of a securities index during a specified future period at a specified
price. A "sale" of a futures contract means the seller has a contractual
obligation to deliver the securities described in the contract at a specified
price on a specified date. A "purchase" of a futures contract means the buyer
has a contractual obligation to acquire the securities described in the contract
at a specified price on a specified date. Futures contracts have been designed
by exchanges which have been designated "contracts markets" by the Commodity
Futures Trading Commission ("CFTC") and must be executed through a futures
commission merchant, or brokerage firm, which is a member of the relevant
contract market.
Although futures contracts by their terms call for the actual delivery or
acquisition of securities, in most cases the contractual obligation is fulfilled
before the date of the contract without having to make or take delivery of the
securities. The offsetting of a contractual obligation is accomplished by buying
(or selling, as the case may be) on a commodities exchange an identical futures
contract calling for delivery in the same month. Such a transaction, which is
effected through a member of an exchange, cancels the obligation to take
delivery of the securities. Since all transactions in the futures market are
made, offset or fulfilled through a clearinghouse associated with the exchange
on which the contracts are traded, the Fund will incur brokerage fees when it
purchases or sells futures contracts.
The Fund will not engage in transactions in futures contracts or related options
for speculation but only as a hedge against changes resulting from market
conditions in the values of its securities or securities which it intends to
purchase. The Fund will not enter into any stock index future or related option
if, immediately thereafter, more than one-third of the Fund's net assets would
be represented by futures contracts or related options. In addition, the Fund
may not buy or sell futures contracts or buy or sell related options if,
immediately thereafter, the sum of the amount of margin deposits on its existing
futures and related options positions, and premiums paid for related options,
would exceed 5% of the market value of the Fund's total assets.
The purpose of the acquisition or sale of a futures contract is to attempt to
protect the Fund from fluctuations in price of portfolio securities without
actually buying or selling the underlying security. To the extent the Fund
enters into futures contracts or related options, it will deposit in a
segregated account with its custodian cash or other Treasury obligations equal
to a specified percentage of the value of the futures contract (the "initial
margin"), as required by the relevant contract market and futures commission
merchant. The futures contract will be marked-to-market daily. If the value of
the futures contract declines relative to the Fund's position, the Fund will be
required to pay the futures commission merchant an amount equal to the change in
value.
Stock Index Futures Contracts. The Fund may purchase and sell stock index
futures contracts traded on domestic exchanges and, to the extent such contracts
have been approved by the CFTC for sale to customers in the U.S., on foreign
exchanges. A stock index futures contract obligates the seller to deliver (and
the purchaser to take) an amount of cash equal to a specific dollar amount times
the difference between the value of a specific stock index at the close of the
last trading day of the contract and the price at which the agreement is made.
Open futures contracts are valued on a daily basis and the Fund may be obligated
to provide or receive cash reflecting any decline or increase in the contract's
value. No physical delivery of the underlying stocks in the index is made in the
future.
The Fund may sell stock index futures contracts in anticipation of or during a
market decline in an attempt to offset the decrease in market value of its
securities that might otherwise result. When the Fund is not fully invested in
stocks and anticipates a significant market advance, it may purchase stock index
futures in order to gain rapid market exposure that may offset increases in the
cost of common stocks that it intends to purchase.
Future Developments. The Fund may take advantage of opportunities in the area of
options and futures contracts and any other derivative investments that are not
presently contemplated for use by the Fund or which are not currently available
but which may be developed, to the extent such opportunities are both consistent
with the Fund's investment objective and legally permissible for the Fund. Prior
to investing in any such investment vehicle, the Fund will supplement its
Prospectus, if appropriate.
OTHER TYPES OF SECURITIES AND POLICIES
Depositary Receipts. Many securities of foreign issuers are represented by
American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"),
and Global Depositary Receipts ("GDRs") (collectively "Depositary Receipts").
ADRs evidence ownership of, and represent the right to receive, securities of
foreign issuers deposited in a domestic bank or trust company or a foreign
correspondent bank. EDRs and GDRs are typically issued by foreign banks or trust
companies, although they also may be issued by U.S. banks or trust companies,
and evidence ownership of underlying securities issued by either a foreign or a
U.S. corporation. Generally, Depositary Receipts in registered form are designed
for use in the U.S. securities market and Depositary Receipts in bearer form are
designed for use in securities markets outside the U.S.
Prices of ADRs are quoted in U.S. dollars, and ADRs are traded in the U.S. on
exchanges or over-the-counter. While ADRs do not eliminate all the risk
associated with foreign investments, by investing in ADRs rather than directly
in the stock of foreign issuers, the Fund will avoid currency risks during the
settlement period for either purchases or sales. In general, there is a large,
liquid market in the U.S. for ADRs quoted on a national securities exchange or
on NASDAQ. The information available for ADRs is subject to the accounting,
auditing and financial reporting standards of the U.S. market or exchange on
which they are traded, which standards are more uniform and more exacting than
those to which many foreign issuers may be subject. EDRs and GDRs may not
necessarily be denominated in the same currency as the underlying securities
into which they may be converted.
Depositary Receipts may be issued under sponsored or unsponsored programs. In
sponsored programs, an issuer has made arrangements to have its securities
traded in the form of Depositary Receipts. In unsponsored programs, the issuer
may not be directly involved in the creation of the program. Although regulatory
requirements with respect to sponsored and unsponsored programs are generally
similar, in some cases it may be easier to obtain financial information from an
issuer that has participated in the creation of a sponsored program.
Accordingly, there may be less information available regarding issuers of
securities underlying unsponsored programs and there may not be a correlation
between such information and the market value of the Depositary Receipts.
Convertible Securities. The Fund may invest in convertible securities. A
convertible security is usually issued either by an operating company or by an
investment bank. When issued by an operating company, a convertible security
tends to be senior to common stock, but subordinate to other types of
fixed-income securities issued by that company. When an operating company-issued
convertible stock is "converted," the operating company often issues new stock
to the holder of the convertible security, but, if the parity price of the
convertible security is less than the call price, the operating company may pay
out cash instead. If the convertible security is issued by an investment bank,
the securities are obligations of and are convertible through the issuing
investment banks.
The issuer of a convertible security may be important in determining the
security's true value. This is because the holder of a convertible security will
have recourse only to the issuer. In addition, a convertible security may be
subject to redemption by the issuer, but only after a specified date and under
circumstances established at the time the security is issued.
While the Fund uses the same criteria to rate a convertible debt security that
it uses to rate a more conventional debt security, a convertible preferred stock
is treated like a preferred stock for the Fund's financial reporting, credit
rating, and investment limitation purposes. A preferred stock is subordinated to
all debt obligations in the event of insolvency, and an issuer's failure to make
a dividend payment is generally not an event of default entitling the preferred
shareholder to take action. A preferred stock generally has no maturity date, so
that its market value is dependent on the issuer's business prospects for an
indefinite period of time. In addition, distributions from preferred stocks are
dividends, rather than interest payments, and are usually treated as such for
corporate tax purposes.
Enhanced Convertibles. The Fund may invest in enhanced convertibles such as
PERCS, which provide the Fund with the opportunity to earn higher dividend
income than is available from a company's common stock. A PERCS is a preferred
stock that generally features a mandatory conversion date, as well as a capital
appreciation limit which is usually expressed in terms of a stated price. Most
PERCS expire three years from the date of issue, at which time they are
convertible into common stock of the issuer (PERCS are generally not convertible
into cash at maturity). Under a typical arrangement, if after three years the
issuer's common stock is trading at a price below that set by the capital
appreciation limit, each PERCS would convert to one share of common stock. If,
however, the issuer's common stock is trading at a price above that set by the
capital appreciation limit, the holder of the PERCS would receive less than one
full share of common stock. The amount received by the PERCS holder is
determined by dividing the price set by the capital appreciation limit of the
PERCS by the market price of the issuer's common stock. PERCS can be called at
any time prior to maturity, and hence do not provide call protection. However,
if a PERCS is called early, the issuer must pay a call premium over the market
price to the investor. This call premium declines at a preset rate daily, up to
the maturity date of the PERCS.
The Fund may also invest in other enhanced convertible securities. These include
but are not limited to ACES (Automatically Convertible Equity Securities), PEPS
(Participating Equity Preferred Stock), PRIDES (Preferred Redeemable Increased
Dividend Equity Securities), SAILS (Stock Appreciation Income Linked
Securities), TECONS (Term Convertible Notes), QICS (Quarterly Income Cumulative
Securities), and DECS (Dividend Enhanced Convertible Securities). ACES, PEPS,
PRIDES, SAILS, TECONS, QICS, and DECS all have the following features: they are
issued by the company, the common stock of which will be received in the event
the convertible preferred stock is converted; unlike PERCS they do not have a
capital appreciation limit; they seek to provide the investor with high current
income with some prospect of future capital appreciation; they are typically
issued with three to four-year maturities; they typically have some built-in
call protection for the first two to three years; investors have the right to
convert them into shares of common stock at a preset conversion ratio or hold
them until maturity; and upon maturity they will automatically convert to either
cash or a specified number of shares of common stock.
Similarly, there may be enhanced convertible debt obligations issued by the
operating company whose common stock is to be acquired in the event the security
is converted or by a different issuer, such as an investment bank. These
securities may be identified by names such as ELKS (Equity Linked Securities).
Typically they share most of the salient characteristics of enhanced convertible
preferred stocks but will be ranked as senior or subordinated debt in the
issuer's corporate structure, according to the terms of the debt indenture.
There may be additional types of convertible securities not specifically
referred to herein that may be similar to those described above in which the
Fund may invest, consistent with its objective and policies. The Fund will not
invest in enhanced convertible securities that are issued by investment
companies. For more information, see "What are the Fund's Potential Risks? -
Enhanced Convertibles" below.
Synthetic Convertibles. A synthetic convertible is created by combining
different securities, which together have the two principle characteristics of a
true convertible security: fixed income and the right to acquire the underlying
equity security. This combination is achieved by investing in nonconvertible
fixed-income securities and in warrants or stock or stock index call options
that grant the holder the right to purchase a specified quantity of securities
within a specified period of time at a specified price or, in the case of stock
index options, the right to receive cash.
Synthetic convertible securities differ from true convertible securities in
several respects. The value of a synthetic convertible is the sum of the values
of its fixed-income component and its convertibility component. Thus, the values
of a synthetic convertible and a true convertible security will respond
differently to market fluctuations. Further, although the investment manager
normally expects to create synthetic convertibles whose two components represent
one issuer, the character of a synthetic convertible allows the Fund to combine
components representing distinct issuers, or to combine a fixed-income security
with a call option on a stock index, when the investment manager determines that
such a combination would better promote the Fund's investment objective. In
addition, the component parts of a synthetic convertible security may be
purchased simultaneously or separately, and the holder of a synthetic
convertible faces the risk that the price of the stock, or the level of the
market index underlying the convertibility component will decline.
Trade Claims. Trade claims are bought from creditors of companies in financial
difficulty who seek to reduce the number of debt obligations they are owed. Such
trade creditors generally sell their claims in an attempt to improve their
balance sheets and reduce uncertainty regarding payments. For buyers, trade
claims offer the potential for profits since they are often purchased at a
significantly discounted value and, consequently, have the potential for higher
income and capital appreciation should the debt issuer's financial position
improve. Trade claims are generally liquid, as there is a secondary market, but
the Board will monitor their liquidity. An investment in trade claims is
speculative and there can be no guarantee that the debt issuer will ever be able
to satisfy the obligation. Further, trading in trade claims is not regulated by
federal securities laws but primarily by bankruptcy and commercial laws. Because
trade claims are unsecured obligations, holders may have a lower priority than
secured or preferred creditors.
Warrants. A warrant is typically a long-term option issued by a corporation
which gives the holder the privilege of buying a specified number of shares of
the underlying common stock at a specified exercise price at any time on or
before an expiration date. Stock index warrants entitle the holder to receive,
upon exercise, an amount in cash determined by reference to fluctuations in the
level of a specified stock index. If the Fund does not exercise or dispose of a
warrant prior to its expiration, it will expire worthless. Further, the Fund
does not intend to invest directly in warrants (valued at the lower of cost or
market) in excess of 5% of the value of the Fund's net assets. No more than 2%
of the value of the Fund's net assets may be invested in warrants (valued at the
lower of cost or market) which are not listed on the New York or American Stock
Exchange.
Loans of Portfolio Securities. The lending of securities is a common practice in
the securities industry. The Fund may engage in security loan arrangements with
the primary objective of increasing the Fund's income either through investing
the cash collateral in short-term interest-bearing obligations or by receiving a
loan premium from the borrower. Under the securities loan agreement, the Fund
continues to be entitled to all dividends or interest on any loaned securities.
As with any extension of credit, there are risks of delay in recovery and loss
of rights in the collateral should the borrower of the security fail
financially.
Short-Selling. In a short sale, the Fund sells a security it does not own in
anticipation of a decline in the market value of that security. The security
sold must be listed on a national exchange. To complete the transaction, the
Fund must borrow the security to make delivery to the buyer. The Fund is then
obligated to replace the security borrowed by purchasing it at the market price
at the time of replacement. Until the security is replaced, the Fund must pay
the lender any dividends or interest that accrue during the period of the loan.
To borrow the security, the Fund may also be required to pay a premium, which
would increase the cost of the security sold. The proceeds of the short sale
will be retained by the broker, to the extent necessary to meet margin
requirements, until the short position is closed out.
The Fund will incur a loss as a result of the short sale if the price of the
security increases between the date of the short sale and the date on which the
Fund replaces the borrowed security, and the Fund will realize a gain if the
security declines in price between those same dates. The amount of any gain will
be decreased, and the amount of any loss increased, by the amount of any
premium, dividends or interest the Fund is required to pay in connection with
the short sale.
