As filed with the Securities and Exchange Commission on March 14, 1996
File Nos.
33-39088
811-6243
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. 18 (X)
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 21 (X)
FRANKLIN STRATEGIC SERIES
(Exact Name of Registrant as Specified in Charter)
777 MARINERS ISLAND BOULEVARD, SAN MATEO, CA 94404
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (415) 312-2000
Harmon E. Burns, 777 Mariners Island Blvd., San Mateo, CA 94404
(Name and Address of Agent for Service of Process)
Approximate Date of Proposed Public Offering:
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
[x] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii) of rule 485
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Declaration Pursuant to Rule 24f-2. The issuer has registered an indefinite
number or amount of securities under the Securities Act of 1933 pursuant to
Section 24f-2 under the Investment Company Act of 1940. The Rule 24f-2
Notice for the issuer's most recent fiscal year was filed on June 27, 1995.
FRANKLIN STRATEGIC SERIES
CROSS REFERENCE SHEET
FORM N-1A
Part A: Information Required in the Prospectus
(Franklin Blue Chip Fund)
N-1A Location in
Item No. Item Registration Statement
1. Cover Page Cover Page
2. Synopsis Expense Table
3. Condensed Financial "How Does the Fund Measure
Information Performance?"
4. General Description "What Is the Franklin Blue Chip
Fund?"; "How Does the Fund
Invest Its Assets?"; "What Are
the Fund's Potential Risks?";
"General Information"
5. Management of the Fund "Who Manages the Fund?";
5A. Management's Discussion of Not Applicable
Fund Performance
6. Capital Stock and Other "What Distributions Might I
Securities Receive From the Fund?"; "How
Taxation Affects You and the
Fund?"; "How Do I Get More
Information About My
Investment?"; "General
Information"
7. Purchase of Securities Being "How Do I Buy Shares?"; "What
Offered Programs and Privileges Are
Available to Me as a
Shareholder?"; "What If My
Investment Outlook
Changes?-Exchange Privilege";
"Telephone Transactions"; "How
Are Fund Shares Valued?"
8. Redemption or Repurchase "What If My Investment Outlook
Changes?-Exchange Privilege";
"How Do I Sell Shares?";
"Telephone Transactions"; "How
Do I Get More Information About
My Investment?"; "General
Information"
9. Pending Legal Proceedings Not Applicable
FRANKLIN STRATEGIC SERIES
CROSS REFERENCE SHEET
FORM N-1A
Part B: Information Required in the
Statement of Additional Information
(Franklin Blue Chip Fund)
N-1A Location in
Item No. Item Registration Statement
10. Cover Page Cover Page
11. Table of Contents Contents
12. General Information and "General Information"
History
13. Investment Objectives and "How Does the Fund Invest Its
Policies Assets?"; "Investment
Restrictions"
14. Management of the Fund "Officers and Trustees";
"Investment Advisory and Other
Services"
15. Control Persons and "Officers and Trustees";
Principal Holders of "Investment Advisory and Other
Securities Services"; "General Information"
16. Investment Advisory and "Investment Advisory and Other
Other Services Services"
17. Brokerage Allocation "How Does the Fund Purchase
Securities for Its Portfolio?"
18. Capital Stock and Other "How Do I Buy and Sell Shares?";
Securities "How Are Fund Shares Valued?"
19. Purchase, Redemption and "How Do I Buy and Sell Shares?"
Pricing of Securities
20. Tax Status "Additional Information
Regarding Taxation"
21. Underwriters "The Fund's Underwriter"
22. Calculation of Performance "General Information"
Data
23. Financial Statements Not Applicable
FRANKLIN BLUE CHIP FUND
FRANKLIN STRATEGIC SERIES
PROSPECTUS
MAY 28, 1996
777 MARINERS ISLAND BLVD., P.O. BOX 7777
SAN MATEO, CA 94403-7777 1-800/DIAL BEN
The Franklin Blue Chip Fund (the "Fund") is a diversified series of Franklin
Strategic Series (the "Trust"), an open-end management investment company.
The Fund's investment objective is capital appreciation. In seeking to meet
this objective, the Fund primarily invests in equity securities of blue chip
companies. Blue chip companies are well-established companies with a long
record of revenue growth and profitability. These companies generally
dominate their respective markets, and have a reputation for quality
management, as well as superior products and services. Blue chip companies
also tend to have relatively large capitalization. The Fund may invest in
both domestic and foreign securities, as described under "How Does the Fund
Invest Its Assets?" The Fund may also seek current income incidental to
long-term capital appreciation, although this is not an objective of the Fund.
This Prospectus is intended to set forth in a clear and concise manner
information about the Fund that you should know before investing. After
reading the Prospectus, you should retain it for future reference; it
contains information about the purchase and sale of shares and other items
which you will find useful.
An SAI concerning the Fund, dated May 28, 1996, as may be amended from time
to time, provides a further discussion of certain areas in this Prospectus
and other matters which may be of interest to you. It has been filed with the
SEC and is incorporated herein by reference. A copy is available without
charge from the Fund or Distributors, at the address or telephone number
shown above.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK; FURTHER, SUCH SHARES ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY
OTHER AGENCY. SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
THIS PROSPECTUS IS NOT AN OFFERING OF THE SECURITIES HEREIN DESCRIBED IN ANY
STATE IN WHICH THE OFFERING IS NOT AUTHORIZED. NO SALES REPRESENTATIVE,
DEALER, OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS. FURTHER
INFORMATION MAY BE OBTAINED FROM THE UNDERWRITER.
CONTENTS PAGE
Expense Table
What Is the Franklin Blue Chip Fund?
How Does the Fund Invest Its Assets?
What Are the Fund's Potential Risks?
How You Participate in the Results of the Fund's Activities
Who Manages the Fund?
What Distributions Might I Receive from the Fund?
How Taxation Affects You and the Fund
How Do I Buy Shares?
What Programs and Privileges Are Available to Me as a Shareholder?
What If My Investment Outlook Changes? - Exchange Privilege
How Do I Sell Shares?
Telephone Transactions
How Are Fund Shares Valued?
How Do I Get More Information About My Investment?
How Does the Fund Measure Performance?
General Information
Registering Your Account
Important Notice Regarding Taxpayer IRS Certifications
Useful Terms and Definitions
EXPENSE TABLE
The purpose of this table is to assist you in understanding the various costs
and expenses that you will bear directly or indirectly in connection with an
investment in the Fund. These figures are based on contractual management and
Rule 12b-1 fees and estimates of the other operating expenses of the Fund for
the current fiscal year.
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) 4.50%
Deferred Sales Charge None+
Exchange Fee (per transaction) $5.00*
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees 0.57%**
Rule 12b-1 Fees 0.35%***
Other Expenses:
Shareholder servicing costs 0.10%
Reports to shareholders 0.12%
Other 0.11%
-----
Total Other Expenses 0.33%
Total Fund Operating Expenses 1.25%**
+Investments of $1 million or more are not subject to a front-end sales
charge; however, a contingent deferred sales charge of 1% is generally
imposed on certain redemptions within a "contingency period" of 12 months of
the calendar month of such investments. See "How Do I Sell Shares? -
Contingent Deferred Sales Charge."
*$5.00 fee imposed only on Market Timers as described under "What If My
Investment Outlook Changes? - Exchange Privilege." All other exchanges are
processed without a fee.
**The Manager has agreed in advance to waive a portion of its management fee
and to make certain payments to reduce expenses of the Fund so that the
Fund's aggregate annual operating expenses do not exceed 1.25% of the Fund's
average net assets for the current fiscal year. Absent this reduction,
management fees and total operating expenses would have represented 0.75% and
1.43%, respectively, of the Fund's average net assets. After April 30, 1997,
the Manager may terminate this arrangement at any time.
***Consistent with National Association of Securities Dealers, Inc.'s rules,
it is possible that the combination of front-end sales charges and Rule 12b-1
fees could cause long-term shareholders to pay more than the economic
equivalent of the maximum front-end sales charges permitted under those same
rules.
You should be aware that the above table is not intended to reflect in
precise detail the fees and expenses associated with an investment in the
Fund. Rather, the table has been provided only to assist you in gaining a
more complete understanding of fees, charges and expenses. For a more
detailed discussion of these matters, you should refer to the appropriate
sections of this Prospectus.
EXAMPLE
As required by SEC regulations, the following example illustrates the
expenses, including the maximum front-end sales charge, that apply to a
$1,000 investment in the Fund over various time periods assuming (1) a 5%
annual rate of return and (2) redemption at the end of each time period.
ONE YEAR THREE YEARS
$57* $83
*Assumes that a contingent deferred sales charge will not apply.
THIS EXAMPLE IS BASED ON THE AGGREGATE ANNUAL OPERATING EXPENSES SHOWN ABOVE
AND SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES,
WHICH MAY BE MORE OR LESS THAN THOSE SHOWN. The operating expenses are borne
by the Fund and only indirectly by you as a result of your investment in the
Fund. See "Who Manages the Fund?" for a description of the Fund's expenses.
In addition, federal securities regulations require the example to assume an
annual return of 5%, but the Fund's actual return may be more or less than 5%.
WHAT IS THE FRANKLIN BLUE CHIP FUND?
The Fund is a diversified series of the Trust, an open-end management
investment company commonly called a "mutual fund." The Trust was organized
as a Delaware business trust on January 25, 1991, and registered with the SEC
under the 1940 Act. Shares of the Fund may be considered Class I shares, as
described under "Useful Terms and Definitions," for redemption, exchange and
other purposes. The Fund reserves the right to convert to a master/feeder
structure at a future date. Please see "General Information - Conversion to
Master/Feeder Structure."
HOW DOES THE FUND INVEST ITS ASSETS?
THE FUND'S INVESTMENT OBJECTIVE
The Fund's investment objective is capital appreciation. 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.
The Fund may also seek current income incidental to long-term capital
appreciation, although this is not an objective of the Fund. Unless otherwise
noted, the Fund's investment policies discussed below are not fundamental
policies. This means they may be changed without shareholder approval.
TYPES OF SECURITIES THE FUND MAY PURCHASE
Blue Chip Equity Securities. Under normal market conditions, the Fund invests
at least 80%, and intends to invest up to 100%, of its total assets in a
diversified portfolio of equity securities of "blue chip companies." Blue
chip companies are well-established companies with a long record of revenue
growth and profitability. These companies generally dominate their respective
markets, and have a reputation for quality management, as well as superior
products and services. Blue chip companies also tend to have relatively large
capitalization.
When selecting securities for the Fund's portfolio, the Manager tries to
identify quality blue chip companies based on a number of criteria.
Specifically, the Manager looks for companies that are leaders in their
industry with a dominant market position and a sustainable competitive
advantage. The Manager also looks for companies that exhibit consistent
growth, a strong financial record, and market capitalization of more than $1
billion. The Fund intends to invest in a portfolio that is diversified across
a large number of industries.
The types of equity securities the Fund may buy include common stock,
warrants to buy common stock, and securities convertible into common stock.
Although the Fund may invest without limit in any of these types of
securities, it intends to invest primarily in common stock. For a description
of warrants and convertible securities, please see the discussion below.
Foreign Securities. The Fund seeks investment opportunities across all
markets in the world. Accordingly, the Fund may invest without limit in the
equity securities of blue chip companies located outside the U.S. This may
include companies in either developed or emerging markets, as certain
companies in emerging markets meet all the criteria of a blue chip company.
The amount of the Fund's assets invested in foreign securities may vary over
time depending on the Manager's outlook.
The Fund may buy foreign securities traded in the U.S. or directly in foreign
markets. The Fund may also invest in foreign securities through American
Depositary Receipts ("ADRs"). ADRs are certificates issued by U.S. banks.
They give their holders the right to receive the securities of a foreign
issuer deposited with the bank or a correspondent bank. The Fund may buy both
sponsored and unsponsored ADRs.
Foreign securities have risks that U.S. securities do not have. For more
information about foreign securities and their risks, please see "What Are
the Fund's Potential Risks?"
Convertible Securities and Warrants. The Fund may invest in convertible
securities and warrants without limit. It currently intends, however, to
limit these investments to no more than 5% of its net assets. A convertible
security is generally a debt obligation or a 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 may also be
subject to redemption by the issuer but only after a specified date and under
circumstances established at the time the security is issued. Convertible
securities provide a fixed-income stream and the opportunity, through their
conversion feature, to participate in any capital appreciation resulting from
a market price advance in the convertible security's underlying common stock.
A warrant gives its holder the right to buy newly created securities of the
issuer of the warrant, or a related company, at a set price. The warrant
usually allows its holder to buy the new security on a specific date or
during a set period of time. If a warrant is not used or sold by its holder,
it expires worthless.
Futures and Options. The Fund may buy or sell futures contracts for
securities and currencies. A futures contract is an obligation to buy or sell
a specified security or currency at a set price on a specified future date.
The Fund may invest in futures contracts only to hedge against changes in the
value of its securities or currencies or those it intends to buy. The Fund
will not enter into a futures contract if the amounts paid for its open
contracts, including required initial deposits, would exceed 5% of the Fund's
net assets.
For hedging purposes only, the Fund may buy or write put and call options on
securities listed on a national securities exchange. The options themselves
may be traded on an exchange or over-the-counter. An option on a security
allows its holder to buy a specified security (a call option) or to sell a
specified security (a put option) from or to the writer of the option at a
set price during the term of the option. All options written by the Fund will
be covered, as discussed in the SAI. The Fund will not buy an option if the
amounts paid for its open option positions exceed 5% of its net assets.
Futures and options are generally considered derivative securities. They may
not always be successful hedges. For a further discussion of these
securities, including their risks and special tax considerations that may
apply, please see the SAI.
OTHER INVESTMENT POLICIES OF THE FUND
Repurchase Agreements. In a repurchase transaction, the Fund buys a U.S.
government security subject to resale to a bank or dealer at an agreed-upon
price and date. The seller's obligation is secured 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.
The value of the underlying securities is marked-to-market daily to maintain
coverage of at least 100%. If the seller defaults, the Fund may experience a
loss or delay when it tries to sell the securities securing the repurchase
agreement and may have to pay disposition costs. The Fund, however, intends
to enter into repurchase agreements only with financial institutions, such as
broker-dealers and banks, that the Manager believes are creditworthy.
A repurchase agreement is considered a loan by the Fund under the 1940 Act.
The U.S. government security subject to resale (the collateral) will be held
on behalf of the Fund by a custodian approved by the Board and will be held
pursuant to a written agreement.
Short-Term Investments. Occasionally, pending investment of proceeds from new
sales of the Fund or for cash management or temporary defensive purposes, the
Fund may hold cash or invest in high quality money market instruments of U.S.
and foreign issuers. These include government securities, commercial paper,
bank certificates of deposit, bankers' acceptances and repurchase agreements
secured by any of these instruments. Any of these securities purchased by the
Fund will either be rated "A1" or "A2" by S&P or "P1" or "P2" by Moody's or
unrated but of comparable quality. It is impossible to predict when or for
how long the Fund would employ these strategies.
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 these loans do not exceed one-third 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 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.
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 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.
Borrowing. As a fundamental policy, the Fund does not borrow money or
mortgage or pledge any of its assets, except it may borrow up to 15% of its
total assets (including the amount borrowed) 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 with these borrowings. The Fund will not make any additional
investments while borrowings exceed 5% of its total assets.
When-Issued and Standby Commitment Purchases. The Fund may buy equity
securities on a "when-issued" or "delayed delivery" basis. These transactions
are arrangements whereby the Fund buys securities with payment and delivery
scheduled for a future time, generally within 15 to 60 days. The Fund may
also buy equity securities under a standby commitment agreement. If the Fund
enters into a standby commitment agreement, it will be obligated, for a set
period of time, to buy a certain amount of a security that may be issued and
sold to the Fund at the option of the issuer. The price and interest rate of
the security is set at the time of the agreement. The Fund will receive a
commitment fee typically equal to 0.5% of the purchase price of the security.
The Fund will receive this fee regardless of whether the security is actually
issued.
Currency Transactions. In connection with the Fund's investment in foreign
securities, it may hold currencies other than the U.S. dollar and enter into
forward currency exchange transactions to facilitate settlements and to
protect against changes in exchange rates. In a forward currency transaction,
the Fund agrees to buy or sell a foreign currency at a set exchange rate.
Payment and delivery of the currency occurs on a future date. There is no
assurance that these strategies will be successful. The Fund's investment in
foreign currencies and forward currency exchange transactions will not exceed
10% of its net assets. The Fund may also enter into futures contracts for
currencies as discussed above.
Illiquid Investments. The Fund may not invest more than 10% of its net
assets, at the time of purchase, in illiquid securities. Illiquid securities
are 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.
Restricted Securities. The Board has authorized the Fund to invest in
restricted securities, if consistent with the Fund's investment objective.
Restricted securities are not registered with the SEC. If the Manager
determines on a daily basis that there is a liquid institutional or other
market for these securities, the Board has authorized them to be considered
liquid securities and not subject to the Fund's policy on illiquid
investments. Notwithstanding the Manager's determination, the Board remains
responsible for liquidity determinations and will consider appropriate action
if a restricted security becomes illiquid after its purchase. In this regard,
if qualified institutional buyers are no longer interested in buying
restricted securities that were previously considered liquid or if the market
for these securities contracts, they will be redesignated illiquid securities
and subject to the Fund's illiquid investment policy. This may reduce the
general level of liquidity in the Fund.
Portfolio Turnover. The Fund anticipates its annual portfolio turnover rate
generally will not exceed 50%, but you should not consider this rate a
limiting factor in the operation of the Fund's portfolio.
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 Restrictions. The Fund is subject to a number of additional investment
restrictions. Some of these restrictions may be changed only with shareholder
approval. For a list of these restrictions and more information about the
investment policies discussed above, please see "How Does the Fund Invest Its
Assets?" and "Investment Restrictions" in the SAI.
WHAT ARE THE FUND'S POTENTIAL RISKS?
The Fund is designed for long-term investors and not as a trading vehicle.
Before investing in the Fund, you should take into account your overall
financial plan, as well as how this Fund could aid in achieving your
investment objective.
Although the Fund invests primarily in quality blue chip securities, the Fund
is not restricted geographically in its security selection. The Manager
believes this can improve the Fund's ability to meet its objective of capital
appreciation, as many of today's quality industry leaders are domiciled
outside the U.S. You should consider the risks of foreign securities before
buying shares of the Fund.
While foreign securities are subject to many of the same influences as U.S.
securities, such as general economic conditions and individual company and
industry earnings prospects, they involve additional risks that can increase
the potential for losses in the Fund. These risks can be significantly
greater for investments in emerging markets.
Currency fluctuations. The Fund's investments may be denominated in foreign
currencies. Fluctuations in foreign exchange rates may significantly increase
or decrease the value of the Fund's foreign investments. These fluctuations
may increase or offset any return on the underlying investment.