In addition to the short sales discussed above, the Fund may also make short
sales "against the box." A short sale is "against the box" to the extent that
the Fund contemporaneously owns or has the right to obtain at no added cost
securities identical to those sold short. The Fund at no time will have more
than 15% of the value of its net assets in deposits on short sales against the
box.
No securities will be sold short if, after the sale, the total market value of
all the Fund's open short positions, including short sales against the box,
would exceed 25% of the value of the Fund's net assets. In addition, short sales
of the securities of any one issuer may not exceed the lesser of 2% of the
Fund's net assets or 2% of the securities of any class of the issuer.
The Fund will place in a segregated account with its custodian bank an amount of
cash or U.S. government securities equal to the difference between (a) the
market value of the securities sold short at the time they were sold short and
(b) any cash or U.S. government securities required to be deposited as
collateral with the broker in connection with the short sale (not including the
proceeds from the short sale). The segregated account will be marked-to-market
daily and at no time will the amount deposited in the segregated account and
with the broker as collateral be less than the market value of the securities at
the time they were sold short.
Non-diversification. 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. For purposes of the Code, however, 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.
WHAT ARE THE FUND'S POTENTIAL RISKS?
Options, Futures and Options on Futures. The Fund's ability to hedge effectively
all or a portion of its securities through transactions in options on stock
indices, financial futures and related options depends on the degree to which
price movements in the underlying index or underlying securities correlate with
price movements in the relevant portion of the Fund's portfolio. Inasmuch as
these securities will not duplicate the components of the index or such
underlying securities, the correlation will not be perfect. Consequently, the
Fund bears the risk that the prices of the securities being hedged will not move
in the same amount as the hedging instrument. It is also possible that there may
be a negative correlation between the index or other securities underlying the
hedging instrument and the hedged securities which would result in a loss on
both such securities and the hedging instrument. Accordingly, successful use by
the Fund of options on stock indices, financial futures and other options will
be subject to the investment manager's ability to predict correctly movements in
the direction of the securities markets generally or a particular segment. This
requires different skills and techniques than predicting changes in the price of
individual stocks.
Positions in stock index options and financial futures and related options may
be closed out only on an exchange which provides a secondary market. There can
be no assurance that a liquid secondary market will exist for any particular
stock index option or futures contract or related option at any specific time.
Thus, it may not be possible to close such an option or futures position. The
inability to close options or futures positions also could have an adverse
impact on the Fund's ability to effectively hedge its securities. Of course, the
Fund will enter into an option or futures position only if there appears to be a
liquid secondary market for such options or futures.
OTC options may be subject to more risks than exchange-traded options because
OTC options are arranged with dealers, not with a clearing corporation, and
because pricing of OTC options is typically done by reference to information
from market makers. There can be no assurance that a continuous liquid secondary
market will exist for any particular OTC option at any specific time.
Consequently, the Fund may be able to realize the value of an OTC option it has
purchased only by exercising it or entering into a closing sale transaction with
the dealer that issued it. Similarly, when the Fund writes an OTC option, it
generally can close out that option prior to its expiration only by entering
into a closing purchase transaction with the dealer to which the Fund originally
wrote it. If a covered call option writer cannot effect a closing transaction,
it cannot sell the underlying security until the option expires or the option is
exercised. Therefore, a covered call option writer of an OTC option may not be
able to sell an underlying security even though it might otherwise be
advantageous to do so. Likewise, a secured put writer of an OTC option may be
unable to sell the securities pledged to secure the put for other investment
purposes while it is obligated as a put writer. Similarly, a purchaser of such
put or call option might also find it difficult to terminate its position on a
timely basis in the absence of a secondary market.
The CFTC and the various exchanges have established limits, referred to as
"speculative position limits," on the maximum net long or net short position
which any person may hold or control in a particular futures contract. Trading
limits are imposed on the maximum number of contracts which any person may trade
on a particular trading day. An exchange may order the liquidation of positions
found to be in violation of these limits and it may impose other sanctions or
restrictions. The Fund does not believe that these trading and positions limits
will have an adverse impact on the Fund's strategies for hedging its securities.
The ordinary spreads between prices in the cash and futures markets, due to
differences in the natures of those markets, are subject to distortions. First,
all participants in the futures market are subject to initial deposit and
variation margin requirements. Rather than meeting additional variation margin
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced, thus producing distortion. Third, from
the point of view of speculators, the margin deposit requirements in the futures
market are less onerous than margin requirements in the securities market.
Therefore, increased participation by speculators in the futures market may
cause temporary price distortions. Due to the possibility of distortion, a
correct forecast of general interest rate trends by the investment manager may
still not result in a successful transaction.
In addition, futures contracts entail risks. Although the Fund believes that use
of such contracts will benefit the Fund, if the investment manager's judgment
about the general direction of interest rates is incorrect, the Fund's overall
performance would be poorer than if it had not entered into any such contract.
For example, if the Fund has hedged against the possibility of an increase in
interest rates that would adversely affect the price of bonds held in its
portfolio and interest rates decrease instead, the Fund will lose part or all of
the benefit of the increased value of its bonds which it has hedged because it
will have offsetting losses in its futures positions. In addition, in such
situations, if the Fund has insufficient cash, it may have to sell securities
from its portfolio to meet daily variation margin requirements. Such sales may
be, but will not necessarily be, at increased prices which reflect the rising
market. The Fund may have to sell securities at a time when it may be
disadvantageous to do so.
The Fund's sale of futures contracts and purchase of put options on futures
contracts will be solely to protect its investments against declines in value.
The Fund expects that in the normal course it will purchase securities upon
termination of long futures contracts and long call options on future contracts,
but under unusual market conditions it may terminate any of such positions
without a corresponding purchase of securities.
Depositary Receipts. Depositary Receipts, such as American Depositary Receipts
and Global Depositary Receipts, reduce but do not eliminate all the risk
inherent in investing in the securities of foreign issuers. To the extent that
the Fund acquires Depositary Receipts through banks which do not have a
contractual relationship with the foreign issuer of the security underlying the
Depositary Receipt to issue and service such Depositary Receipts, there may be
an increased possibility that the Fund would not become aware of and be able to
respond to corporate actions such as stock splits or rights offerings involving
the foreign issuer in a timely manner.
Enhanced Convertibles. An investment in enhanced convertible securities or any
other securities may involve additional risks to the Fund. The Fund may have
difficulty disposing of such securities because there may be a thin trading
market for a particular security at any given time. Reduced liquidity may have
an adverse impact on market price and the Fund's ability to dispose of
particular securities, when necessary, to meet the Fund's liquidity needs or in
response to a specific economic event, such as the deterioration in the
creditworthiness of an issuer. Reduced liquidity in the secondary market for
certain securities may also make it more difficult for the Fund to obtain market
quotations based on actual trades for purposes of valuing the Fund's portfolio.
The Fund, however, intends to acquire liquid securities, though there can be no
assurances that this will be achieved.
High Yielding, Fixed Income Securities. The premature disposition of a high
yielding security due to a call or buy-back feature, the deterioration of the
issuer's creditworthiness, or a default may make it more difficult for the Fund
to manage the timing of its receipt of income, which may have tax implications.
The Fund may be required under the Code and U.S. Treasury regulations to accrue
income for income tax purposes on defaulted obligations and to distribute such
income to the Fund's shareholders even though the Fund is not currently
receiving interest or principal payments on such obligations. In order to
generate cash to satisfy any or all of these distribution requirements, the Fund
may be required to dispose of portfolio securities that it otherwise would have
continued to hold or to use cash flows from other sources such as the sale of
Fund shares.
Generally, purchasers of high yielding securities are dealers and other
institutional buyers, rather than individuals. To the extent the secondary
trading market for a particular high yielding, fixed-income security does exist,
it is generally not as liquid as the secondary market for higher-rated
securities.
While many 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 under the
Securities Act of 1933, as amended ("1933 Act"), 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 high yield securities market is relatively new and much of its growth prior
to 1990 paralleled a long economic expansion. The recession that began in 1990
disrupted the market for high yielding securities and adversely affected the
value of outstanding securities and the ability of issuers of such securities to
meet their obligations. Although the economy has improved considerably and high
yielding securities have performed more consistently since that time, there is
no assurance that the adverse effects previously experienced will not recur. For
example, the highly publicized defaults of some high yield issuers during 1989
and 1990 and concerns regarding a sluggish economy which continued into 1993,
depressed the prices for many of these securities. While market prices may still
be temporarily somewhat depressed due to these factors, the ultimate price of
any security will generally reflect the true operating results of the issuer.
Factors adversely impacting the market value of high yielding securities owned
by the Fund will 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 Advisory Services' judgment, analysis and
experience in evaluating the creditworthiness of an issuer. In this evaluation,
Advisory Services 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.
Restricted Securities. The Board has authorized the Fund to invest in restricted
securities and to consider them liquid (and thus not subject to the 10%
limitation on illiquid securities) to the extent Advisory Services determines
that there is a liquid institutional or other market for these securities. For
example, restricted securities may be freely transferred among qualified
institutional buyers under Rule 144A of the 1933 Act, and in some cases a liquid
institutional market has developed.
On an ongoing basis, the Board will review Advisory Services' decisions to treat
restricted securities as liquid - including the Advisory Services' assessment of
current trading activity and the availability of reliable price information. In
determining whether a restricted security can be considered liquid,
AdvisoryServices and the Board will take into account the following factors: (i)
the frequency of trades and quotes for the security, (ii) the number of dealers
willing to buy or sell the security and the number of potential buyers, (iii)
dealer undertakings to make a market in the security, and (iv) the nature of the
security and nature of the marketplace trades (e.g., the time needed to dispose
of the security, the method of soliciting offers, and the mechanics of
transfer). To the extent the Fund invests in restricted securities that are
deemed to be liquid, the general level of illiquidity in the Fund may be
increased if qualified institutional buyers become uninterested in buying these
securities or the market for these securities contracts.
INVESTMENT RESTRICTIONS
The Fund has adopted the following restrictions as fundamental policies. These
restrictions may not be changed without the approval of a majority of the
outstanding voting securities of the Fund. Under the 1940 Act, this means the
approval of (i) more than 50% of the outstanding shares of the Fund or (ii) 67%
or more of the shares of the Fund present at a shareholder meeting if more than
50% of the outstanding shares of the Fund are represented at the meeting in
person or by proxy, whichever is less. The Fund may not:
1. Borrow money, except that the Fund may borrow money in a manner consistent
with the Fund's investment objective and policies in an amount not exceeding
331/3% of the value of the Fund's total assets (including the amount borrowed).
The Fund may borrow in connection with short-sales and short-sales "against the
box," and the Fund may borrow from banks, other Franklin Templeton Funds or
other persons to the extent permitted by applicable law.
2. Underwrite securities of other issuers, except insofar as the Fund may be
technically deemed an underwriter under the federal securities laws in
connection with the disposition of portfolio securities. (This does not preclude
the Fund from obtaining such short-term credit as may be necessary for the
clearance of purchases and sales of its portfolio securities.)
3. Invest directly in interests in real estate, oil, gas or other mineral
leases, exploration or development programs, including limited partnership
interests. This restriction does not preclude investments in marketable
securities of issuers engaged in such activities.
4. Loan money, except as consistent with the Fund's investment objectives, and
except that the Fund may (a) purchase a portion of an issue of publicly
distributed bonds, debentures, notes and other evidences of indebtedness, (b)
enter into repurchase agreements, (c) lend its portfolio securities, and (d)
participate in an interfund lending program with other Franklin Templeton Funds
to the extent permitted by the 1940 Act and any rules or orders thereunder.
5. Purchase or sell commodities or commodity contracts; except that the Fund may
enter into interest rate and financial futures contracts, options thereon, and
forward contracts.
6. Issue securities senior to the Fund's presently authorized shares of
beneficial interest.
7. Invest more than 25% of the Fund's assets (at the time of the most recent
investment) in any single industry.
Additional Restrictions. The Fund has adopted the following additional
restrictions which are not fundamental and which may be changed without
shareholder approval, to the extent permitted by applicable law, regulation or
regulatory policy. Under these restrictions, the Fund may not:
1. Invest in any company for the purpose of exercising control or management,
except that all or substantially all of the assets of the Fund may be invested
in another registered investment company having the same investment objective
and policies as the Fund.
2. Purchase securities on margin, except that the Fund may make margin payments
in connection with futures, options and currency transactions.
3. Purchase or retain securities of any company in which officers or directors
of the Fund, or of its investment manager, individually owning more than 1/2 of
1% of the securities of such company, in the aggregate own more than 5% of the
securities of such company.
4. Purchase securities of open-end or closed-end investment companies, except in
compliance with the 1940 Act, and except that the Fund may invest in another
registered investment company as described in Restriction 1, above.
5. Invest more than 5% of its assets in securities of issuers with less than
three years continuous operation, including the operations of any predecessor
companies.
6. Hold or purchase the securities of any issuer if, as a result, in the
aggregate, more than 10% of the value of the Fund's net assets would be invested
in (i) securities that are not readily marketable or (ii) repurchase agreements
maturing in more than seven days. The Fund may, however, invest in registered
investment companies as described in Restriction 1, above.
If a percentage restriction is met at the time of investment, a later increase
or decrease in the percentage resulting from a change in value of portfolio
securities or the amount of net assets will not be considered a violation of any
of the foregoing restrictions.
OFFICERS AND TRUSTEES
The Board has the responsibility for the overall management of the Fund,
including general supervision and review of its investment activities. The
Board, in turn, elects the officers of the Fund who are responsible for
administering the Fund's day-to-day operations. The affiliations of the officers
and Board members and their principal occupations for the past five years are
shown below. Members of the Board who are considered "interested persons" of the
Fund under the 1940 Act are indicated by an asterisk (*).