Costs. It is more expensive for the Fund to trade in foreign markets than in
the U.S. Brokerage and custodial costs are often higher, as are other costs.
While the Fund offers an efficient way for you to invest in quality blue chip
companies across the world, its overall expense ratio may be higher than
funds investing exclusively in U.S. securities.
Political and Economic Factors. The political, economic and social structures
of some countries in which the Fund invests may not compare favorably with
the U.S. and may be less stable and more volatile. The risks of investing in
these countries include the possibility of the imposition of exchange
controls, expropriation, restrictions on removal of currency or other assets,
nationalization of assets, and punitive taxes.
Legal, Regulatory and Operational Factors. There may be less publicly
available information about a foreign company than about a U.S. company.
Certain countries may not have uniform accounting, auditing and financial
reporting standards and may have less government supervision of financial
markets. Foreign securities markets may have substantially lower trading
volumes than U.S. markets, resulting in less liquidity and more volatility
than experienced in the U.S., and may have settlement practices that result
in delays.
Please see "What Are the Fund's Potential Risks?" in the SAI for more
information on the risks associated with an investment in the Fund.
HOW YOU PARTICIPATE IN THE RESULTS OF THE FUND'S ACTIVITIES
The assets of the Fund are invested in portfolio securities. If the
securities owned by the Fund increase in value, the value of the shares of
the Fund which you own will increase. If the securities owned by the Fund
decrease in value, the value of your shares will also decline. In this way,
you participate in any change in the value of the securities owned by the
Fund.
In addition to the factors which affect the value of individual securities,
as described in the preceding sections, you may anticipate that the value of
Fund shares will fluctuate with movements in the broader equity markets.
A decline in the stock market of any country in which the Fund is invested
may also be reflected in declines in the Fund's share price. Changes in
currency valuations will also affect the price of Fund shares. History
reflects both increases and decreases in worldwide stock markets and currency
valuations and these may reoccur unpredictably in the future.
WHO MANAGES THE FUND?
The Board has the primary responsibility for the overall management of the
Fund and for electing the officers of the Fund who are responsible for
administering its day-to-day operations.
Advisers serves as the Fund's investment manager. Advisers is a wholly-owned
subsidiary of Resources, a publicly owned holding company, the principal
shareholders of which are Charles B. Johnson and Rupert H. Johnson, Jr., who
own approximately 20% and 16%, respectively, of Resources' outstanding
shares. Resources is engaged in various aspects of the financial services
industry through its subsidiaries. Advisers acts as investment manager or
administrator to 36 U.S. registered investment companies (118 separate
series) with aggregate assets of over $80 billion.
The team responsible for the day-to-day management of the Fund's portfolio
since its inception is: Suzanne Willoughby Killea and Shan C. Green.
Suzanne Willoughby Killea
Portfolio Manager of Advisers
Ms. Killea holds a Master of Business Administration degree from Stanford
University and a Bachelor of Arts degree from Princeton University. She has
been with Advisers or an affiliate since earning her MBA degree in 1991. She
is a member of several securities industry-related associations.
Shan C. Green
Portfolio Manager of Advisers
Ms. Green holds a Master of Business Administration degree from the
University of California at Berkeley. She earned her Bachelor of Science
degree from State University of New York at Stony Brook. Ms. Green has been
with Advisers or an affiliate since 1994.
Pursuant to a management agreement, the Manager supervises and implements the
Fund's investment policies and provides certain administrative services and
facilities which are necessary to conduct the Fund's business. The Manager
performs similar services for other funds and there may be times when the
actions taken with respect to the Fund's portfolio will differ from those
taken by the Manager on behalf of other funds. Neither the Manager (including
its affiliates) nor its officers, directors or employees nor the officers and
trustees of the Fund are prohibited from investing in securities held by the
Fund or other funds which are managed or administered by the Manager to the
extent such transactions comply with the Fund's Code of Ethics. Please see
"Investment Advisory and Other Services" and "General Information" in the SAI
for further information on securities transactions and a summary of the
Fund's Code of Ethics.
The Fund is responsible for its own operating expenses including, but not
limited to, the Manager's fee; taxes, if any; custodian, legal and auditing
fees; fees and expenses of trustees who are not members of, affiliated with,
or interested persons of the Manager; salaries of any personnel not
affiliated with the Manager; insurance premiums; trade association dues;
expenses of obtaining quotations for calculating the value of the Fund's net
assets; and printing and other expenses which are not expressly assumed by
the Manager.
Under the management agreement, the Fund is obligated to pay the Manager a
fee computed daily and paid monthly equal to an annual rate of 0.75% of the
Fund's average daily net assets up to and including $500 million; 0.625% of
the Fund's average daily net assets over $500 million up to and including $1
billion; and 0.50% of the Fund's average daily net assets over $1 billion.
During the start-up period of the Fund, Advisers has agreed in advance to
waive a portion of its management fees so that the Fund's aggregate annual
operating expenses do not exceed 1.25% of the Fund's average net assets for
the current fiscal year. After April 30, 1997, Advisers may terminate this
arrangement at any time upon notice to the Board.
The management agreement specifies that the management fee will be reduced to
the extent necessary to comply with the most stringent limits on the expenses
which may be borne by the Fund as prescribed by any state in which the Fund's
shares are offered for sale. Currently, the most restrictive of such
provisions limits a fund's allowable expenses as a percentage of its average
net assets for each fiscal year to 2.5% of the first $30 million in assets,
2% of the next $70 million, and 1.5% of assets in excess of $100 million.
Among the responsibilities of the Manager under the management agreement is
the selection of brokers and dealers through whom transactions in the Fund's
portfolio securities will be effected. The Manager tries to obtain the best
execution on all such transactions. If it is felt that more than one broker
is able to provide the best execution, the Manager will consider the
furnishing of quotations and of other market services, research, statistical
and other data for the Manager and its affiliates, as well as the sale of
shares of the Fund, as factors in selecting a broker. Further information is
included under "How Does the Fund Purchase Securities For Its Portfolio?" in
the SAI.
Shareholder accounting and many of the clerical functions for the Fund are
performed by Investor Services, in its capacity as transfer agent and
dividend-paying agent. Investor Services is a wholly-owned subsidiary of
Resources.
PLAN OF DISTRIBUTION
A plan of distribution has been approved and adopted for the Fund (the
"Plan") pursuant to Rule 12b-1 under the 1940 Act. Under the Plan, the Fund
may reimburse Distributors or others for all expenses incurred by
Distributors or others in the promotion and distribution of the Fund's
shares. Such expenses may include, but are not limited to, the printing of
prospectuses and reports used for sales purposes, expenses of preparing and
distributing sales literature and related expenses, advertisements, and other
distribution-related expenses, including a prorated portion of Distributors'
overhead expenses attributable to the distribution of Fund shares, as well as
any distribution or service fees paid to securities dealers or their firms or
others who have executed a servicing agreement with the Fund, Distributors or
its affiliates.
The amount which the Fund may reimburse Distributors or others for
distribution expenses is 0.25% per annum of its average daily net assets,
payable on a quarterly basis. The Fund is also permitted to pay Distributors
up to an additional 0.10% per annum of its daily net assets for reimbursement
of distribution expenses. All expenses of distribution in excess of 0.35% per
annum will be borne by Distributors, or others who have incurred them,
without reimbursement from the Fund.
The Plan also covers any payments to or by the Fund, Advisers, Distributors,
or other parties on behalf of the Fund, Advisers or Distributors, to the
extent such payments are deemed to be for the financing of any activity
primarily intended to result in the sale of shares issued by the Fund within
the context of Rule 12b-1. The payments under the Plan are included in the
maximum operating expenses which may be borne by the Fund. For more
information, please see "The Fund's Underwriter" in the SAI.
WHAT DISTRIBUTIONS MIGHT I RECEIVE FROM THE FUND?
You may receive two types of distributions from the Fund:
1. Income dividends. The Fund receives income generally in the form of
dividends, interest and other income derived from its investments. This
income, less the expenses incurred in the Fund's operations, is its net
investment income from which income dividends may be distributed. Thus, the
amount of dividends paid per share may vary with each distribution.
2. Capital gain distributions. The Fund may derive capital gains or losses in
connection with sales or other dispositions of its portfolio securities.
Distributions by the Fund derived from net short-term and net long-term
capital gains (after taking into account any net capital loss carryovers) may
generally be made once a year in December to reflect any net short-term and
net long-term capital gains realized by the Fund as of October 31 of the
current fiscal year and any undistributed capital gains from the prior fiscal
year. The Fund may make more than one distribution derived from net
short-term and net long-term capital gains in any year or adjust the timing
of these distributions for operational or other reasons.
DISTRIBUTION DATE
Although subject to change by the Board without prior notice to or approval
by shareholders, the Fund's current policy is to declare income dividends
annually in December for shareholders of record on the first business day
preceding the 15th of that month, payable on or about the last business day
of that month.
The amount of income dividend payments by the Fund is dependent upon the
amount of net income received by the Fund from its portfolio holdings, is not
guaranteed and is subject to the discretion of the Board. Fund shares are
quoted ex-dividend on the first business day following the record date
(generally the 15th day of the month or prior business day depending on the
record date). THE FUND DOES NOT PAY "INTEREST" OR GUARANTEE ANY FIXED RATE OF
RETURN ON AN INVESTMENT IN ITS SHARES.
In order to be entitled to a dividend, you must have acquired Fund shares
prior to the close of business on the record date. If you are considering
purchasing Fund shares shortly before the record date of a distribution, you
should be aware that because the value of the Fund's shares is based directly
on the amount of its net assets, rather than on the principle of supply and
demand, any distribution of income or capital gain will result in a decrease
in the value of the Fund's shares equal to the amount of the distribution.
While a dividend or capital gain distribution received shortly after
purchasing shares represents, in effect, a return of a portion of your
investment, it may be taxable as dividend income or capital gain.
DISTRIBUTION OPTIONS
You may choose to receive your distributions from the Fund in any of these
ways:
1. Purchase additional shares of the Fund - You may purchase additional
shares of the Fund (without a sales charge or imposition of a contingent
deferred sales charge) by reinvesting capital gain distributions, or both
dividend and capital gain distributions. This is a convenient way to
accumulate additional shares and maintain or increase your earnings base.
2. Purchase shares of other Franklin Templeton Funds - You may direct your
distributions to purchase the same class of shares of another Franklin
Templeton Fund (without a sales charge or imposition of a contingent deferred
sales charge). Many shareholders find this a convenient way to diversify
their investments.
3. Receive distributions in cash - You may choose to receive dividends, or
both dividend and capital gain distributions in cash. You may have the money
sent directly to you, to another person, or to a checking account. If you
choose to send the money to a checking account, please see "Electronic Fund
Transfers" under "What Programs and Privileges Are Available to Me as a
Shareholder?"
TO SELECT ONE OF THESE OPTIONS, PLEASE COMPLETE SECTIONS 6 AND 7 OF THE
SHAREHOLDER APPLICATION INCLUDED WITH THIS PROSPECTUS OR TELL YOUR INVESTMENT
REPRESENTATIVE WHICH OPTION YOU PREFER. IF NO OPTION IS SELECTED, DIVIDEND
AND CAPITAL GAIN DISTRIBUTIONS WILL BE AUTOMATICALLY REINVESTED IN THE FUND.
You may change the distribution option selected at any time by notifying the
Fund by mail or by telephone. Please allow at least seven days prior to the
record date for the Fund to process the new option.
HOW TAXATION AFFECTS YOU AND THE FUND
The following discussion reflects some of the tax considerations that affect
mutual funds and their shareholders. For additional information on tax
matters relating to the Fund and its shareholders, see "Additional
Information Regarding Taxation" in the SAI.
The Fund intends to qualify and elect to be treated as a regulated investment
company under Subchapter M of the Code. By distributing all of its income and
meeting certain other requirements relating to the sources of its income and
diversification of its assets, the Fund will not be liable for federal income
or excise taxes.
Foreign securities that meet the Code's definition of a passive foreign
investment company ("PFIC") may subject the Fund to an income tax and
interest charge with respect to those investments. To the extent possible,
the Fund will avoid that treatment by not investing in PFIC securities or by
adopting other tax strategies for any PFIC securities it does buy.
For federal income tax purposes, any income dividends that your 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 shares of the Fund and whether the
distributions are received in cash or additional shares.
Sales and exchanges of Fund shares are taxable events on which you may
realize a gain or loss. Any loss you incur 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 you received with respect to
those 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 those
dividends and distributions.
If you are not a U.S. person for purposes of federal income taxation, you
should consult with your financial or tax advisor regarding the applicability
of U.S. withholding or other taxes on distributions you receive from the Fund
and the application of foreign tax laws to those 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 distributions and sale proceeds you receive from the Fund.
HOW DO I BUY SHARES?
You may buy shares to open a Fund account with as little as $100 and make
additional investments at any time with as little as $25. These minimums may
be waived when shares are purchased by retirement plans. To open your
account, contact your investment representative or complete and sign the
enclosed Shareholder Application and return it to the Fund with your check.
PURCHASE PRICE OF FUND SHARES
You may buy shares at the public offering price, unless you qualify to
purchase shares at a discount or without a sales charge as discussed below.
The offering price will be calculated to two decimal places using standard
rounding criteria.
QUANTITY DISCOUNTS IN SALES CHARGES
The sales charge you pay when you buy shares may be reduced based upon the
size of your purchase, as shown in the table below.
TOTAL SALES CHARGE
AS A PERCENTAGE OF
AMOUNT ALLOWED TO
DEALER AS A
SIZE OF TRANSACTION NET AMOUNT PERCENTAGE OF
AT OFFERING PRICE OFFERING PRICE INVESTED OFFERING PRICE*
Under $100,000 4.50% 4.71% 4.00%
$100,000 but less than 3.75% 3.90% 3.25%
$250,000
$250,000 but less than 2.75% 2.83% 2.50%
$500,000
$500,000 but less than 2.25% 2.30% 2.00%
$1,000,000
$1,000,000 or more None** None None***
*Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages indicated. Distributors may at times
reallow the entire sales charge to the securities dealer. A securities dealer
who receives 90% or more of the sales commission may be deemed an underwriter
under the Securities Act of 1933, as amended.
**A contingent deferred sales charge of 1% may be imposed on certain
redemptions of all or a part of an investment of $1 million or more. See "How
Do I Sell Shares? - Contingent Deferred Sales Charge."
***Please see "General - Other Payments to Securities Dealers" below for a
discussion of payments Distributors may make to securities dealers out of its
own resources.
Rights of Accumulation. To determine if you may pay a reduced sales charge,
you may add the cost or current value, whichever is higher, of your Class I
and Class II shares in other Franklin Templeton Funds, as well as those of
your spouse, children under the age of 21 and grandchildren under the age of
21, to the amount of your current purchase. To receive the reduction, you or
your investment representative must notify Distributors that your investment
qualifies for a discount.
Letter of Intent. You may purchase shares at a reduced sales charge by
completing the Letter of Intent section of the Shareholder Application. A
Letter of Intent is a commitment by you to invest a specified dollar amount
during a 13 month period. The amount you agree to invest determines the sales
charge you pay. You or your investment representative must inform us that the
Letter is in effect each time you purchase shares.
BY COMPLETING THE LETTER OF INTENT SECTION OF THE SHAREHOLDER APPLICATION,
YOU ACKNOWLEDGE AND AGREE TO THE FOLLOWING:
You authorize Distributors to reserve five percent (5%) of the amount of
the total intended purchase in Fund shares registered in your name.
You grant Distributors a security interest in these shares and appoint
Distributors as attorney-in-fact with full power of substitution to redeem
any or all of these reserved shares to pay any unpaid sales charge if you
do not fulfill the terms of the Letter.
We will include the reserved shares in the total shares you own as
reflected on your periodic statements.
You will receive dividend and capital gain distributions on the reserved
shares; we will pay or reinvest these distributions as you direct.
Although you may exchange your shares, you may not liquidate reserved
shares until you complete the Letter or pay the higher sales charge.
Our policy of reserving shares does not apply to certain benefit plans
described under "Purchases at Net Asset Value."
If you would like more information about the Letter of Intent privilege, please
see "How Do I Buy and Sell Shares? - Letter of Intent" in the SAI or call our
Shareholder Services Department.
Group Purchases. If you are a member of a qualified group, you may purchase
Fund shares at the reduced sales charge applicable to the group as a whole.
The sales charge is based on the combined dollar value of the group members'
existing investments, plus the amount of the current purchase. For example,
if group members previously invested and still hold $80,000 of Fund shares
and invest $25,000, the sales charge will be 3.75%.
We define a qualified group as one which (i) has been in existence for more
than six months, (ii) has a purpose other than acquiring Fund shares at a
discount and (iii) satisfies uniform criteria which enable Distributors to
realize economies of scale in its costs of distributing shares.
In addition, a qualified group must have more than 10 members, and be
available to arrange for meetings between our representatives and group
members. It must also agree to include sales and other materials related to
the Franklin Templeton Funds in publications and mailings to its members at
reduced or no cost to Distributors, and arrange for payroll deduction or
other bulk transmission of investments to the Fund.
If you select a payroll deduction plan, your investments will continue
automatically until you notify the Fund and your employer to discontinue
further investments. Due to the varying procedures used by employers to
handle payroll deductions, there may be a delay between the time of the
payroll deduction and the time the money reaches the Fund. We invest your
purchase at the applicable offering price per share determined on the day
that the Fund receives both the check and the payroll deduction data in
required form.
PURCHASES AT NET ASSET VALUE
You may invest money from the following sources in shares of the Fund without
paying front-end or contingent deferred sales charges:
(i) a distribution that you have received from a Franklin Templeton Fund or
a real estate investment trust ("REIT") sponsored or advised by Franklin
Properties, Inc., if the distribution is returned within 365 days of its
payment date. You may reinvest Class II distributions in either Class I or
Class II shares, but Class I distributions may only be invested in Class I
shares under this privilege. For more information, see "Distribution Options"
under "What Distributions Might I Receive from the Fund?" or call Shareholder
Services at 1-800/632-2301;
(ii) a redemption from a mutual fund with investment objectives similar to
those of the Fund, if (a) your investment in that fund was subject to either
a front-end or contingent deferred sales charge at the time of purchase, (b)
the fund is not part of the Franklin Templeton Funds, and (c) your redemption
occurred within the past 60 days;
(iii) a distribution from an existing retirement plan already invested in the
Franklin Templeton Funds (including the Franklin Templeton Profit Sharing
401(k) plan), up to the total amount of the distribution. The distribution
must be returned to the Fund within 365 days of the distribution date; or
(iv) a redemption from Templeton Institutional Funds, Inc., if you then
reinvest the redemption proceeds under an employee benefit plan qualified
under Section 401 of the Code, in shares of the Fund.