Positions and Offices Principal Occupation
Name, Age and Address with the Trust During the Past Five
Years
Frank T. Crohn (72) Trustee
7251 West Palmetto Park Road
Boca Raton, FL 33433
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 (71) President and
One Parker Plaza Trustee
Fort Lee, NJ 07024
Senior Vice President, Franklin Resources, Inc., Franklin Advisers, Inc.,
Franklin Templeton Distributors, Inc. and Franklin Management, Inc.; President
and Director, Franklin Advisory Services, Inc.; officer and/or director or
trustee of seven of the investment companies in the Franklin Group of Funds.
Charles Rubens II (66) Trustee
18 Park Road
Scarsdale, NY 10583
Private Investor; and trustee of three of the investment companies in the
Franklin Group of Funds.
Leonard Rubin (71) Trustee
Yacht and Racquet Club
2727 North Ocean Boulevard
A1A - Apt. 508A
Boca Raton, FL 33431
President, F.N.C. Textiles, Inc.; Vice President, Trimtex Co. Inc.; and trustee
of four of the investment companies in the Franklin Group of Funds.
Harmon E. Burns (51) Vice President
777 Mariners Island Blvd.
San Mateo, CA 94404
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 60 of the investment companies in the Franklin Templeton Group of Funds.
Kenneth V. Domingues (64) Vice President -
777 Mariners Island Blvd. Financial Reporting
San Mateo, CA 94404 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 (36) Vice President
777 Mariners Island Blvd. and Chief
San Mateo, CA 94404 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.; Treasurer, Franklin Advisory Services, Inc. and Franklin Investment
Advisory Services, Inc.; officer of most other subsidiaries of Franklin
Resources, Inc.; and officer, director and/or trustee of 60 of the investment
companies in the Franklin Templeton Group of Funds.
Deborah R. Gatzek (48) Vice President
777 Mariners Island Blvd. and Secretary
San Mateo, CA 94404
Senior Vice President and General Counsel, Franklin Resources, Inc.; Senior Vice
President, Franklin Templeton Distributors, Inc.; Vice President, Franklin
Advisers, Inc., Franklin Advisory Services, Inc., Franklin Investment Advisory
Services, Inc.; and officer of 60 of the investment companies in the Franklin
Templeton Group of Funds.
Rupert H. Johnson, Jr. (56) Vice President
777 Mariners Island Blvd.
San Mateo, CA 94404
Executive Vice President and Director, Franklin Resources, Inc. and Franklin
Templeton Distributors, Inc.; President and Director, Franklin Advisers, Inc.;
Senior Vice President and Director, Franklin Advisory Services, Inc. and
Franklin Investment Advisory Services, 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 60 of the investment companies in the Franklin Templeton
Group of Funds.
Diomedes Loo-Tam (57) Treasurer and
777 Mariners Island Blvd. Principal
San Mateo, CA 94404 Accounting Officer
Employee of Franklin Advisers, Inc.; and officer of 38 of the investment
companies in the Franklin Group of Funds.
Edward V. McVey (59) Vice President
777 Mariners Island Blvd.
San Mateo, CA 94404
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 (69) Vice President
777 Mariners Island Blvd.
San Mateo, CA 94404
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 21 of the
investment companies in the Franklin Group of Funds.
The table above shows the officers and Board members who are affiliated with
Distributors and Advisory Services. Nonaffiliated members of the Board are
currently paid $600 per quarter plus $300 per meeting attended. As shown above,
some of the nonaffiliated Board members also serve as directors, trustees or
managing general partners of other investment companies in the Franklin
Templeton Group of Funds. They may receive fees from these funds for their
services. The following table provides the total fees paid to nonaffiliated
Board members by the Trust and by other funds in the Franklin Templeton Group of
Funds.
Number of Boards
Total Fees in the Franklin
Total Fees Received from the Templeton Group
Received from Franklin Templeton of Funds on Which
Name the Trust* Group of Funds** Each Serves***
Frank T. Crohn................... $3,900 $15,600 3
Charles Rubens, II............... $3,900 $15,600 3
Leonard Rubin.................... $3,900 $15,600 4
*For the fiscal year ended October 31, 1995.
**For the calendar year ended December 31, 1995.
***We base the number of boards on the number of registered investment companies
in the Franklin Templeton Group of Funds. This number does not include the total
number of series or funds within each investment company for which the Board
members are responsible. The Franklin Templeton Group of Funds currently
includes 61 registered investment companies, with approximately 171 U.S. based
funds or series.
Nonaffiliated members of the Board 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 Board member received any other
compensation, including pension or retirement benefits, directly or indirectly
from the Fund or other funds in the Franklin Templeton Group of Funds. Certain
officers or Board members who are shareholders of 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 6, 1996, the officers and Board members, as a group, owned of
record and beneficially none the total outstanding Class I shares of the Fund.
Many of the Board members own shares in other funds in the Franklin Templeton
Group of Funds.
INVESTMENT MANAGEMENT AND OTHER SERVICES
Investment Manager and Services Provided. As of July 1, 1996, the Fund's
investment manager is Advisory Services. Advisory Services provides investment
research and portfolio management services, including the selection of
securities for the Fund to buy, hold or sell and the selection of brokers
through whom the Fund's portfolio transactions are executed. Advisory Services'
activities are subject to the review and supervision of the Board to whom
Advisory Services renders periodic reports of the Fund's investment activities.
Advisory Services is covered by fidelity insurance on its officers, directors
and employees for the protection of the Fund.
Advisory Services and its affiliates act as investment manager to numerous other
investment companies and accounts. Advisory Services may give advice and take
action with respect to any of the other funds it manages, or for its own
account, that may differ from action taken by Advisory Services on behalf of the
Fund. Similarly, with respect to the Fund, Advisory Services is not obligated to
recommend, buy or sell, or to refrain from recommending, buying or selling any
security that Advisory Services and access persons, as defined by the 1940 Act,
may buy or sell for its or their own account or for the accounts of any other
fund. Advisory Services is not obligated to refrain from investing in securities
held by the Fund or other funds that it manages. Of course, any transactions for
the accounts of Advisory Services and other access persons will be made in
compliance with the Fund's Code of Ethics. Please see "Miscellaneous Information
- - Summary of Code of Ethics."
Management Agreement. The management agreement is in effect until September 30,
1998. It may continue in effect for successive annual periods if 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 Board members who are not parties to the
management agreement or interested persons of any such party (other than as
members of the Board), 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 Advisory Services on 30 days' written notice, and will
automatically terminate in the event of its assignment, as defined in the 1940
Act.
Administrative Services. Under an agreement with Advisory Services, FT Services
provides certain administrative services and facilities for the Fund. These
include preparing and maintaining books, records, and tax and financial reports,
and monitoring compliance with regulatory requirements. FT Services is a wholly
owned subsidiary of Resources.
Under its administration agreement, Advisory Services pays FT Services a monthly
administration fee equal to an annual rate of 0.15% of the Fund's average daily
net assets up to $200 million, 0.135% of average daily net assets over $200
million up to $700 million, 0.10% of average daily net assets over $700 million
up to $1.2 billion, and 0.075% of average daily net assets over $1.2 billion.
The fee is paid by Advisory Services. It is not a separate expense of the Fund.
Shareholder Servicing Agent. Investor Services, a wholly-owned subsidiary of
Resources, is the Fund's shareholder servicing agent 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.
Custodians. Bank of New York, Mutual Funds Division, 90 Washington Street, New
York, New York, 10286, acts as custodian of the securities and other assets of
the Fund. Bank of America NT & SA, 555 California Street, 4th Floor, San
Francisco, California 94104, acts as custodian for cash received in connection
with the purchase of Fund shares. 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.
Auditors. Coopers & Lybrand L.L.P., 333 Market Street, San Francisco, California
94105, are the Fund's independent auditors.
HOW DOES THE FUND BUY
SECURITIES FOR ITS PORTFOLIO?
The selection of brokers and dealers to execute transactions in the Fund's
portfolio is made by Advisory Services in accordance with criteria set forth in
the management agreement and any directions that the Board may give.
When placing a portfolio transaction, Advisory Services seeks to obtain prompt
execution of orders at the most favorable net price. When portfolio transactions
are done on a securities exchange, the amount of commission paid by the Fund is
negotiated between Advisory Services and the broker executing the transaction.
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 the transactions. These opinions are based on the experience of
these individuals in the securities industry and information available to them
about the level of commissions being paid by other institutional investors of
comparable size. Advisory Services will ordinarily place orders to buy and sell
over-the-counter securities on a principal rather than agency basis with a
principal market maker unless, in the opinion of Advisory Services, 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 amount of commission is not the only factor Advisory Services considers in
the selection of a broker to execute a trade. If Advisory Services believes it
is in the Fund's best interest, Advisory Services 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 Advisory Services, 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 Advisory Services 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
Advisory Services in advising other clients.
When Advisory Services believes several brokers are equally able to provide the
best net price and execution, it may decide to execute transactions through
brokers who provide quotations and other services to the Fund, in an amount of
total brokerage as may reasonably be required in light of these services.
Specifically, these services may include providing the quotations necessary to
determine the Fund's Net Asset Value as well as research, statistical and other
data.
It is not possible to place a dollar value on the special executions or on the
research services received by Advisory Services from dealers effecting
transactions in portfolio securities. The allocation of transactions in order to
obtain additional research services permits Advisory Services 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, Advisory Services and its affiliates may use
this research and data in their investment advisory capacities with other
clients. If the Fund's officers are satisfied that the best execution is
obtained, consistent with internal policies the sale of Fund shares, as well as
shares of other funds in the Franklin Templeton Group of Funds, may also be
considered a factor in the selection of broker-dealers to execute the Fund's
portfolio transactions.
Because Distributors is a member of the NASD, it may sometimes receive 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 Advisory Services will be reduced by the amount of any fees
received by Distributors in cash, less any costs and expenses incurred in
connection with the tender.
If purchases or sales of securities of the Fund and one or more other investment
companies or clients supervised by Advisory Services are considered at or about
the same time, transactions in these securities will be allocated among the
several investment companies and clients in a manner deemed equitable to all by
Advisory Services, taking into account the respective sizes of the funds and the
amount of securities to be purchased or sold. In some cases this procedure could
have a detrimental effect on the price or volume of the security so far as the
Fund is concerned. In other cases it is possible that the ability to participate
in volume transactions and to negotiate lower brokerage commissions will be
beneficial to the Fund.
HOW DO I BUY, SELL AND EXCHANGE SHARES?
ADDITIONAL INFORMATION ON BUYING SHARES
Securities laws of states where the Fund offers its shares may differ from
federal law. Banks and financial institutions that sell shares of the Fund may
be required by state law to register as Securities Dealers.
When you buy shares, if you submit a check or a draft that is returned unpaid to
the Fund we may impose a $10 charge against your account for each returned item.
Distributors and/or its affiliates provide financial support to various
Securities Dealers that sell shares of the Franklin Templeton Group of Funds.
This support is based primarily on the amount of sales of fund shares. The
amount of support may be affected by: total sales; net sales; levels of
redemptions; the proportion of a Securities Dealer's sales and marketing efforts
in the Franklin Templeton Group of Funds; a Securities Dealer's support of, and
participation in, Distributors' marketing programs; a Securities Dealer's
compensation programs for its registered representatives; and the extent of a
Securities Dealer's marketing programs relating to the Franklin Templeton Group
of Funds. Financial support to Securities Dealers may be made by payments from
Distributors' resources, from Distributors' retention of underwriting
concessions and, in the case of funds that have Rule 12b-1 plans, from payments
to Distributors under such plans. In addition, certain Securities Dealers may
receive brokerage commissions generated by fund portfolio transactions in
accordance with the NASD's rules.
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 and does not affect the amount
or value of the shares acquired.
ADDITIONAL INFORMATION ON EXCHANGING SHARES
If you request the exchange of the total value of your account, declared but
unpaid income dividends and capital gain distributions will be exchanged into
the new fund and will be invested at Net Asset Value. Backup withholding and
information reporting may apply. Information regarding the possible tax
consequences of an exchange is included in the tax section in this SAI and in
the Prospectus.
If a substantial number of shareholders should, within a short period, sell
their shares of the Fund under the exchange privilege, the Fund might have to
sell portfolio securities it might otherwise hold and incur the additional costs
related to such transactions. On the other hand, increased use of the exchange
privilege may result in periodic large inflows of money. If this occurs, it is
the Fund's general policy to initially invest this money in short-term,
interest-bearing money market instruments, unless it is believed that attractive
investment opportunities consistent with the Fund's investment objectives exist
immediately. This money will then be withdrawn from the short-term money market
instruments and invested in portfolio securities in as orderly a manner as is
possible when attractive investment opportunities arise.
The proceeds from the sale of shares of an investment company are generally not
available until the fifth business day following the sale. The funds you are
seeking to exchange into may delay issuing shares pursuant to an exchange until
that fifth business day. The sale of Fund shares to complete an exchange will be
effected at Net Asset Value at the close of business on the day the request for
exchange is received in proper form. Please see "May I Exchange Shares for
Shares of Another Fund?" in the Prospectus.
ADDITIONAL INFORMATION ON SELLING SHARES
Systematic Withdrawal Plan. 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 before February 1997 and on the 25th day of the
month beginning with your February 1997 payment. If the 25th falls on a weekend
or holiday, we will process the redemption on the prior business day.
Redeeming shares through a systematic withdrawal plan may reduce or exhaust the
shares in your account if payments exceed distributions received from the Fund.
This is especially likely to occur if there is a market decline. If a withdrawal
amount exceeds the value of your account, your account will be closed and the
remaining balance in your account will be sent to you. Because the amount
withdrawn under the plan may be more than your actual yield or income, part of
the payment may be a return of your investment.
The Fund may discontinue a systematic withdrawal plan by notifying you in
writing and will automatically discontinue a systematic withdrawal plan if all
shares in your account are withdrawn or if the Fund receives notification of the
shareholder's death or incapacity.
Through Your Securities Dealer. If you sell shares through your Securities
Dealer, it is your dealer's responsibility to transmit the order to the Fund in
a timely fashion. Any loss to you resulting from your dealer's failure to do so
must be settled between you and your Securities Dealer.
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 SEC. In the case of redemption
requests in excess of these amounts, the Board reserves the right to make
payments in whole or in part in securities or other assets of the Fund, in case
of an emergency, or if the payment of such a redemption in cash would be
detrimental to the existing shareholders of the Fund. In these circumstances,
the securities distributed would be valued at the price used to compute the
Fund's net assets and you may incur brokerage fees in converting the securities
to cash. The Fund does not intend to redeem illiquid securities in kind. If this
happens, however, you may not be able to recover your investment in a timely
manner.
GENERAL INFORMATION
If dividend checks are returned to the Fund marked "unable to forward" by the
postal service, we will consider this a request by you to change your dividend
option to reinvest all distributions. The proceeds will be reinvested in
additional shares at Net Asset Value until we receive new instructions.
If mail is returned as undeliverable or we are unable to locate you or verify
your current mailing address, we may deduct the costs of our efforts to find you
from your account. These costs may include a percentage of the account when a
search company charges a percentage fee in exchange for its location services.
All checks, drafts, wires and other payment mediums used to buy or sell shares
of the Fund must be denominated in U.S. dollars. We may, in our sole discretion,
either (a) reject any order to buy or sell shares denominated in any other
currency or (b) honor the transaction or make adjustments to your account for
the transaction as of a date and with a foreign currency exchange factor
determined by the drawee bank.
Special Services. The Franklin Templeton Institutional Services Department
provides specialized services, including recordkeeping, for institutional
investors. 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 owners. For each beneficial owner in
the omnibus account, the Fund may reimburse Investor Services an amount not to
exceed the per account fee that the Fund normally pays Investor Services. These
financial institutions may also charge a fee for their services directly to
their clients.
Certain shareholder servicing agents may be authorized to accept your
transaction request.
HOW ARE FUND SHARES VALUED?
We calculate the Net Asset Value per share of each class as of the scheduled
close of the NYSE generally 1:00 p.m. Pacific time, each day that the NYSE is
open for trading. As of the date of this SAI, the Fund is informed that the NYSE
observes the following holidays: New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
For the purpose of determining the aggregate net assets of the Fund, cash and
receivables are valued at their realizable amounts. Interest is recorded as
accrued and dividends are recorded on the ex-dividend date. Portfolio securities
listed on a securities exchange or on the NASDAQ National Market System for
which market quotations are readily available are valued at the last quoted sale
price of the day or, if there is no such reported sale, within the range of the
most recent quoted bid and ask prices. Over-the-counter portfolio securities are
valued within the range of the most recent quoted bid and ask prices. Portfolio
securities that 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 Advisory Services.
Portfolio securities underlying actively traded call options are valued at their
market price as determined above. The current market value of any option held by
the Fund is its last sale price on the relevant exchange before the time when
assets are valued. Lacking any sales that day or if the last sale price is
outside the bid and ask prices, options are valued within the range of the
current closing bid and ask prices if the valuation is believed to fairly
reflect the contract's market value.
The value of a foreign security is determined as of the close of trading on the
foreign exchange on which it is traded or as of the scheduled close of trading
on the NYSE, if that is earlier. The value is then converted into its U.S.
dollar equivalent at the foreign exchange rate in effect at noon, New York time,
on the day the value of the foreign security is determined. If no sale is
reported at that time, the mean between the current bid and ask prices is used.
Occasionally events that affect the values of foreign securities and foreign
exchange rates may occur between the times at which they are determined and the
close of the exchange and will, therefore, not be reflected in the computation
of the Net Asset Value of each class. If events materially affecting the values
of these foreign securities occur during this period, the securities will be
valued in accordance with procedures established by the Board.
Generally, trading in corporate bonds, U.S. government securities and money
market instruments is substantially completed each day at various times before
the scheduled close of the NYSE. The value of these securities used in computing
the Net Asset Value of each class is determined as of such times. Occasionally,
events affecting the values of these securities may occur between the times at
which they are determined and the scheduled close of the NYSE that will not be
reflected in the computation of the Net Asset Value of each class. If events
materially affecting the values of these securities occur during this period,
the securities will be valued at their fair value as determined in good faith by
the Board.
Other securities for which market quotations are readily available are valued at
the current market price, which may be obtained from a pricing service, based on
a variety of factors including recent trades, institutional size trading in
similar types of securities (considering yield, risk and maturity) and/or
developments related to specific issues. Securities and other assets for which
market prices are not readily available are valued at fair value as determined
following procedures approved by the Board. With the approval of the Board, the
Fund may utilize a pricing service, bank or Securities Dealer to perform any of
the above described functions.
ADDITIONAL INFORMATION ON
DISTRIBUTIONS AND TAXES
DISTRIBUTIONS
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 capital loss carryforward or post October
loss deferral) may generally be made once a year in December to reflect any net
short-term and net long-term capital gains realized by the Fund as of October 31
of the current fiscal year and any undistributed capital gains from the prior
fiscal year. The Fund may make more than one distribution derived from net
short-term and net long-term capital gains in any year or adjust the timing of
these distributions for operational or other reasons.
TAXES
Generally. The Fund intends to qualify and elect to be treated as a regulated
investment company under Subchapter M of the Code. The Board reserves the right
not to maintain the qualification of the Fund as a regulated investment company
if it determines this course of action to be beneficial to shareholders. In that
case, the Fund will be subject to federal and possibly state corporate taxes on
its taxable income and gains, and distributions to shareholders will be taxable
to the extent of the Fund's available earnings and profits.
Subject to the limitations discussed below, all or a portion of the income
distributions paid by the Fund may be treated by corporate shareholders as
qualifying dividends for purposes of the dividends-received deduction under
federal income tax law. If the aggregate qualifying dividends received by the
Fund (generally, dividends from U.S. domestic corporations, the stock in which
is not debt-financed by the Fund and is held for at least a minimum holding
period) is less than 100% of its distributable income, then the amount of the
Fund's dividends paid to corporate shareholders which may be designated as
eligible for such deduction will not exceed the aggregate qualifying dividends
received by the Fund for the taxable year. The amount or percentage of income
qualifying for the corporate dividends-received deduction will be provided by
the Fund annually in a notice to shareholders mailed shortly after the end of
the Fund's fiscal year.
Corporate shareholders should note that dividends paid by the Fund from sources
other than the qualifying dividends it receives will not qualify for the
dividend-received deduction. For example, any interest income and net short-term
capital gain (in excess of any net long-term capital loss or capital loss
carryover) included in investment company taxable income and distributed by the
Fund as a dividend will not qualify for the dividends-received deduction.
Corporate shareholders should also note that availability of the corporate
dividends-received deduction is subject to certain restrictions. For example,
the deduction is eliminated unless Fund shares have been held (or deemed held)
for at least 46 days in a substantially unhedged manner. The dividends-received
deduction may also be reduced to the extent interest paid or accrued by a
corporate shareholder is directly attributable to its investment in Fund shares.
The entire dividend, including the portion which is treated as a deduction, is
includable in the tax base on which the federal alternative minimum tax is
computed and may also result in a reduction in the your tax basis in its Fund
shares, under certain circumstances, if the shares have been held for less than
two years. Corporate shareholders whose investment in the Fund is "debt
financed" for these tax purposes should consult with their tax advisors
concerning the availability of the dividends-received deduction.
The Code requires all funds to distribute at least 98% of their taxable ordinary
income earned during the calendar year and at least 98% of their capital gain
net income earned during the twelve month period ending October 31 of each year
(in addition to amounts from the prior year that were neither distributed nor
taxed to the Fund) to shareholders by December 31 of each year in order to avoid
the imposition of a federal excise tax. 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 your basis in the shares
and the amount received, subject to the rules described below. If such shares
are a capital asset in your hands, 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 buying shares of the Fund will
not be included in the federal tax basis of shares sold or exchanged within 90
days of their purchase (for purposes of determining gain or loss with respect to
such shares) if the sales proceeds are reinvested in the Fund or in another fund
in the Franklin Templeton Group of Funds and a sales charge which would
otherwise apply to the reinvestment is reduced or eliminated. Any portion of
such sales charge excluded from the tax basis of the shares sold will be added
to the tax basis of the shares acquired in the reinvestment. You should consult
with your tax advisor concerning the tax rules applicable to the redemption or
exchange of Fund shares.
All or a portion of a loss realized upon a redemption of shares will be
disallowed to the extent other shares of the Fund are purchased (through
reinvestment of dividends or otherwise) within 30 days before or after such
redemption. Any loss disallowed under these rules will be added to the tax basis
of the shares purchased.
The Fund's Investments - Generally. The Fund's investment in options, futures
and forward conversions, options on futures, stock indices, foreign currencies
and securities, synthetic and enhanced convertible securities, structured notes,
zero coupon/deferred interest securities and pay-in-kind bonds, and its
participation in spread and straddle transactions, or actual or deemed short
sales may be limited by the Code and may require the application of many complex
and special tax rules.
Absent a tax election to the contrary, each Section 1256 position held by the
Fund will be marked-to-market (i.e., treated as if it were sold for fair market
value) on the last business day of the Fund's fiscal year, and all gain or loss
associated with fiscal year transactions and mark-to-market positions at fiscal
year end (except certain foreign currency gain or loss covered by Section 988 of
the Code) will generally be treated as 60% long-term capital gain or loss and
40% short-term capital gain or loss. The effect of Section 1256 mark-to-market
rules may be to accelerate income or to convert what otherwise would have been
long-term capital gains into short-term capital gains or short-term capital
losses into long-term capital losses within the Fund. The acceleration of income
on Section 1256 positions may require the Fund to accrue taxable income without
the corresponding receipt of cash. In order to generate cash to satisfy the
distribution requirements of the Code, the Fund may be required to dispose of
portfolio securities that it otherwise would have continued to hold or to use
cash flows from other sources such as the sale of Fund shares. In these ways,
any or all of these rules may affect both the amount, character and timing of
income distributed to you by the Fund.
Options and Related Tax Rules. When the Fund holds an option or contract which
substantially diminishes the Fund's risk of loss with respect to another
position of the Fund (as might occur in some hedging transactions), this
combination of positions could be treated as a "straddle" for tax purposes,
resulting in possible deferral of losses, adjustments in the holding periods of
Fund securities and conversion of short-term capital losses into long-term
capital losses.
As a regulated investment company, the Fund is also subject to the requirement
that less than 30% of its annual gross income be derived from the sale or other
disposition of securities and certain other investments held for less than three
months ("short-short income"). This requirement may limit the Fund's ability to
engage in options and hedging transactions because these transactions are often
consummated in less than three months, may require the sale of portfolio
securities held less than three months and may, as in the case of short sales of
portfolio securities, reduce the holding periods of certain securities within
the Fund, resulting in additional short-short income for the Fund.
The Fund will monitor its transactions in such options and contracts and may
make certain other tax elections in order to mitigate the effect of the above
rules and to prevent disqualification of the Fund as a regulated investment
company under Subchapter M of the Code.
Foreign Securities. The Fund may invest in foreign securities. These
investments, if made, will have the following tax consequences.
Foreign exchange gains and losses realized by the Fund in connection with
certain transactions involving foreign currencies, foreign currency payables or
receivables, foreign currency-denominated debt securities, foreign currency
forward contracts, and options or futures contracts on foreign currencies are
subject to special tax rules which may cause such gains and losses to be treated
as ordinary income and losses rather than capital gains and losses, and may
affect the amount and timing of the Fund's income or loss from such transactions
and in turn it distributions to you.
The Fund may be subject to foreign withholding taxes on income from certain of
its foreign securities. Because the Fund intends to invest 50% or less of its
total assets in securities of foreign corporations, it will not be entitled
under the Code to pass-through to its shareholders their pro rata share of the
foreign taxes paid by the Fund. These taxes will be taken as a deduction by the
Fund.
Conversion Transactions. Gain realized by the Fund from transactions that are
deemed to constitute "conversion transactions" under the Code and which would
otherwise produce capital gain may be recharacterized as ordinary income to the
extent that such gain does not exceed an amount defined by the Code as the
"applicable imputed income amount." A conversion transaction is any transaction
in which substantially all of the Fund's expected return is attributable to the
time value of the Fund's net investment in such transaction and any one of the
following criteria are met: 1) there is an acquisition of property with a
substantially contemporaneous agreement to sell the same or substantially
identical property in the future; 2) the transaction is an applicable straddle;
3) the transaction was marketed or sold to the Fund on the basis that it would
have the economic characteristics of a loan but would be taxed as capital gain;
or 4) the transaction is specified in Treasury regulations to be promulgated in
the future. The applicable imputed income amount, which represents the deemed
return on the conversion transaction based upon the time value of money, is
computed using a yield equal to 120 percent of the applicable federal rate,
reduced by any prior recharacterizations under this provision or Section 263(g)
of the Code concerning capitalized carrying costs.
Zero Coupon and Pay-in-Kind Bonds. The Fund's investment in zero coupon or
pay-in-kind bonds that provide for the payment of delayed interest may cause the
Fund to recognize income and make distributions to shareholders prior to the
receipt of cash payments on these obligations. These debt instruments are
subject to special tax rules concerning the amount, character and timing of
income required to be accrued by the Fund. The Fund may be required to accrue
income for income tax purposes on these obligations and to distribute such
income to shareholders even though the Fund is not currently receiving interest
or principal payments on the obligations. In order to generate cash to satisfy
distribution requirements, the Fund may be required to dispose of portfolio
securities that it otherwise would have continued to hold or to use cash flows
from other sources such as the sale of Fund shares.