You may also reinvest the proceeds from a redemption of any of the Franklin
Templeton Funds at net asset value. To do so, you must (a) have paid a sales
charge on the purchase or sale of the original shares, (b) reinvest the
redemption money in the same class of shares, and (c) request the
reinvestment of the money within 365 days of the redemption date. You may
reinvest up to the total amount of the redemption proceeds under this
privilege. IF A DIFFERENT CLASS OF SHARES IS PURCHASED, THE FULL FRONT-END
SALES CHARGE MUST BE PAID AT THE TIME OF PURCHASE OF THE NEW SHARES. While
you will receive credit for any contingent deferred sales charge paid on the
shares redeemed, a new contingency period will begin. Shares that were no
longer subject to a contingent deferred sales charge will be reinvested at
net asset value and will not be subject to a new contingent deferred sales
charge. Shares exchanged into other Franklin Templeton Funds are not
considered "redeemed" for this privilege (see "What If My Investment Outlook
Changes? - Exchange Privilege").
If you immediately reinvested your redemption proceeds in a Franklin Bank
Certificate of Deposit ("CD") but you would like to reinvest them back into
the Franklin Templeton Funds as described above, you will have 365 days from
the date the CD (including any rollover) matures to do so.
If your securities dealer or another financial institution reinvests your
money in the Fund at net asset value for you, that person or institution may
charge you a fee for this service.
A redemption is a taxable transaction, but reinvestment without a sales
charge may affect the amount of gain or loss you recognize and the tax basis
of the shares reinvested. If you have a loss on the redemption, the loss may
be disallowed if you reinvest in the same fund within a 30-day period. If you
would like more information regarding the possible tax consequences of such a
reinvestment, please see the tax section of this Prospectus and the SAI.
Certain categories of investors also qualify to purchase shares of the Fund
at net asset value regardless of the source of the investment proceeds. If
you or your account is included in one of the categories below, none of the
shares of the Fund you purchase will be subject to front-end or contingent
deferred sales charges:
(i) companies exchanging shares or selling assets pursuant to a merger,
acquisition or exchange offer;
(ii) accounts managed by the Franklin Templeton Group;
(iii) certain unit investment trusts and unit holders of these trusts
reinvesting distributions from the trusts in the Fund;
(iv) registered securities dealers and their affiliates, for their
investment accounts only;
(v) current employees of securities dealers and their affiliates and their
family members, in accordance with the internal policies and procedures of
the employing securities dealer and affiliate;
(vi) broker-dealers who have entered into a supplemental agreement with
Distributors, or registered investment advisors affiliated with such
broker-dealers, on behalf of their clients who are participating in a
comprehensive fee program (sometimes known as a wrap fee program);
(vii) any state, county, or city, or any instrumentality, department,
authority or agency thereof which has determined that the Fund is a legally
permissible investment and which is prohibited by applicable investment laws
from paying a sales charge or commission in connection with the purchase of
shares of any registered management investment company ("an eligible
governmental authority"). IF YOU ARE SUCH AN INVESTOR, PLEASE CONSULT YOUR
OWN LEGAL ADVISORS TO DETERMINE WHETHER AND TO WHAT EXTENT THE SHARES OF THE
FUND CONSTITUTE LEGAL INVESTMENTS. Municipal investors considering investment
of proceeds of bond offerings into the Fund should consult with expert
counsel to determine the effect, if any, of various payments made by the Fund
or the Manager on arbitrage rebate calculations. If you are a securities
dealer who has executed a dealer agreement with Distributors and, through
your services, an eligible governmental authority invests in the Fund at net
asset value, Distributors or one of its affiliates may make a payment, out of
its own resources, to you in an amount not to exceed 0.25% of the amount
invested. Please contact the Franklin Templeton Institutional Services
Department for additional information;
(viii) officers, trustees, directors and full-time employees of the Franklin
Templeton Funds, or of the Franklin Templeton Group, and their family
members. Although you may pay sales charges on investments in accounts opened
after your association with us has ended, you may continue to invest in
accounts opened while you were with us without paying sales charges;
(ix) trust companies and bank trust departments that exercise exclusive
discretionary investment authority over funds held in a fiduciary, agency,
advisory, custodial or similar capacity and agree to invest at least $1
million in Franklin Templeton Funds over a 13 month period. We will accept
orders for such accounts by mail accompanied by a check or by telephone or
other means of electronic data transfer directly from the bank or trust
company, with payment by federal funds received by the close of business on
the next business day following such order;
(x) group annuity separate accounts offered to retirement plans;
(xi) trustees or other fiduciaries purchasing securities for certain
retirement plans of organizations with collective retirement plan assets of
$1 million or more, without regard to where such assets are currently
invested; or
(xii) Designated Retirement Plans. Non-Designated Retirement Plans may also
qualify to purchase shares of the Fund under this privilege if they meet the
requirements for Designated Retirement Plans and those described under "Group
Purchases," above.
IF YOU QUALIFY TO BUY SHARES AT NET ASSET VALUE AS DISCUSSED IN THIS SECTION,
PLEASE SPECIFY IN WRITING THE PRIVILEGE THAT APPLIES TO YOUR PURCHASE AND
INCLUDE THAT WRITTEN STATEMENT WITH YOUR PURCHASE ORDER. WE WILL NOT BE
RESPONSIBLE FOR PURCHASES THAT ARE NOT MADE AT NET ASSET VALUE IF THIS
WRITTEN STATEMENT IS NOT INCLUDED WITH YOUR ORDER.
If you would like more information, please see "How Do I Buy and Sell
Shares?" in the SAI.
HOW DO I BUY SHARES IN CONNECTION WITH TAX-DEFERRED RETIREMENT PLANS?
Your individual or employer-sponsored tax-deferred retirement plans may
invest in the Fund. You may use the Fund for an existing retirement plan, or,
because Trust Company can serve as custodian or trustee for retirement plans,
you may ask Trust Company to provide the plan documents and serve as
custodian or trustee. A plan document must be adopted in order for a
retirement plan to be in existence.
Brochures for Trust Company plans contain important information regarding
eligibility, contribution and deferral limits and distribution requirements.
Please note that you must use an application other than the one contained in
this Prospectus to establish a retirement plan account with Trust Company. To
obtain a retirement plan brochure or application, please call 1-800/DIAL BEN
(1-800/342-5236).
Please see "How Do I Sell Shares?" for information regarding redemptions from
retirement plan accounts. You must complete specific forms in order to
receive distributions from Trust Company retirement plans.
Individuals and plan sponsors should consult with legal, tax or benefits and
pension plan consultants before choosing a retirement plan. In addition, if
you are a retirement plan investor, you should consider consulting your
investment representatives or advisors about investment decisions within your
plans.
GENERAL
The Fund continuously offers its shares through securities dealers who have
an agreement with Distributors. The Fund and Distributors may refuse any
order for the purchase of shares.
Securities laws of states in which the Fund offers its shares may differ from
federal law. Banks and financial institutions that sell shares of the Fund
may be required to register as securities dealers pursuant to state law.
Other Payments to Securities Dealers. Distributors will pay the following
commissions, out of its own resources, to securities dealers who initiate and
are responsible for purchases of $1 million or more: 1% on sales of $1
million but less than $2 million, plus 0.80% on sales of $2 million but less
than $3 million, plus 0.50% on sales of $3 million but less than $50 million,
plus 0.25% on sales of $50 million but less than $100 million, plus 0.15% on
sales of $100 million or more. These breakpoints are reset every 12 months
for purposes of additional purchases.
Distributors or one of its affiliates may also pay up to 1% of the purchase
price to securities dealers who initiate and are responsible for purchases
made at net asset value by any of the entities described in paragraphs (ix),
(xi) or (xii) under "Purchases at Net Asset Value" above. These payments may
not be made to securities dealers or others in connection with the sale of
Fund shares if the payments might be used to offset administration or
recordkeeping costs for retirement plans or circumstances suggest that plan
sponsors or administrators might use or otherwise allow the use of Rule 12b-1
fees to offset such costs. Please see "How Do I Buy and Sell Shares?" in the
SAI for the breakpoints applicable to these purchases.
Either Distributors or one of its affiliates, out of its own resources, may
also provide additional compensation to securities dealers in connection with
the sale of shares of the Franklin Templeton Funds. In some cases, this
compensation may be available only to securities dealers whose
representatives have sold or are expected to sell significant amounts of
shares of the Franklin Templeton Funds. Compensation may include financial
assistance and payments made in connection with conferences, sales or
training programs for employees of the securities dealer, seminars for the
public, advertising, sales campaigns and/or shareholder services, programs
regarding one or more of the Franklin Templeton Funds and other programs or
events sponsored by securities dealers, and payment for travel expenses of
invited registered representatives and their families, including lodging, in
connection with business meetings or seminars located within or outside the
U.S. Securities dealers may not use sales of the Fund's shares to qualify for
this compensation if prohibited by the laws of any state or self-regulatory
agency, such as the National Association of Securities Dealers, Inc. None of
this compensation is paid for by the Fund or its shareholders.
For additional information about shares of the Fund, please see "How Do I Buy
and Sell Shares?" in the SAI. The SAI also includes a listing of the officers
and trustees of the Fund who are affiliated with Distributors. See "Officers
and Trustees."
WHAT PROGRAMS AND PRIVILEGES
ARE AVAILABLE TO ME AS A SHAREHOLDER?
CERTAIN OF THE PROGRAMS AND PRIVILEGES DESCRIBED IN THIS SECTION MAY NOT BE
AVAILABLE DIRECTLY FROM THE FUND IF YOUR SHARES ARE HELD, OF RECORD, BY A
FINANCIAL INSTITUTION OR IN A "STREET NAME" ACCOUNT OR NETWORKED ACCOUNT
THROUGH THE NATIONAL SECURITIES CLEARING CORPORATION ("NSCC") (SEE
"REGISTERING YOUR ACCOUNT" IN THIS PROSPECTUS).