U.S. Government Securities. The Fund may also invest for temporary or defensive
purposes in securities of the U.S. government and certain of its agencies or
instrumentalities. Many states grant tax-free status to dividends paid to
shareholders of regulated investment companies from interest earned by the fund
from direct obligations of the U.S. government, subject in some states to
minimum investment requirements that must be met by the Fund. Investments in
mortgage-backed securities and repurchase agreements collateralized by U.S.
government securities do not generally qualify for tax-free treatment. At the
end of each calendar year, the Fund will provide you with the percentage of any
dividends paid which may qualify for such tax-free treatment. You should then
consult with your tax advisers with respect to the application of your state and
local income tax laws to these distributions.
THE FUND'S UNDERWRITER
Pursuant to an underwriting agreement, Distributors acts as principal
underwriter in a continuous public offering for each class of the Fund's shares.
The underwriting agreement will continue in effect for successive annual periods
if 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 Board members who are
not parties to the underwriting agreement or interested persons of any such
party (other than as members of the Board), 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 will not receive compensation from the Fund for acting as
underwriter with respect to the Advisor Class shares.
HOW DOES THE FUND MEASURE PERFORMANCE?
Performance quotations are subject to SEC rules. These rules require the use of
standardized performance quotations or, alternatively, that every
non-standardized performance quotation furnished by the Fund be accompanied by
certain standardized performance information computed as required by the SEC.
Current yield and average annual total return quotations used by the Fund are
based on the standardized methods of computing performance mandated by the SEC.
If a Rule 12b-1 plan is adopted, performance figures reflect fees from the date
of the plan's implementation. An explanation of these and other methods used by
the Fund to compute or express performance for the Advisor Class shares follows.
For any period prior to January 1, 1997, the standardized performance quotations
for Advisor Class will be calculated by substituting the performance of Class I
for the relevant time period, and excluding the effect of the maximum sales
charge and including the effect of Rule 12b-1 fees applicable to Class I.
Regardless of the method used, past performance does not guarantee future
results, and is an indication of the return to shareholders only for the limited
historical period used.
TOTAL RETURN
Average Annual Total Return. Average annual total return is determined by
finding the average annual rates of return over one-, five- and ten-year periods
that would equate an initial hypothetical $1,000 investment to its ending
redeemable value. The calculation assumes income dividends and capital gain
distributions are reinvested at Net Asset Value. The quotation assumes the
account was completely redeemed at the end of each one-, five- and ten-year
period and the deduction of all applicable charges and fees.
These rates of return will be calculated according to the SEC formula:
P(1+T)n = 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
Cumulative Total Return. The Fund may also quote the cumulative total return for
each class, in addition to the average annual total return. These quotations are
computed the same way, except the cumulative total return will be based on the
actual return for each class for a specified period rather than on the average
return over one-, five- and ten-year periods. The cumulative total return for
Advisor Class shares for the period from March 11, 1996 (date of inception)
through June 30, 1996 would have been 7.06%.
YIELD
Current Yield. Current yield of each class shows the income per share earned by
the Fund. It is calculated by dividing the net investment income per share of
each class earned during a 30-day base period by the Net Asset Value 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 of the class during the
base period. The yield for Advisor Class shares for the 30-day period ended June
30, 1996 would have been 1.11%.
These rates of return will be calculated using the following SEC formula:
Yield = 2 [(a-b + 1)6 - 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 Net Asset Value per share on the last day of the period
CURRENT DISTRIBUTION RATE
Current 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 a
class. Amounts paid to shareholders are reflected in the quoted current
distribution rate. For Advisor Class, the current distribution rate is usually
computed by annualizing the dividends paid per share by the class during a
certain period and dividing that amount by the current Net Asset Value. 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. The current
distribution rate for the 30 day period ended June 30, 1996 for the Advisor
Class shares would have been 0.18%.
VOLATILITY
Occasionally statistics may be used to show the Fund's volatility or risk.
Measures of volatility or risk are generally used to compare the Fund's Net
Asset Value or performance to a market index. One measure of volatility is beta.
Beta is the volatility of a fund relative to the total market, as represented by
an index considered representative of the types of securities in which the fund
invests. A beta of more than 1.00 indicates volatility greater than the market
and a beta of less than 1.00 indicates volatility less than the market. Another
measure of volatility or risk is standard deviation. Standard deviation is used
to measure variability of Net Asset Value or total return around an average over
a specified period of time. The idea is that greater volatility means greater
risk undertaken in achieving performance.
OTHER PERFORMANCE QUOTATIONS
For any period prior to January 1, 1997, sales literature about Advisor Class
may quote a current distribution rate, yield, cumulative total return, average
annual total return and other measures of performance as described elsewhere in
this SAI by substituting the performance of Class I for the relevant time period
and excluding the effect of the maximum sales charge and Rule 12b-1 fees
applicable to Class I.
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.
The Fund may include in its advertising or sales material information relating
to investment objectives and performance results of funds belonging to the
Franklin 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 may satisfy your
investment objective, advertisements and other materials about the Fund may
discuss certain measures of each class' 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.
These 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 NYSE composite or component indices - an unmanaged index of all
industrial, utilities, transportation, and finance stocks listed on the NYSE.
d) Wilshire 5000 Equity Index - represents the return on the market value of all
common equity securities for which daily pricing is available. Comparisons of
performance assume reinvestment of dividends.
e) Lipper - Mutual Fund Performance Analysis and Lipper - Fixed Income Fund
Performance Analysis - measure total return and average current yield for the
mutual fund industry and rank individual mutual fund performance over specified
time periods, assuming reinvestment of all distributions, exclusive of any
applicable sales charges.
f) CDA Mutual Fund Report, published by CDA Investment Technologies, Inc.
analyzes price, current yield, risk, total return, and average rate of return
(average annual compounded growth rate) over specified time periods for the
mutual fund industry.
g) Mutual Fund Source Book, published by Morningstar, Inc. - analyzes price,
yield, risk, and total return for mutual funds.
h) Financial publications: The Wall Street Journal, Business Week, Changing
Times, Financial World, Forbes, Fortune, and Money magazines - provide
performance statistics over specified time periods.
i) Consumer Price Index (or Cost of Living Index), published by the U.S. Bureau
of Labor Statistics - a statistical measure of change, over time, in the price
of goods and services in major expenditure groups.
j) Stocks, Bonds, Bills, and Inflation, published by Ibbotson Associates
historical measure of yield, price, and total return for common and small
company stock, long-term government bonds, Treasury bills, and inflation.
k) Savings and Loan Historical Interest Rates - as published in the U.S. Savings
& Loan League Fact Book.
l) Historical data supplied by the research departments of First Boston
Corporation, the J. P. Morgan companies, Salomon Brothers, Merrill Lynch, Lehman
Brothers and Bloomberg L.P.
m) Standard & Poor's 100 Stock Index - an unmanaged index based on the prices of
100 blue-chip stocks, including 92 industrials, one utility, two transportation
companies, and 5 financial institutions. The S&P 100 Stock Index is a smaller
more flexible index for options trading.
n) Morningstar - information published by Morningstar, Inc., including
Morningstar proprietary mutual fund ratings. The ratings reflect Morningstar's
assessment of the historical risk adjusted performance of a fund over specified
time periods relative to other funds within its category.
From time to time, advertisements or information for the Fund may include a
discussion of certain attributes or benefits to be derived from an investment in
the Fund. The advertisements or information may include symbols, headlines, or
other material that highlights or summarizes the information discussed in more
detail in the communication.
Such advertisements and sales literature may also note that deeply discounted
securities offer growth potential, but that finding these deeply discounted
securities involves expensive and extensive research generally available only to
large institutional investors and very affluent investors.
Advertisements or information may also compare the performance of Advisor Class
to the return on CDs or other investments. You should be aware, however, that an
investment in the Fund involves the risk of fluctuation of principal value, a
risk generally not present in an investment in a CD issued by a bank. For
example, as the general level of interest rates rise, the value of the Fund's
fixed-income investments, as well as the value of its shares that 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. CDs are frequently insured by an agency of the U.S.
government. An investment in the Fund is not insured by any federal, state or
private entity.
In assessing comparisons of performance, you should keep in mind that the
composition of the investments in the reported indices and averages is not
identical to the Fund's portfolio, the indices and averages are generally
unmanaged, and the items included in the calculations of the averages may not be
identical to the formula used by the Fund to calculate its figures. In addition,
there can be no assurance that the Fund will continue its performance as
compared to these other averages.
MISCELLANEOUS INFORMATION
The Fund may help you achieve various investment goals such as accumulating
money for retirement, saving for a down payment on a home, college costs and
other long-term goals. The Franklin College Costs Planner may help you in
determining how much money must be invested on a monthly basis in order to have
a projected amount available in the future to fund a child's college education.
(Projected college cost estimates are based upon current costs published by the
College Board.) The Franklin Retirement Planning Guide leads you through the
steps to start a retirement savings program. Of course, an investment in the
Fund cannot guarantee that these goals will be met.
The Fund is a member of the Franklin Templeton Group of Funds, one of the
largest mutual fund organizations in the U.S., and may be considered in a
program for diversification of assets. Founded in 1947, Franklin, one of the
oldest mutual fund organizations, has managed mutual funds for over 48 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 $152
billion in assets under management for more than 4.2 million U.S. based mutual
fund shareholder and other accounts. The Franklin Templeton Group of Funds
offers 121 U.S. based open-end investment companies to the public. 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 eight years.
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 Advisor Class shares.
In the event of disputes involving multiple claims of ownership or authority to
control your account, the Fund has the right (but has no obligation) to: (a)
freeze the account and require the written agreement of all persons deemed by
the Fund to have a potential property interest in the account, prior to
executing instructions regarding the account; (b) interplead disputed funds or
accounts with a court of competent jurisdiction; or (c) surrender ownership of
all or a portion of the account to the IRS in response to a Notice of Levy.
Summary of Code of Ethics. 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.
USEFUL TERMS AND DEFINITIONS
1940 Act - Investment Company Act of 1940, as amended
Advisory Services - Franklin Advisory Services, Inc. the Fund's investment
manager
Board - The Board of Trustees of the Trust
CD - Certificate of deposit
Class I, Class II and Advisor Class - The Fund offers three classes of shares,
designated "Class I," "Class II" and "Advisor Class." The three classes have
proportionate interests in the Fund's portfolio. Class I and Class II differ,
however, primarily in their sales charge structures and Rule 12b-1 plans.
Advisor Class shares are purchased without a sales charge and do not have a Rule
12b-1 plan.
Code - Internal Revenue Code of 1986, as amended
Distributors - Franklin/Templeton Distributors, Inc., the Fund's principal
underwriter
Exchange - New York Stock Exchange
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 Group of Funds - All U.S. registered investment companies in
the Franklin Group of Funds(R) and the Templeton Group of Funds
FT Services - Franklin Templeton Services, Inc., the Fund's administrator
Investor Services - Franklin/Templeton Investor Services, Inc., the Fund's
shareholder servicing and transfer agent
IRS - Internal Revenue Service
Mutual Series - Franklin Mutual Series Fund Inc., a member of the Franklin Group
of Funds, formerly the Mutual Series Fund Inc. Each series of Mutual Series
began offering three classes of shares on November 1, 1996; Class I, Class II
and Advisor Class. All shares sold before that time are designated Advisor Class
shares
NASD - National Association of Securities Dealers, Inc.
NYSE - New York Stock Exchange.
Net Asset Value (NAV) - The value of a mutual fund is determined by deducting
the fund's liabilities from the total assets of the portfolio. The net asset
value per share is determined by dividing the net asset value of the fund by the
number of shares outstanding.
Offering Price - The public offering price is based on the Net Asset Value per
share of the class and includes the front-end sales charge, if applicable. The
maximum front-end sales charge is 4.25% for Class I and 1% for Class II. Advisor
Class shares have no front-end sales charge.
Prospectus - The prospectus for Advisor Class of the Fund dated January 1, 1997,
as may be amended from time to time
Resources - Franklin Resources, Inc.
SAI - Statement of Additional Information
SEC - U.S. Securities and Exchange Commission
Securities Dealer - A financial institution which, either directly or through
affiliates, has an agreement with Distributors to handle customer orders and
accounts with the Fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity.
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
U.S. - United States
We/Our/Us - Unless a different meaning is indicated by the context, these terms
refer to the Fund and/or Investor Services, Distributors, or other wholly-owned
subsidiaries of Resources.
FINANCIAL STATEMENTS
These financial statements do not include information for Advisor Class as these
shares were not publicly offered prior to the date of this SAI.