SHARE CERTIFICATES
Shares from an initial investment, as well as subsequent investments,
including the reinvestment of dividends and capital gain distributions, are
generally credited to an account in the name of an investor on the books of
the Fund, without the issuance of a share certificate. Maintaining shares in
uncertificated form (also known as "plan balance") minimizes the risk of loss
or theft of a share certificate. A lost, stolen or destroyed certificate
cannot be replaced without obtaining a sufficient indemnity bond. The cost of
such a bond, which is generally borne by you, can be 2% or more of the value
of the lost, stolen or destroyed certificate. A certificate will be issued if
requested by you or your securities dealer.
CONFIRMATIONS
A confirmation statement will be sent to you annually to reflect the
dividends reinvested during the period and after each other transaction which
affects your account. This statement will also show the total number of
shares you own, including the number of shares in "plan balance" for your
account.
AUTOMATIC INVESTMENT PLAN
The Automatic Investment Plan offers a convenient way to invest in the Fund.
Under the plan, you can arrange to have money transferred automatically from
your checking account to the Fund each month to buy additional shares. If you
are interested in this program, please refer to the Automatic Investment Plan
Application at the back of this Prospectus for the requirements of the
program or contact your investment representative. Of course, the market
value of the Fund's shares may fluctuate and a systematic investment plan
such as this will not assure a profit or protect against a loss. You may
terminate the program at any time by notifying Investor Services by mail or
by phone.
SYSTEMATIC WITHDRAWAL PLAN
The Systematic Withdrawal Plan allows you to receive regular payments from
your account on a monthly, quarterly, semiannual or annual basis. To
establish a Systematic Withdrawal Plan, the value of your account must be at
least $5,000 and the minimum payment amount for each withdrawal must be at
least $50. Please keep in mind that $50 is merely the minimum amount and is
not a recommended amount. For retirement plans subject to mandatory
distribution requirements, the $50 minimum will not apply.
If you would like to establish a Systematic Withdrawal Plan, please complete
the Systematic Withdrawal Plan section of the Shareholder Application
included with this Prospectus and indicate how you would like to receive your
payments. You may choose to receive your payments in any of the following
ways:
1. Purchase shares of other Franklin Templeton Funds - You may direct your
payments to purchase the same class of shares of another Franklin Templeton
Fund.
2. Receive payments in cash - You may choose to receive your payments in
cash. You may have the money sent directly to you, to another person, or to
a checking account. If you choose to have the money sent to a checking
account, please see "Electronic Fund Transfers" below.
There are no service charges for establishing or maintaining a Systematic
Withdrawal Plan. Once your plan is established, any distributions paid by the
Fund will be automatically reinvested in your account. Payments under the
plan will be made from the redemption of an equivalent amount of shares in
your account, generally on the first business day of the month in which a
payment is scheduled. You will generally receive your payments within three
to five days after the shares are redeemed.
Redeeming shares through a Systematic Withdrawal Plan may reduce or exhaust
the shares in your account if payments exceed distributions received from the
Fund. This is especially likely to occur if there is a market decline. If a
withdrawal amount exceeds the value of your account, your account will be
closed and the remaining balance in your account will be sent to you.
Redemptions under a Systematic Withdrawal Plan are considered a sale for
federal income tax purposes. Because the amount withdrawn under the plan may
be more than your actual yield or income, part of the payment may be a return
of your investment.
While a Systematic Withdrawal Plan is in effect, shares must be held either
in plan balance or, where share certificates are outstanding, deposited with
the Fund. You should ordinarily not make additional investments in the Fund
of less than $5,000 or three times the amount of annual withdrawals under the
plan because of the sales charge on additional purchases. Shares redeemed
under the plan may also be subject to a contingent deferred sales charge.
Please see "Contingent Deferred Sales Charge" under "How Do I Sell Shares?"
You may terminate a Systematic Withdrawal Plan, change the amount and
schedule of withdrawal payments, or suspend one payment by notifying Investor
Services in writing at least seven business days prior to the end of the
month preceding a scheduled payment. The Fund may also terminate a Systematic
Withdrawal Plan by notifying you in writing and will automatically terminate
a Systematic Withdrawal Plan if all shares in your account are withdrawn or
if the Fund receives notification of the shareholder's death or incapacity.
ELECTRONIC FUND TRANSFERS
You may choose to have distributions from the Fund or payments under a
Systematic Withdrawal Plan sent directly to a checking account. If the
checking account is maintained at a bank that is a member of the Automated
Clearing House, the payments may be made automatically by electronic funds
transfer. If you choose this option, please allow at least fifteen days for
initial processing. Any payments made during that time will be sent to the
address of record on your account.
INSTITUTIONAL ACCOUNTS
There may be additional methods of buying, selling or exchanging shares of
the Fund available to institutional accounts. For further information,
contact the Franklin Templeton Institutional Services Department at
1-800/321-8563.
WHAT IF MY INVESTMENT OUTLOOK CHANGES? - EXCHANGE PRIVILEGE
The Franklin Templeton Funds consist of a number of mutual funds with various
investment objectives and policies. The shares of most of these funds are
offered to the public with a sales charge. If your investment objective or
outlook for the securities markets changes, Fund shares may be exchanged for
the same class of shares of another Franklin Templeton Fund eligible for sale
in your state of residence and in conformity with that fund's stated
eligibility requirements and investment minimums.
No exchanges between different classes of shares will be allowed. You may
choose to sell your shares of the Fund and buy Class II shares of another
Franklin Templeton Fund but such purchase will be subject to that fund's
Class II front-end and contingent deferred sales charges. Although there are
no exchanges between different classes of shares, Class II shareholders of a
Franklin Templeton Fund may elect to direct their dividends and capital gain
distributions to the Fund at net asset value.
A contingent deferred sales charge will not be imposed on exchanges. If,
however, the exchanged shares were subject to a contingent deferred sales
charge in the original fund purchased and shares are subsequently redeemed
within the contingency period, a contingent deferred sales charge will be
imposed.
Before making an exchange, you should review the prospectus of the fund you
wish to exchange from and the fund you wish to exchange into for all specific
requirements or limitations on exercising the exchange privilege, for
example, limitations on a fund's sale of its shares, minimum holding periods
for exchanges at net asset value, or applicable sales charges.
You may exchange shares in any of the following ways:
BY MAIL
Send written instructions signed by all account owners and accompanied by any
outstanding share certificates properly endorsed. The transaction will be
effective upon receipt of the written instructions together with any
outstanding share certificates.
BY TELEPHONE
You or your investment representative of record, if any, may exchange shares
of the Fund by calling Investor Services at 1-800/632-2301 or the automated
TeleFACTS(R) system (day or night) at 1-800/247-1753. IF YOU DO NOT WISH THIS
PRIVILEGE EXTENDED TO A PARTICULAR ACCOUNT, YOU SHOULD NOTIFY THE FUND OR
INVESTOR SERVICES.
The telephone exchange privilege allows you to effect exchanges from the Fund
into an identically registered account of the same class of shares in one of
the other available Franklin Templeton Funds. The telephone exchange
privilege is available only for uncertificated shares or those which have
previously been deposited in your account. The Fund and Investor Services
will employ reasonable procedures to confirm that instructions communicated
by telephone are genuine. Please see "Telephone Transactions - Verification
Procedures."
During periods of drastic economic or market changes, it is possible that the
telephone exchange privilege may be difficult to implement and the TeleFACTS
option may not be available. In this event, you should follow the other
exchange procedures discussed in this section, including the procedures for
processing exchanges through securities dealers.
THROUGH SECURITIES DEALERS
As is the case with all purchases and redemptions of the Fund's shares,
Investor Services will accept exchange orders from securities dealers who
execute a dealer or similar agreement with Distributors. See also "By
Telephone" above. Such a dealer-ordered exchange will be effective only for
uncertificated shares on deposit in your account or for which certificates
have previously been deposited. A securities dealer may charge a fee for
handling an exchange.
ADDITIONAL INFORMATION REGARDING EXCHANGES
Exchanges are made on the basis of the net asset value of the funds involved,
except as set forth below. Exchanges of shares of the Fund which were
purchased without a sales charge will be charged a sales charge in accordance
with the terms of the prospectus of the fund being purchased, unless the
original investment in the Franklin Templeton Funds was made pursuant to the
privilege permitting purchases at net asset value, as discussed under "How Do
I Buy Shares?" Exchanges of shares of the Fund which were purchased with a
lower sales charge into a fund which has a higher sales charge will be
charged the difference, unless the shares were held in the Fund for at least
six months prior to executing the exchange.
The contingency period during which a contingent deferred sales charge may be
assessed will be tolled (or stopped) for the period shares are exchanged into
and held in a Franklin or Templeton money market fund. If your account has
shares subject to a contingent deferred sales charge, shares will be
exchanged into the new account on a "first-in, first-out" basis. See "How Do
I Sell Shares? - Contingent Deferred Sales Charge" for a discussion of
investments subject to a contingent deferred sales charge.
If you request the exchange of the total value of your account, declared but
unpaid income dividends and capital gain distributions will be transferred to
the fund being exchanged into and will be invested at net asset value.
Because the exchange is considered a redemption and purchase of shares, you
may realize a gain or loss for federal income tax purposes. Backup
withholding and information reporting may also apply. Information regarding
the possible tax consequences of such an exchange is included in the tax
section in this Prospectus and under "Additional Information Regarding
Taxation" in the SAI.
If a substantial portion of the Fund's shareholders should, within a short
period, elect to redeem their shares of the Fund pursuant to the exchange
privilege, the Fund might have to liquidate portfolio securities it might
otherwise hold and incur the additional costs related to such transactions.
On the other hand, increased use of the exchange privilege may result in
periodic large inflows of money. If this should occur, it is the general
policy of the Fund to initially invest this money in short-term,
interest-bearing money market instruments, unless it is felt that attractive
investment opportunities consistent with the Fund's investment objective
exist immediately. Subsequently, this money will be withdrawn from such
short-term money market instruments and invested in portfolio securities in
as orderly a manner as is possible when attractive investment opportunities
arise.
The exchange privilege may be modified or discontinued by the Fund at any
time upon 60 days' written notice to shareholders.
RETIREMENT PLAN ACCOUNTS
Franklin Templeton IRA and 403(b) retirement plan accounts may exchange
shares directly. Certain restrictions may apply, however, to other types of
retirement plans. See "Restricted Accounts" under "Telephone Transactions."
MARKET TIMERS
Market Timers will be charged a $5.00 administrative service fee for each
exchange. All other exchanges are without charge.
RESTRICTIONS ON EXCHANGES
In accordance with the terms of their respective prospectuses, certain funds
do not accept or may place differing limitations than those below on
exchanges by Market Timers.
The Fund reserves the right to temporarily or permanently terminate the
exchange privilege or reject any specific purchase order for any Market
Timer, group or person whose transactions seem to follow a timing pattern
who: (i) makes an exchange request out of the Fund within two weeks of an
earlier exchange request out of the Fund, (ii) makes more than two exchanges
out of the Fund per calendar quarter, or (iii) exchanges shares equal in
value to at least $5 million, or more than 1% of the Fund's net assets.
Accounts under common ownership or control, including accounts administered
by Market Timers, will be aggregated for purposes of the exchange limits.
The Fund also reserves the right to refuse the purchase side of an exchange
request by any Market Timer, person, or group if, in the Manager's judgment,
the Fund would be unable to invest effectively in accordance with its
investment objective and policies, or would otherwise potentially be
adversely affected. The purchase side of an exchange may be restricted or
refused if the Fund receives or anticipates simultaneous orders affecting
significant portions of the Fund's assets. In particular, a pattern of
exchanges that coincide with a "market timing" strategy may be disruptive to
the Fund and therefore may be refused.
The Fund and Distributors, as indicated in "How Do I Buy Shares?", reserve
the right to refuse any order for the purchase of shares.
HOW DO I SELL SHARES?
You may sell (redeem) your shares at any time and receive from the Fund the
value of the shares. You may sell shares in any of the following ways:
BY MAIL
Send a written request signed by all registered owners to Investor Services,
at the address shown on the back cover of this Prospectus, and any share
certificates which have been issued for the shares being redeemed, properly
endorsed and in order for transfer. You will then receive from the Fund the
value of the shares redeemed based upon the net asset value per share (less a
contingent deferred sales charge, if applicable) next computed after the
written request in proper form is received by Investor Services. Redemption
requests received after the time at which the net asset value is calculated
will receive the price calculated on the following business day. The net
asset value per share is determined as of the scheduled close of the Exchange
(generally 1:00 p.m. Pacific time) each day that the Exchange is open for
trading. You are requested to provide a telephone number where you may be
reached during business hours, or in the evening if preferred. Investor
Services' ability to contact you promptly when necessary will speed the
processing of the redemption.
TO BE CONSIDERED IN PROPER FORM, SIGNATURES MUST BE GUARANTEED IF THE
REDEMPTION REQUEST INVOLVES ANY OF THE FOLLOWING:
(1) the proceeds of the redemption are over $50,000;
(2) the proceeds (in any amount) are to be paid to someone other than the
registered owners of the account;
(3) the proceeds (in any amount) are to be sent to any address other than
the address of record, preauthorized bank account or brokerage firm account;
(4) share certificates, if the redemption proceeds are in excess of
$50,000; or
(5) the Fund or Investor Services believes that a signature guarantee would
protect against potential claims based on the transfer instructions,
including, for example, when (a) the current address of one or more joint
owners of an account cannot be confirmed, (b) multiple owners have a dispute
or give inconsistent instructions to the Fund, (c) the Fund has been notified
of an adverse claim, (d) the instructions received by the Fund are given by
an agent, not the actual registered owner, (e) the Fund determines that joint
owners who are married to each other are separated or may be the subject of
divorce proceedings, or (f) the authority of a representative of a
corporation, partnership, association, or other entity has not been
established to the satisfaction of the Fund.
Signatures must be guaranteed by an "eligible guarantor institution" as
defined under Rule 17Ad-15 under the Securities Exchange Act of 1934.
Generally, eligible guarantor institutions include (1) national or state
banks, savings associations, savings and loan associations, trust companies,
savings banks, industrial loan companies and credit unions; (2) national
securities exchanges, registered securities associations and clearing
agencies; (3) securities dealers that are members of a national securities
exchange or a clearing agency or that have minimum net capital of $100,000;
or (4) institutions that participate in the Securities Transfer Agent
Medallion Program ("STAMP") or other recognized signature guarantee medallion
program. A notarized signature will not be sufficient for the request to be
in proper form.
When shares to be redeemed are represented by share certificates, the request
for redemption must be accompanied by the share certificate and a share
assignment form signed by the registered owners exactly as the account is
registered, with the signatures guaranteed as referenced above. You are
advised, for your protection, to send the share certificate and assignment
form in separate envelopes if they are being mailed in for redemption.
Liquidation requests of corporate, partnership, trust and custodianship
accounts, and accounts under court jurisdiction require the following
documentation to be in proper form:
Corporation - (1) Signature guaranteed letter of instruction from the
authorized officers of the corporation and (2) a corporate resolution.
Partnership - (1) Signature guaranteed letter of instruction from a general
partner and (2) pertinent pages from the partnership agreement identifying
the general partners or a certification for a partnership agreement.
Trust - (1) Signature guaranteed letter of instruction from the trustees and
(2) a copy of the pertinent pages of the trust document listing the trustees
or a Certification for Trust if the trustees are not listed on the account
registration.
Custodial (other than a retirement account) - Signature guaranteed letter of
instruction from the custodian.
Accounts under court jurisdiction - Check court documents and applicable
state law since these accounts have varying requirements, depending upon the
state of residence.
Payment for redeemed shares will be sent to you within seven days after
receipt of the request in proper form.
BY TELEPHONE
If you complete the Franklin Templeton Telephone Redemption Authorization
Agreement (the "Agreement"), included with this Prospectus, you may redeem
shares of the Fund by telephone, subject to the Restricted Account exception
noted under "Telephone Transactions - Restricted Accounts". You may obtain
additional information about telephone redemptions by writing to the Fund or
Investor Services at the address shown on the cover or by calling
1-800/632-2301. The Fund and Investor Services will employ reasonable
procedures to confirm that instructions given by telephone are genuine. You,
however, bear the risk of loss in certain cases as described under "Telephone
Transactions - Verification Procedures."
If your account has a completed Agreement on file, redemptions of
uncertificated shares or shares which have previously been deposited with the
Fund or Investor Services may be made for up to $50,000 per day per Fund
account. Telephone redemption requests received before the scheduled close of
the Exchange (generally 1:00 p.m. Pacific time) on any business day will be
processed that same day. The redemption check will be sent within seven days,
made payable to all the registered owners on the account, and will be sent
only to the address of record.
Redemption requests by telephone will not be accepted within 30 days
following an address change by telephone. In that case, you should follow the
other redemption procedures set forth in this Prospectus. Institutional
accounts (certain corporations, bank trust departments, qualified retirement
plans and government entities that qualify to purchase shares at net asset
value pursuant to the terms of this Prospectus) that wish to execute
redemptions in excess of $50,000 must complete an Institutional Telephone
Privileges Agreement which is available from the Franklin Templeton
Institutional Services Department by calling 1-800/321-8563.
THROUGH SECURITIES DEALERS
The Fund will accept redemption orders from securities dealers who have
entered into an agreement with Distributors. This is known as a repurchase.
The only difference between a normal redemption and a repurchase is that if
you redeem shares through a dealer, the redemption price will be the net
asset value next calculated after your dealer receives the order which is
promptly transmitted to the Fund, rather than on the day the Fund receives
your written request in proper form. The documents described under "By Mail"
above, as well as a signed letter of instruction, are required regardless of
whether you redeem shares directly or submit such shares to a securities
dealer for repurchase. Your letter should reference the Fund, the account
number, the fact that the repurchase was ordered by a dealer and the dealer's
name. Details of the dealer-ordered trade, such as trade date, confirmation
number, and the amount of shares or dollars, will help speed processing of
the redemption. The seven-day period within which the proceeds of your
redemption will be sent will begin when the Fund receives all documents
required to complete ("settle") the repurchase in proper form. The redemption
proceeds will not earn dividends or interest during the time between receipt
of the dealer's repurchase order and the date the redemption is processed
upon receipt of all documents necessary to settle the repurchase. Thus, it is
in your best interest to have the required documentation completed and
forwarded to the Fund as soon as possible. Your dealer may charge a fee for
handling the order. See "How Do I Buy and Sell Shares?" in the SAI for more
information on the redemption of shares.