FRANKLIN VALUE INVESTORS TRUST
Statement of Investments in Securities and Net Assets, June 30, 1996 (unaudited)
Shares Franklin Value Fund
Common Stocks 87.5%
Banks & Thrifts 10.7%
1,100 aAssociates First Capital Corp..................$ 41,388
2,100 BankAtlantic Bancorp, Inc. - Class B........... 29,400
12,100 aBank Plus Corp................................. 105,875
35,000 cChristiania Bank Og Kreditkasse (Norway)....... 82,511
2,000 Fidelity Financial of Ohio, Inc................ 20,000
3,200 Financial Security Assurance Holdings Ltd...... 87,600
5,000 aGA Financial, Inc.............................. 55,000
--------
421,774
--------
Food 5.2%
5,000 Nash-Finch Co.................................. 80,000
1,000 Schultz Sav-o Stores, Inc...................... 12,875
12,000 Super Food Services, Inc....................... 114,000
--------
206,875
--------
Furniture & Homebuilders 5.1%
7,400 aAmerican Woodmark Corp......................... 41,625
5,400 aBeazer Homes USA, Inc.......................... 86,400
5,000 Ryland Group, Inc.............................. 75,000
--------
203,025
--------
Industrial 7.7%
9,000 Haskel International, Inc...................... 67,500
5,600 Oil-Dri Corporation of America................. 83,300
2,500 Rochester & Pittsburgh Coal Co................. 78,750
12,500 United Industrial Corp......................... 76,563
--------
306,113
--------
Insurance-Life & Specialty 6.6%
1,100 American National Insurance Co................. 71,500
8,800 Presidential Life Corp......................... 91,300
3,000 USLIFE Corp.................................... 98,625
--------
261,425
--------
Insurance-Property & Casualty 3.5%
2,000 aPICOM Insurance Co............................. 50,000
3,700 RLI Corp....................................... 90,188
--------
140,188
--------
Manufacturing 11.5%
8,000 aAmerican Pacific Corp.......................... 50,000
1,500 aCasTech Aluminum Group, Inc.................... 22,125
1,750 Douglas & Lomason Co........................... 24,938
10,000 Ennis Business Forms........................... 113,750
3,100 Flexsteel Industries, Inc...................... 36,425
6,000 Medex, Inc..................................... 77,250
9,100 Oshkosh Truck Corp............................. 128,538
--------
453,026
--------
Miscellaneous 1.8%
6,000 aAztar Corp..................................... 69,000
Real Estate 5.4%
4,500 Rouse Co....................................... 116,438
4,000 aU.S. Home Corp................................. 98,500
--------
214,938
--------
Retail 7.1%
10,000 aAllou Health and Beauty, Inc..................$ 68,750
8,000 aLittle Switzerland, Inc....................... 42,000
10,700 aS & K Famous Brands, Inc...................... 102,988
4,000 Strawbridge & Clothier, Class A............... 65,000
--------
278,738
--------
Technology 21.4%
4,000 Adobe Systems, Inc............................ 143,500
10,900 aAdvanced Logic Research, Inc.................. 91,288
4,600 Analysis & Technology, Inc.................... 63,250
3,800 aCray Research, Inc............................ 91,675
6,900 aESCO Electronics Corp......................... 78,488
8,200 Health Images, Inc............................ 95,325
7,700 aQuantum Corp.................................. 112,613
7,300 aSymantec Corp................................. 91,250
16,900 aVideo Lottery Technologies, Inc............... 76,050
--------
843,439
--------
Utilities 1.5%
7,500 aNiagara Mohawk Power Corp..................... 58,120
--------
Total Long Term Investments (Cost $3,382,253). 3,456,661
----------
Face
Amount
bReceivables from Repurchase Agreement 13.3%
$522,768 Joint Repurchase Agreement, 5.439%, 07/01/96 (Maturity Value $ 525,418)
(Cost $525,179) Chase Securities, Inc., (Maturity Value $75,510 )
Collateral: U.S. Treasury Notes, 5.375%, 11/30/97
Daiwa Securities America, Inc., (Maturity Value $75,510)
Collateral: U.S. Treasury Notes, 5.25% - 8.875%, 12/31/97 - 08/31/00
Donaldson, Lufkin & Jenrette Securities Corp.,(Maturity Value $72,358)
Collateral: U.S. Treasury Bills, 05/29/97
U.S. Treasury Notes, 5.125% - 6.75%, 07/31/97 - 07/31/00
Fuji Securities, Inc., (Maturity Value $75,510)
Collateral: U.S. Treasury Notes, 5.50% - 8.875%, 07/31/97 - 02/15/99
Lehman Government Securities, Inc., (Maturity Value $75,510)
Collateral: U.S. Treasury Notes, 5.625% - 11.75%, 09/30/99 - 02/15/01
SBC Capital Markets, Inc., (Maturity Value $75,510)
Collateral: U.S. Treasury Notes, 5.75%, 09/30/97
UBS Securities, Inc., (Maturity Value $75,510)
Collateral: U.S. Treasury Notes, 6.50% - 8.875%,
11/15/98 - 11/30/99....................................... 525,179
---------
Total Investments (Cost $3,907,432) 100.8%............3,981,840
Labilities in Excess of Other Assets (.8)%............ (32,157)
---------
Net Assets 100.0%....................................$3,949,683
==========
At June 30, 1996, the net unrealized appreciation based on the cost of
investments for income tax purposes of $3,907,432 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there was an excess of
value over tax cost.................................... $ 179,384
Aggregate gross unrealized depreciation for all
investments in which there was an excess of tax
cost over value........................................ (104,976)
--------
Net unrealized appreciation..............................$ 74,408
========
Non-income producing.
bFace amount for repurchase agreements is for the underlying collateral. See
Note 1( h ) regarding joint repurchase agreement.
cSecurities traded in foreign currency and valued in U.S. dollars.
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEINVESTORS TRUST
Financial Statements
Statement of Assets and Liabilities
June 30, 1996 (unaudited)
Franklin
Value Fund
Assets:
Investments in securities:
At identified cost $3,382,253
==========
At value 3,456,661
Receivables from repurchase agreements,
at value and cost 525,179
Cash 122,930
Receivables:
Dividends and interest 3,333
Capital shares sold 81,690
Unamortized organization costs (Note 2) 2,798
----------
Total assets 4,192,591
----------
Liabilities:
Payables:
Investment securities purchased 237,219
Distributions payable to shareholders 8
Management fees 1,882
Distribution fees 1,741
Shareholder servicing costs 65
Accrued expenses and other liabilities 1,993
----------
Total liabilities 242,908
----------
Net assets, at value $3,949,683
==========
Net assets consist of:
Undistributed net investment income$ 3,656
Net unrealized appreciation on investments
and translation of assets and liabilities
denominated in foreign currencies 74,408
Undistributed net realized gains from
investment and foreign currency transactions5,894
Capital shares 3,865,725
-----------
Net assets, at value $3,949,683
===========
Shares outstanding 246,165
===========
Net asset value per share* $16.04
===========
Maximum offering price per share 100/95.5,
of net asset value per share) $16.80
===========
Statement of Operations
for the period March 11, 1996 (effective date)
to June 30, 1996 (unaudited)
Value Fund
Investment income:
Dividends $11,799
Interest (Note 1) 6,918
Total income 18,717
Expenses:
Management fees (Note 6) 5,001
Distribution fees (Note 6) 1,811
Shareholder servicing costs (Note 6) 182
Reports to shareholders 270
Custodian fees 6
Professional fees 1,271
Trustees' fees and expenses 9
Amortization of organization costs (Note 2) 202
Other 1,425
Management fees waived by manager (Note 6) (1,288)
Total expenses 8,889
----------
Net investment income 9,828
----------
Realized and unrealized gain (loss) from
investments and foreign currency:
Net realized gain from investments 5,939
Net unrealized appreciation on:
Investments 74,408
Translation of assets and liabilities
denominated in foreign currencies (45)
---------
Net realized and unrealized gain from
investments and foreign currencies 80,302
---------
Net increase in net assets resulting
from operations $90,130
=========
*Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEINVESTORS TRUST
Financial Statements
Statements of Changes in Net Assets
for the period March 11, 1996 (effective date)
to June 30, 1996 (unaudited)
Value Fund
For the period
ended 6/30/96
Increase in net assets:
Operations:
Net investment income............................................$ 9,828
Net realized gain from investments and foreign
currency transactions........................................... 5,894
Net unrealized appreciation on investments and
translation of assets and liabilities
denominated in foreign currencies.............................. 74,408
-----------
Net increase in net assets resulting from operations......... 90,130
Distributions to shareholders from:
Undistributed net investment income............................... (6,172)
Increase in net assets from capital share transactions (Note 3).... 3,865,725
----------
Net increase in net assets................................... 3,949,683
Net assets:
Beginning of period............................................... --
----------
End of period..................................................... $3,949,683
==========
Undistributed net investment income included in net assets:
Beginning of period.............................................. --
==========
End of period.................................................... $ 3,656
==========
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements (unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
Franklin Value Trust (the Trust) is an open-end, non-diversified management
investment company (mutual fund), registered under the Investment Company Act of
1940 as amended. The Trust currently consists of three separate and distinct
portfolios. This report pertains only to the Franklin Value Fund (the Fund). The
Fund issues a separate series of the Trust's shares and maintains a totally
separate and distinct investment portfolio. The investment objective of the Fund
is capital growth and income.
The Value Fund became effective March 11, 1996.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of their financial statements. The
policies are in conformity with generally accepted accounting principles for
investment companies.
a. Security Valuation:
Portfolio securities listed on a securities exchange or on the NASDAQ for which
market quotations are readily available are valued at the last sale price or, if
there is no sale price, within the range of the most recent quoted bid and asked
prices. Other securities are valued based on a variety of factors, including
yield, risk, maturity, trade activity and recent developments related to the
securities. The Trust may utilize a pricing service, bank or broker/dealer
experienced in such matters to perform any of the pricing functions, under
procedures approved by the Board of Trustees (the Board). Securities for which
market quotations are not available are valued in accordance with procedures
established by the Board.
The value of a foreign security is determined as of the earlier of the close of
trading on the foreign exchange on which it is traded or the close of trading on
the New York Stock Exchange. That value is then converted into its U.S. dollar
equivalent at the foreign exchange rate in effect at noon, New York time, on the
day the value of the foreign security is determined. If no sale is reported at
that time, the mean between the current bid and asked price is used.
Occasionally, events which affect the values of foreign securities and foreign
exchange rates may occur between the times at which they are determined and the
close of the exchange and will, therefore, not be reflected in the computation
of the Fund's net asset value, unless material. If events which materially
affect the value of these foreign securities occur during such period, then
these securities will be valued in accordance with procedures established by the
Board.
The fair values of securities restricted as to resale are determined following
procedures established by the Board.
b. Income Taxes:
The Fund intends to qualify for the tax treatment applicable to regulated
investment companies under the Internal Revenue Code and to make the requisite
distributions to shareholders which will be sufficient to relieve the Fund from
income and excise taxes. The Fund is treated as a separate entity in the
determination of compliance with the Internal Revenue Code.
1. SIGNIFICANT ACCOUNTING POLICIES (cont.)
c. Security Transactions:
Security transactions are accounted for on the date the securities are purchased
or sold (trade date). Realized gains and losses on security transactions are
determined on the basis of specific identification.
d. Investment Income, Expenses and Distributions:
Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income and estimated expenses are accrued daily.
e. Accounting Estimates:
The preparation of the financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the amounts of income and expense during
the reporting period.
Actual results could differ from those estimates.
f. Expense Allocation:
Common expenses incurred by the Trust are allocated to the Fund based on the
ratio of net assets of the Fund to the combined net assets. In all other
respects, expenses are charged to the Fund as incurred on a specific
identification basis.
g. Foreign Currency Translation:
The accounting records of the Fund are maintained in U.S. dollars. All assets
and liabilities denominated in foreign currencies are translated into U.S.
dollars at the rate of exchange of the currencies against U.S. dollars on the
valuation date. Purchases and sales of securities, income and expenses are
translated at the rate of exchange quoted on the day that the transactions are
recorded. Differences between income and expense amounts recorded and collected
or paid are recognized when reported by the custodian.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from fluctuations arising
from changes in market prices of securities held. Such fluctuations are included
with the net realized and unrealized gain or loss from investments.
Realized foreign exchange gains or losses arise from sales and maturities of
short-term securities, sales of foreign currencies, gains or losses realized
between the trade date and settlement dates on security transactions, the
difference between the amounts of dividends and interest, and foreign
withholding taxes recorded on the Trust's books and the U.S. dollar equivalent
of the amounts actually received or paid. Net unrealized appreciation or
depreciation on translation of assets and liabilities denominated in foreign
currencies arise from changes in the value of assets and liabilities other than
investments in securities at the end of the reporting period, resulting from
changes in exchange rates.
h. Repurchase Agreements:
The Fund may enter into a joint repurchase agreement whereby their uninvested
cash balances are deposited into a joint cash account to be used to invest in
one or more repurchase agreements with government securities dealers recognized
by the Federal Reserve Board and/or member banks of the Federal Reserve System.
The value and face amount of the joint repurchase agreement are allocated to the
Fund based on their pro-rata interest.
A repurchase agreement is accounted for as a loan by the Fund to the seller,
collateralized by underlying U.S. government securities, which are delivered to
the Fund's custodian. The market value, including accrued interest, of the
initial collateralization is required to be at least 102% of the dollar amount
invested by the Fund, with the value of the underlying securities marked to
market daily to maintain coverage of at least 100%. At June 30, 1996, all
outstanding repurchase agreements held by the Fund had been entered into on June
28, 1996.
2. UNAMORTIZED ORGANIZATION COSTS
The organization costs of the Fund are amortized on a straight-line basis over a
period of five years from the effective date of registration under the
Securities Act of 1933. In the event Franklin Resources, Inc. (Resources), which
was the sole shareholder prior to the effective date of registration, redeems
its shares within the five-year period, the pro-rata share of the
then-unamortized deferred organization cost will be deducted from the redemption
price paid to Resources. New investors purchasing shares of the Fund subsequent
to that date bear such costs during the amortization period only as such charges
are accrued daily against investment income.
3. TRUST SHARES
At June 30, 1996, there were an unlimited number of .01 par value shares of
beneficial interest authorized. Transactions in each of the Fund's shares were
as follows:
Value Fund
-----------------
Shares Amount
------ --------
For the period March 11, 1996 (effective date) to June 30, 1996
Shares sold.............................................. 246,552 $3,871,760
Shares issued in reinvestment of distributions........... 330 5,332
Shares redeemed.......................................... (717) (11,367)
Net increase.............................................. 246,165 3,865,725
4. DISTRIBUTIONS AND CAPITAL LOSS CARRYOVERS
For tax purposes, the aggregate cost of securities and unrealized appreciation
of the Fund are the same as for financial reporting purposes at June 30, 1996.
5. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities (excluding purchases and sales of short-term
securities) for the period March 11, 1996 (effective date) to June 30, 1996,
were as follows:
Value Fund
--------
Purchases ................................................. $3,414,839
Sales....................................................... $ 38,525
6. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
a. Management Agreement:
Under the terms of a management agreement, Franklin Advisory Services, Inc.
(Advisory) provides investment advice, administrative services, office space and
facilities to the Fund and receives fees computed daily on the net assets of the
Fund as follows:
Value Fund
Annualized Fee Rate Daily Net Assets
------------------- ---------------
0.75% First $500 million
0.625% Over $500 million, up to and including $1 billion
0.50% Over $1 billion
The terms of the management agreement provide that annual aggregate expenses of
the Fund be limited to the extent necessary to comply with the limitations set
forth in the laws, regulations, and administrative interpretations of the states
in which the Fund's shares are registered. For the four months ended June 30,
1996, the Fund's expenses did not exceed these limitations. However, Advisory
agreed in advance to waive management fees for the Value Fund, as noted in the
statement of operations, in an effort to minimize the Value Fund's expenses.
b. Shareholder Services Agreement:
Under the terms of a shareholder services agreement with Franklin/Templeton
Investor Services, Inc. (Investor Services), the Fund pays costs on a per
shareholder account basis. Shareholder servicing costs incurred by the Fund for
the four months ended June 30, 1996, aggregated $182, all of which was paid to
Investor Services.
c. Distribution Plans and Underwriting Agreement:
Under the terms of distribution plans pursuant to Rule 12b-1 of the Investment
Company Act of 1940 (the Plans), the Value Fund reimburses Franklin/Templeton
Distributors, Inc. (Distributors), in an amount up to 0.35% per annum, of
average daily net assets for costs incurred in the promotion,offering and
marketing of the Fund's shares.
The Plans do not permit nor require payments of excess costs after termination.
In its capacity as underwriter for the shares of the Fund, Distributors receives
commissions on sales of the Fund's shares of beneficial interest. Commissions
are deducted from the gross proceeds received from the sale of the shares of the
Fund, and as such are not expenses of the Fund. Distributors may also make
payments, out of its own resources, to the dealers for certain sales of the
Fund's shares. Commissions received by Distributors, the amounts paid to other
dealers, and any applicable contingent deferred sales charges for the four
months ended June 30, 1996, were as follows:
Value Fund
--------
Total commissions received................................. $58,215
d. Other Affiliates and Related Party Transactions:
Certain officers and trustees of the Trust are also officers and/or directors of
Distributors, Advisory, and Investor Services, all wholly-owned subsidiaries of
Resources.
At June 30, 1996, Resources owned 27% of the Value Fund.
7. FINANCIAL HIGHLIGHTS
Selected data for each share of beneficial interest outstanding throughout the
period, are as follows:
<TABLE>
<CAPTION>
Per Share Operating Performance Ratios/Supplemental Data
--------------------------------- ---------------------------
Ratio of
Expenses
Net Reali- to Aver- Ratio
Net zed & Net Ratio age Net of Net
Asset Unreali- Total Distri- Distri- Net Assets of Assets Investment
Value at zed From butions butions Asset at End Expen- (before fee Income Aver-
Begin- Net Gain Invest- From Net From Value of ses to waiver and to Aver- aged
ning Invest- on ment Invest- Realized Total at End Period Average expense age Portfolio Com-
Period of ment Securi- Oper- ment Capital Distri- of Total (in Net reduction) Net Turnover mission
Ended Period Income ties ations Income Gains butions Period Return* 000's) Assets (Note 6) Assets Rate Rate**
- ------------------------------------------------------------------------------------------------------------------------------------
Value Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
19961 $15.00 $.045 $1.025 1.070 $(.03) $-- $(.03) $16.04 7.13% $3,950 1.340%++ 1.530%4 1.480% 41.94%4 .0396
</TABLE>
1For the period March 11, 1996 (effective date) to June 30, 1996.
4Annualized
++During the periods indicated, Advisory agreed in advance to waive all or a
portion of its management fees and pay all or a portion of the other expenses of
the Fund.
*Total return measures the change in value of an investment over the periods
indicated. It is not annualized. It does not include the maximum front-end sales
charge or contingent deferred sales charge, and assumes reinvestment of
dividends and capital gains at net asset value.
**Represents the average broker commission rate per share paid by the Fund in
connection with the execution of the Fund's portfolio transactions in equity
securities.
FRANKLIN VALUE FUND
Report of Independent Auditors
To the Shareholders and Board of Trustees of FRANKLIN VALUE INVESTORS TRUST:
We have audited the accompanying statement of assets and liabilities of Franklin
Value Fund (one of the funds constituting the Franklin Value Investors Trust) as
of March 4, 1996. This financial statement is the responsibility of the Fund's
management. Our responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on test basis, evidence supporting
the amounts and disclosures in the financial statement. Our procedures included
confirmation of cash held as of March 4, 1996 with the custodian. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the financial position of Franklin Value Fund as of March
4, 1996 in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
March 5, 1996
San Francisco, California
FRANKLIN VALUE FUND
Statement of Assets and Liabilities
March 4, 1996
Assets:
Cash held by custodian............................................... $100,000
Unamortized organization costs....................................... 3,000
---------
Total assets.................................................... 103,000
---------
Liabilities:
Accrued expenses for organization costs.............................. 3,000
---------
Net assets............................................................ $100,000
=========
Shares of beneficial interest outstanding, $0.01 par value, unlimited shares
authorized............................................................ 6,667
=========
Net asset value per share............................................. $15.00
=========
Computation of net asset value and offering price per share:
Net asset value, and redemption price per share ($100,000/6,667).... $15.00
=========
Maximum offering price (100/95.5 of $15.00).......................... $15.71
=========
Note: Franklin Value Fund ("the Fund") is an open-end, non-diversified series of
the Franklin Value Investors Trust, a management investment company registered
under the Investment Company Act of 1940 and organized as a Massachusetts
business trust on September 11, 1989. Organization expenses are being amortized
over a five-year period from the effective date of its registration under the
Securities Act of 1933. As part of its organization, the Fund has issued, in a
private placement, 6,667 shares of beneficial interest to Franklin Resources,
Inc. at $15.00 per share. These shares have been designated as "initial shares."
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FRANKLIN VALUE INVESTORS TRUST
File Nos. 33-31326
811-5878
FORM N-1A
PART C
Other Information
ITEM 24 FINANCIAL STATEMENTS AND EXHIBITS
a) 1. Franklin Value Fund Unaudited Financial Statements filed in Part B
(i) Statement of Investments in Securities and Net Assets - June 30,
1996
(ii) Statement of Assets and Liabilities - June 30, 1996
(iii)Statement of Operations - for the period March 11, 1996 to June
30, 1996
(iv) Statements of Changes in Net Assets - for the period March 11,
1996 (effective date) to June 30, 1996
(v) Notes to Financial Statements
2. Franklin Value Fund Audited Financial Statements filed in Part B
(i) Report of Independent Auditors
(ii) Statement of Assets and Liabilities dated March 4, 1996
b) Exhibits:
The following exhibits are incorporated by reference to the filings noted,
with the exception of Exhibits 11(i), 15(iv) and 18(i) which are attached
herewith:
(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
(3) copies of any voting trust agreement with respect to more than five
percent of any class of equity securities of the Registrant;
Not Applicable
(4) specimens or copies of each security issued by the Registrant,
including copies of all constituent instruments, defining the rights
of the holders of such securities, and copies of each security being
registered;
Not Applicable
(5) copies of all investment advisory contracts relating to the
management of the assets of the Registrant;
(i) Management Agreement between the Registrant on behalf of Franklin
Balance Sheet Investment Fund and Franklin Advisory Services,
Inc., dated July 1, 1996
Filing: Post-Effective Amendment No. 12 to Registration
Statement on Form N-1A
File No. 33-31326
Filing Date: June 27, 1996
(ii) Management Agreement between the Registrant on behalf of Franklin
MicroCap Value Fund and Franklin Advisory Services, Inc., dated
July 1, 1996
Filing: Post-Effective Amendment No. 12 to Registration
Statement on Form N-1A
File No. 33-31326
Filing Date: June 27, 1996
(iii)Management Agreement between the Registrant on behalf of Franklin
Value Fund and Franklin Advisory Services, Inc., dated July 1,
1996
Filing: Post-Effective Amendment No. 12 to Registration Statement
on Form N-1A
File No. 33-31326
Filing Date: June 27, 1996
(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) Amended and Restated Distribution Agreement between the
Registrant and Franklin/Templeton Distributors, Inc., dated April
23, 1995
Filing: Post-Effective Amendment No. 12 to Registration Statement
on Form N-1A
File No. 33-31326
Filing Date: June 27, 1996
(ii) Forms of dealer agreements between the Registrant and
Franklin/Templeton Distributors, Inc.
Registrant: Franklin Tax-Free Trust
Filing: Post-Effective Amendment No. 22 to Registration Statement
on Form N-1A
File No. 2-94222
Filing Date: March 14, 1996
(7) copies of all bonus, profit sharing, pension or other similar
contracts or arrangements wholly or partly for the benefit of
trustees or officers of the Registrant in their capacity as such;
any such plan that is not set forth in a formal document, furnish a
reasonably detailed description thereof;
Not Applicable
(8) copies of all custodian agreements and depository contracts under
Section 17(f) of the Investment Company Act of 1940 (the "1940
Act"), with respect to securities and similar investments of the
Registrant, including the schedule of 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
Incorporated herein by reference to:
Registrant: Franklin Asset Allocation Fund
Filing: Post-Effective Amendment No. 55 to Registration on Form
N-1A
File No. 2-12647
Filing Date: May 17, 1996
(iii)Master Custodian Agreement between the Registrant and Bank of New
York dated February 16, 1996
Filing: Post-Effective Amendment No. 11 to Registration Statement
on Form N-1A
File No. 33-31326
Filing Date: March 8, 1996
(iv) Terminal Link Agreement between the Registrant and Bank of New
York dated February 16, 1996
Filing: Post-Effective Amendment No. 11 to Registration Statement
on Form N-1A
File No. 33-31326
Filing Date: March 8, 1996
(9) copies of all other material contracts not made in the ordinary
course of business which are to be performed in whole or in part at
or after the date of filing the Registration Statement;
Not Applicable
(10) an opinion and consent of counsel as to the legality of the
securities being registered, indicating whether they will when sold
be legally issued, fully paid and nonassessable;
Not Applicable
(11) copies of any other opinions, appraisals or rulings and consents to
the use thereof relied on in the preparation of this registration
statement and required by Section 7 of the 1933 Act;
(i) Consent of Independent Auditors
(12) all financial statements omitted from Item 23;
Not Applicable
(13) copies of any agreements or understandings made in consideration for
providing the initial capital between or among the Registrant, the
underwriter, adviser, promoter or initial stockholders and written
assurances from promoters or initial stockholders that their
purchases were made for investment purposes without any present
intention of redeeming or reselling;
(i) 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)Letter of Understanding relating to Initial Capital of Franklin
Value Fund
Filing: Post-Effective Amendment No. 11 to Registration Statement
on Form N-1A
File No. 33-31326
Filing Date: March 8, 1996
(iv) Letter of Understanding relating to Initial Capital of Franklin
Value Fund dated August 30, 1996
Filing: Post-Effective Amendment No. 13 to Registration Statement
on Form N-1A
File No. 33-31326
Filing Date: August 7, 1996
(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/Templeton 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) 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
Filing: Post-Effective Amendment No. 9 to Registration Statement
on Form N-1A
File No. 33-31326
Filing Date: December 26, 1995
(iii)Distribution Plan Pursuant to Rule 12b-1 between Franklin Value
Fund and Franklin/Templeton Distributors, Inc., dated March 11,
1996
Filing: Post-Effective Amendment No. 9 to Registration Statement
on Form N-1A
File No. 33-31326
Filing Date: December 26, 1995
(iv) Class II Distribution Plan between Franklin Value Investors Trust
on behalf of Franklin Value Fund and Franklin/Templeton
Distributors, Inc., dated September 3, 1996
(16) schedule for computation of each performance quotation provided in
the registration statement in response to Item 22.
Not Applicable
(17) Power of Attorney
(i) Power of Attorney dated December 11, 1995
Filing: Post-Effective Amendment No. 9 to Registration Statement
on Form N-1A
File No. 33-31326
Filing Date: December 26, 1995
(ii) Certificate of Secretary dated December 11, 1995
Filing: Post-Effective Amendment No. 9 to Registration Statement
on Form N-1A
File No. 33-31326
Filing Date: December 26, 1995
(18) Copies of any plan entered into by registrant pursuant to Rule 18f-3
under the 1940 Act
(i) Multiple Class Plan for Franklin Value Fund
ITEM 25 PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None
ITEM 26 NUMBER OF HOLDERS OF SECURITIES
As of October 31, 1996 the number of record holders of the only classes of
securities of the Registrant was as follows:
NUMBER OF RECORD HOLDERS
TITLE OF CLASS
CLASS I CLASS II
Franklin Balance Sheet Investment Fund 36,203 N/A
Franklin MicroCap Value Fund 11,452 N/A
Franklin Value Fund 609 33
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 manager also serve as officers
and/or directors for (1) the manager's corporate parent, Franklin Resources,
Inc., and/or (2) other investment companies in the Franklin Group of Funds(R).
In addition, Mr. Charles B. Johnson is a director of General Host Corporation.
For additional information please see Part B and Schedules A and D of Form ADV
of the Registrant's Investment Manager (SEC File 801-51967), incorporated herein
by reference, which sets forth the officers and directors of the Investment
Manager and information as to any business, profession, vocation or employment
of a substantial nature engaged in by those officers and directors during the
past two years.
ITEM 29 PRINCIPAL UNDERWRITERS
a) Franklin/Templeton Distributors, Inc., ("Distributors") also acts as
principal underwriter of shares of:
Franklin Asset Allocation Fund
Franklin California Tax-Free Income Fund, Inc.
Franklin California Tax-Free Trust
Franklin Custodian Funds, Inc.
Franklin Equity Fund
Franklin Federal Money Fund
Franklin Federal Tax-Free Income Fund
Franklin Gold Fund
Franklin High Income Trust
Franklin Investors Securities Trust
Franklin Managed Trust
Franklin Money Fund
Franklin Mutual Series Fund Inc.
Franklin Municipal Securities Trust
Franklin New York Tax-Free Income Fund, Inc.
Franklin New York Tax-Free Trust
Franklin Real Estate Securities Trust
Franklin Strategic Mortgage Portfolio
Franklin Strategic Series
Franklin Tax-Advantaged High Yield Securities Fund
Franklin Tax-Advantaged International Bond Fund
Franklin Tax-Advantaged U.S. Government Securities Fund
Franklin Tax-Exempt Money Fund
Franklin Tax-Free Trust
Franklin Templeton Global Trust
Franklin Templeton International Trust
Franklin Templeton Money Fund Trust
Institutional Fiduciary 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 Global Real Estate Fund
Templeton Global Smaller Companies Fund, Inc.
Templeton Growth Fund, Inc.
Templeton Income Trust
Templeton Institutional Funds, Inc.
Templeton Variable Products Series Fund
(b) The information required by this Item 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 Registrant 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 Registrant's annual report and to furnish each person
to whom a prospectus is delivered a copy of the annual report upon request
and without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Post-Effective Amendment to its
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Amendment to its Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized in the City of San
Mateo and the State of California, on the 30th day of December, 1996.
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 30, 1996
MARTIN L. FLANAGAN* Principal Financial Officer
Martin L. Flanagan Dated: December 30, 1996
DIOMEDES LOO-TAM* Principal Accounting Officer
Diomedes Loo-Tam Dated: December 30, 1996
FRANKLIN T. CROHN* Trustee
Franklin T. Crohn Dated: December 30, 1996
CHARLES RUBENS, II* Trustee
Charles Rubens, II Dated: December 30, 1996
LEONARD RUBIN* Trustee
Leonard Rubin Dated: December 30, 1996
*By /s/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 on behalf of Franklin *
Balance Sheet Investment Fund and Franklin
Advisory Services, Inc., dated July 1, 1996
EX-99.B5(ii) Management Agreement on behalf of Franklin *
MicroCap Value Fund and Franklin Advisory
Services, Inc., dated July 1, 1996
EX-99.B5(iii) Form of Management Agreement on behalf of *
Franklin Value Fund and Franklin Advisory
Services, Inc., dated July 1, 1996
EX-99.B6(i) Amended and Restated Distribution Agreement *
between Registrant and Franklin/Templeton
Distributors, Inc., dated April 23, 1995
EX-99.B6(ii) Forms of Dealer Agreements between Registrant *
and Franklin/Templeton Distributors, Inc.
EX-99.B8(i) Custodian Agreement between Registrant and Bank *
of America dated June 12, 1991
EX-99.B8(ii) Copy of Custodian Agreement between Registrant *
and Citibank Delaware
EX-99.B8(iii) Master Custodian Agreement between Registrant *
and Bank of New York dated February 16, 1996
EX-99.B8(iv) Terminal Link Agreement between Registrant and *
Bank of New York dated February 16, 1996
EX-99.11(i) Consent of Independent Auditors Attached
EX-99.13(i) Letter of Understanding relating to Initial *
Capital of Franklin Balance Sheet Investment
Fund dated November 17, 1989
EX-99.13(ii) Letter of Understanding relating to Initial *
Capital of Franklin MicroCap Value Fund dated
November 29, 1995
EX-99.13(iii) Letter of Understanding relating to Initial *
Capital of Franklin Value Fund
EX-99.13(iv) Letter of Understanding relating to Initial *
Capital of Franklin Value Fund dated August 30,
1996
EX-99.14(i) Copy of Model Retirement Plan *
EX-99.15(i) Amended and Restated Distribution Plan between *
Franklin Balance Sheet Investment Fund and
Franklin/Templeton Distributors, Inc., pursuant
to Rule 12b-1 dated July 1, 1993
EX-99.15(ii) 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
EX-99.15(iii) Distribution Plan Pursuant to Rule 12b-1 between *
Franklin Value Fund and Franklin/Templeton
Distributors, Inc., dated March 11, 1996
EX-99.15(iv) Class II Distribution Plan between Franklin Attached
Value Investors Trust on behalf of Franklin
Value Fund and Franklin/Templeton Distributors,
Inc.
EX-99.17(i) Power of Attorney dated December 11, 1995 *
Ex-99.17(ii) Certificate of Secretary dated December 11, 1995 *
EX-99.18(i) Multiple Class Plan for Franklin Value Fund Attached
*Incorporated by Reference
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Post-Effective Amendment No. 15
to the Registration Statement of Franklin Value Investors Trust on Form N-1A
File Nos. 33-31326 and 811-5878 of our report dated March 5, 1996 on our audit
of the Statement of Assets and Liabilities of Franklin Value Fund, which report
is included in the Registration Statement.
/s/Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
San Francisco, California
December 20, 1996
CLASS II DISTRIBUTION PLAN
I. Investment Company: FRANKLIN VALUE INVESTORS TRUST
II. Fund: FRANKLIN VALUE FUND - Class II
III. Maximum Per Annum Rule 12b-1 Fees for Class II Shares
(as a percentage of average daily net assets of the class)
A. Distribution Fee: 0.75%
B. Service Fee: 0.25%
PREAMBLE TO CLASS II DISTRIBUTION PLAN
The following Distribution Plan (the "Plan") has been adopted pursuant to
Rule 12b-1 under the Investment Company Act of 1940 (the "Act") by the
Investment Company named above ("Investment Company") for the class II shares
(the "Class") of Fund named above ("Fund"), which Plan shall take effect as of
the date class II shares are first offered (the "Effective Date of the Plan").
The Plan has been approved by a majority of the Board of Trustees 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
and Franklin Advisers, Inc. and the terms of the Underwriting Agreement between
the Investment Company and Franklin/Templeton Distributors, Inc.
("Distributors"). The Board concluded that the compensation of Advisers, under
the Management Agreement, and of Distributors, under the Underwriting Agreement,
was fair and not excessive. The approval of the Plan included a determination
that in the exercise of their reasonable business judgment and in light of their
fiduciary duties, there is a reasonable likelihood that the Plan will benefit
the Fund and its shareholders.
DISTRIBUTION PLAN
1. (a) The Fund shall pay to Distributors a monthly fee not to exceed the
above-stated maximum distribution fee per annum of the Class' average daily net
assets represented by shares of the Class, as may be determined by the Board
from time to time.
(b) In addition to the amounts described in (a) above, the Fund shall
pay (i) to Distributors for payment to dealers or others, or (ii) directly to
others, an amount not to exceed the above-stated maximum service fee per annum
of the Class' average daily net assets represented by shares of the Class, as
may be determined by the Fund's Board from time to time, as a service fee
pursuant to servicing agreements which have been approved from time to time by
the Board, including the non-interested Board members.
2. (a) Distributors shall use the monies paid to it pursuant to Paragraph
1(a) above to assist in the distribution and promotion of shares of the Class.
Payments made to Distributors under the Plan may be used for, among other
things, the printing of prospectuses and reports used for sales purposes,
expenses of preparing and distributing sales literature and related expenses,
advertisements, and other distribution-related expenses, including a pro-rated
portion of Distributors' overhead expenses attributable to the distribution of
Class shares, as well as for additional distribution fees paid to securities
dealers or their firms or others who have executed agreements with the
Investment Company, Distributors or its affiliates, which form of agreement has
been approved from time to time by the Trustees, including the non-interested
trustees. In addition, such fees may be used to pay for advancing the commission
costs to dealers or others with respect to the sale of Class shares.
(b) The monies to be paid pursuant to paragraph 1(b) above shall be
used to pay dealers or others for, among other things, furnishing personal
services and maintaining shareholder accounts, which services include, among
other things, assisting in establishing and maintaining customer accounts and
records; assisting with purchase and redemption requests; arranging for bank
wires; monitoring dividend payments from the Fund on behalf of customers;
forwarding certain shareholder communications from the Fund to customers;
receiving and answering correspondence; and aiding in maintaining the investment
of their respective customers in the Class. Any amounts paid under this
paragraph 2(b) shall be paid pursuant to a servicing or other agreement, which
form of agreement has been approved from time to time by the Board.
3. In addition to the payments which the Fund is authorized to make
pursuant to paragraphs 1 and 2 hereof, to the extent that the Fund, Advisers,
Distributors or other parties on behalf of the Fund, Advisers or Distributors
make payments that are deemed to be payments by the Fund for the financing of
any activity primarily intended to result in the sale of Class shares issued by
the Fund within the context of Rule 12b-1 under the Act, then such payments
shall be deemed to have been made pursuant to the Plan.
In no event shall the aggregate asset-based sales charges which include
payments specified in paragraphs 1 and 2, plus any other payments deemed to be
made pursuant to the Plan under this paragraph, exceed the amount permitted to
be paid pursuant to 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 a 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 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 1 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
Fund's non-interested Board members shall be committed to the discretion of such
non-interested Board members.
This Plan and the terms and provisions thereof are hereby accepted and
agreed to by the Investment Company and Distributors as evidenced by their
execution hereof.
Date: 9/3/96
Franklin Value Investors Trust
By: /s/WILLIAM J. LIPPMAN
William J. Lippman
President
Franklin/Templeton Distributors, Inc.
By: /S/HARMON E. BURNS
Harmon E. Burns
Executive Vice President
FRANKLIN VALUE FUND
Multiple Class Plan
This Multiple Class Plan (the "Plan") has been adopted by a majority of
the Board of Trustees of Franklin Value Investors Trust (the "Investment
Company") for its series, Franklin Value Fund (the "Fund"). The Board has
determined that the Plan is in the best interests of each class of the Fund and
the Investment Company as a whole. The Plan sets forth the provisions relating
to the establishment of multiple classes of shares of the Fund.
1. The Fund shall offer three classes of shares, to be known as Class I,
Class II shares and Class Z shares.
2. Class I Shares shall carry a front-end sales charge ranging from 0% -
4.50 %, and Class II Shares shall carry a front-end sales charge of 1.00%. Class
Z Shares shall not be subject to any front-end sales charges.
3. Class I Shares shall not be subject to a contingent deferred sales
charge ("CDSC") except in the following limited circumstances. On investments of
$1 million or more, a contingent deferred sales charge of 1.00% of the lesser of
the then-current net asset value or the original net asset value at the time of
purchase applies to redemptions of those investments within the contingency
period of 12 months from the calendar month following their purchase. The CDSC
is waived in certain circumstances, as described in the Fund's prospectus.
Class II Shares redeemed within 18 months of their purchase shall be
assessed a CDSC of 1.00% on the lesser of the then-current net asset value or
the original net asset value at the time of purchase. The CDSC is waived in
certain circumstances as described in the Fund's prospectus.
Class Z Shares shall not be subject to any CDSC.
4. The distribution plan adopted by the Investment Company pursuant to
Rule 12b-1 under the Investment Company Act of 1940, as amended, (the "Rule
12b-1 Plan") associated with the Class I Shares may be used to reimburse
Franklin Templeton Distributors, Inc. (the "Distributor") or others for expenses
incurred in the promotion and distribution of the Class I Shares. Such expenses
include, but are not limited to, the printing of prospectuses and reports used
for sales purposes, expenses of preparing and distributing sales literature and
related expenses, advertisements, and other distribution-related expenses,
including a prorated portion of the Distributor's overhead expenses attributable
to the distribution of the Class I Shares, as well as any distribution or
service fees paid to securities dealers of their firms or others who have
executed a servicing agreement with the Investment Company for the Class I
Shares, the Distributor or its affiliates.
The Rule 12b-1 Plan associated with the Class II Shares has two
components. The first component is a shareholder servicing fee, to be paid to
broker-dealers, banks, trust companies and others who provide personal
assistance to shareholders in servicing their accounts. The second component is
an asset-based sales charge to be retained by the Distributor during the first
year after the sale of shares, and in subsequent years, to be paid to dealers or
retained by the Distributor to be used in the promotion and distribution of
Class II Shares, in a manner similar to that described above for Class I Shares.
No Rule 12b-1 Plan has been adopted on behalf of the Class Z Shares, and
therefore, the Class Z Shares shall not be subject to deductions relating to
rule 12b-1 fees.
The Rule 12b-1 Plans for the Class I and Class II Shares shall operate in
accordance with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., Article III, section 26(d).
5. The only difference in expenses as between Class I, Class II, and Class
Z Shares shall relate to differences in the Rule 12b-1 plan expenses of each
class, as described in the applicable Rule 12b-1 Plans.
6. There shall be no conversion features associated with the Class I,
Class II, and Class Z Shares.
7. Shares of Class I and Class II may be exchanged for shares of another
investment company within the Franklin Templeton Group of Funds according to the
terms and conditions stated in each fund's prospectus, as it may be amended from
time to time, to the extent permitted by the Investment Company Act of 1940 and
the rules and regulations adopted thereunder. There is no conversion feature
applicable to Class Z Shares.
8. Each class will vote separately with respect to any Rule 12b-1 Plan
related to that class.
9. On an ongoing basis, the Board members, pursuant to their fiduciary
responsibilities under the 1940 Act and otherwise, will monitor the Fund for the
existence of any material conflicts between the Board members interests of the
various classes of shares. The Board members, including a majority of the
independent Board members, shall take such action as is reasonably necessary to
eliminate any such conflict that may develop. Franklin Advisers, Inc. and
Franklin Templeton Distributors, Inc. shall be responsible for alerting the
Board to any material conflicts that arise.
10. All material amendments to this Plan must be approved by a majority of
the Board members, including a majority of the Board members who are not
interested persons of the Investment Company.
11. I, Deborah R. Gatzek, Secretary of the Franklin Templeton Group of
Funds, do hereby certify that this Multiple Class Plan was adopted by Franklin
Value Investors Trust, on behalf of its series Franklin Value Fund, by a
majority of the Trustees of the Trust on June 12, 1996.
/S/DEBORAH R. GATZEK
Deborah R. Gatzek
Secretary