CONTINGENT DEFERRED SALES CHARGE
In order to recover commissions paid to securities dealers, all or a portion
of investments of $1 million or more redeemed within the contingency period
of 12 months of the calendar month of such investment will be assessed a
contingent deferred sales charge, unless one of the exceptions described
below applies. The charge is 1% of the lesser of the value of the shares
redeemed (exclusive of reinvested dividends and capital gain distributions)
or the net asset value at the time of purchase of such shares, and is
retained by Distributors. The contingent deferred sales charge is waived in
certain instances.
In determining whether a contingent deferred sales charge applies, shares not
subject to a contingent deferred sales charge are deemed to be redeemed
first, in the following order: (i) a calculated number of shares representing
amounts attributable to capital appreciation on shares held less than the
contingency period; (ii) shares purchased with reinvested dividends and
capital gain distributions; and (iii) other shares held longer than the
contingency period. Shares subject to a contingent deferred sales charge will
then be redeemed on a "first-in, first-out" basis. For tax purposes, a
contingent deferred sales charge is treated as either a reduction in
redemption proceeds or an adjustment to the cost basis of the shares redeemed.
The contingent deferred sales charge is waived, as applicable, for: specified
net asset value purchases discussed under "How Do I Buy Shares? - Purchases
at Net Asset Value"; exchanges; any account fees; distributions from an
individual retirement plan account due to death or disability or upon
periodic distributions based on life expectancy; tax-free returns of excess
contributions from employee benefit plans; distributions from employee
benefit plans, including those due to termination or plan transfer;
redemptions initiated by the Fund due to an account falling below the minimum
specified account size; redemptions following the death of the shareholder or
beneficial owner; and redemptions through a Systematic Withdrawal Plan set up
for shares prior to February 1, 1995, and for Systematic Withdrawal Plans set
up thereafter, redemptions of up to 1% monthly of an account's net asset
value (3% quarterly, 6% semiannually or 12% annually). For example, if an
account maintained an annual balance of $1,000,000, only $120,000 could be
withdrawn through a once-yearly Systematic Withdrawal Plan free of charge.
Any amount over that $120,000 would be assessed a 1% contingent deferred
sales charge.
All investments made during a calendar month, regardless of when during the
month the investment occurred, will age one month on the last day of that
month and each subsequent month.
Unless otherwise specified, requests for redemptions of a SPECIFIED DOLLAR
amount will result in additional shares being redeemed to cover any
applicable contingent deferred sales charge, while requests for redemption of
a SPECIFIC NUMBER of shares will result in the applicable contingent deferred
sales charge being deducted from the total dollar amount redeemed.
ADDITIONAL INFORMATION REGARDING REDEMPTIONS
The Fund may delay the mailing of the redemption check, or a portion thereof,
until the clearance of the check used to purchase Fund shares, which may take
up to 15 days or more. Although the use of a certified or cashier's check
will generally reduce this delay, shares purchased with these checks will
also be held pending clearance. Shares purchased by federal funds wire are
available for immediate redemption.
The right of redemption may be suspended or the date of payment postponed if
the Exchange is closed (other than customary closing) or upon the
determination of the SEC that trading on the Exchange is restricted or an
emergency exists, or if the SEC permits it, by order, for the protection of
shareholders. Of course, the amount received may be more or less than the
amount you invested, depending on fluctuations in the market value of
securities owned by the Fund.
RETIREMENT PLAN ACCOUNTS
Retirement plan account liquidations require the completion of certain
additional forms to ensure compliance with IRS regulations. To liquidate a
retirement plan account, you or your securities dealer may call Franklin's
Retirement Plans Department to obtain the necessary forms.
Tax penalties will generally apply to any distribution from such plans to a
participant under age 59 1/2, unless the distribution meets one of the
exceptions set forth in the Code.
OTHER INFORMATION
Distribution or redemption checks sent to you do not earn interest or any
other income during the time such checks remain uncashed and neither the Fund
nor its affiliates will be liable for any loss caused by your failure to cash
such checks.
"Cash" payments to or from the Fund may be made by check, draft or wire. The
Fund has no facility to receive, or pay out, cash in the form of currency.
For any information required about a proposed liquidation, you may call
Franklin's Shareholder Services Department. Securities dealers may call
Franklin's Dealer Services Department.
TELEPHONE TRANSACTIONS
By calling Investor Services at 1-800/632-2301, you or your investment
representative of record, if any, may be able to execute various telephone
transactions, including to: (i) effect a change in address, (ii) change a
dividend option (see "Restricted Accounts" below), (iii) transfer Fund shares
in one account to another identically registered account in the Fund, (iv)
request the issuance of certificates (to be sent to the address of record
only) and (v) exchange Fund shares as described in this Prospectus by
telephone. In addition, if you complete and file an Agreement as described
under "How Do I Sell Shares? - By Telephone" you will be able to redeem
shares of the Fund.
VERIFICATION PROCEDURES
The Fund and Investor Services will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine. These will include:
recording all telephone calls requesting account activity by telephone,
requiring that the caller provide certain personal and/or account information
requested by the telephone service agent at the time of the call for the
purpose of establishing the caller's identification, and sending a
confirmation statement on redemptions to the address of record each time
account activity is initiated by telephone. So long as the Fund and Investor
Services follow instructions communicated by telephone which were reasonably
believed to be genuine at the time of their receipt, neither they nor their
affiliates will be liable for any loss to you caused by an unauthorized
transaction. The Fund and Investor Services may be liable for any losses due
to unauthorized or fraudulent instructions in the event such reasonable
procedures are not followed. You are, of course, under no obligation to apply
for or accept telephone transaction privileges. In any instance where the
Fund or Investor Services is not reasonably satisfied that instructions
received by telephone are genuine, the requested transaction will not be
executed, and neither the Fund nor Investor Services will be liable for any
losses which may occur because of a delay in implementing a transaction.
RESTRICTED ACCOUNTS
Telephone redemptions and dividend option changes may not be accepted on
Franklin Templeton retirement accounts. To assure compliance with all
applicable regulations, special forms are required for any redemption,
distribution or dividend payment changes. While the telephone exchange
privilege is extended to Franklin Templeton IRA and 403(b) retirement
accounts, certain restrictions may apply to other types of retirement plans.
To obtain further information regarding distribution or transfer procedures,
including any required forms, retirement account shareholders may call to
speak to a Retirement Plan Specialist at 1-800/527-2020.
GENERAL
During periods of drastic economic or market changes, it is possible that the
telephone transaction privilege will be difficult to execute because of heavy
telephone volume. In these situations, you may wish to contact your
investment representative for assistance or send written instructions to the
Fund as detailed elsewhere in this Prospectus.
Neither the Fund nor Investor Services will be liable for any losses
resulting from your inability to execute a telephone transaction.
HOW ARE FUND SHARES VALUED?
The net asset value per share of the Fund is determined as of the scheduled
close of the Exchange (generally 1:00 p.m. Pacific time) each day that the
Exchange is open for trading. Many newspapers carry daily quotations of the
prior trading day's closing "bid" (net asset value) and "ask" (offering
price).
The net asset value per share of the Fund is determined by deducting the
aggregate gross value of all liabilities from the aggregate gross value of
all assets, and then dividing the difference by the number of shares
outstanding. Assets in the Fund's portfolio are valued as described under
"How Are Fund Shares Valued?" in the SAI.
HOW DO I GET MORE INFORMATION ABOUT MY INVESTMENT?
Any questions or communications regarding your account should be directed to
Investor Services at the address shown on the back cover of this Prospectus.
From a touch-tone phone, you may access TeleFACTS(R). By calling the TeleFACTS
system (day or night) at 1-800/247-1753, you may obtain account information,
current price and, if available, yield or other performance information
specific to the Fund or any Franklin Templeton Fund. In addition, you may
process an exchange, within the same class, into an identically registered
Franklin account and request duplicate confirmation or year-end statements
and deposit slips.
The Fund code, which will be needed to access system information, is []. The
system's automated operator will prompt you with easy to follow step-by-step
instructions from the main menu. Other features may be added in the future.
To assist you and securities dealers wishing to speak directly with a
representative, the following list of Franklin departments, telephone numbers
and hours of operation is provided.
HOURS OF OPERATION
(PACIFIC TIME)
DEPARTMENT NAME TELEPHONE NO. (MONDAY THROUGH FRIDAY)
Shareholder Services 1-800/632-2301 5:30 a.m. to 5:00 p.m.
Dealer Services 1-800/524-4040 5:30 a.m. to 5:00 p.m.
Fund Information 1-800/DIAL BEN 5:30 a.m. to 8:00 p.m.
8:30 a.m. to 5:00 p.m.
(Saturday)
Retirement Plans 1-800/527-2020 5:30 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 5:30 a.m. to 5:00 p.m.
In order to ensure that the highest quality of service is being provided,
telephone calls placed to or by representatives in Franklin's service
departments may be accessed, recorded and monitored. These calls can be
determined by the presence of a regular beeping tone.
HOW DOES THE FUND MEASURE PERFORMANCE?
Advertisements, sales literature and communications to you may contain
several measures of the Fund's performance, including current yield, various
expressions of total return and current distribution rate. They may also
occasionally cite statistics to reflect the Fund's volatility or risk.
Average annual total return figures as prescribed by the SEC represent the
average annual percentage change in value of $1,000 invested at the maximum
public offering price for one-, five- and ten-year periods, or portion
thereof, to the extent applicable, through the end of the most recent
calendar quarter, assuming reinvestment of all distributions. The Fund may
also furnish total return quotations for other periods or based on
investments at various sales charge levels or at net asset value. For such
purposes, total return equals the total of all income and capital gain paid
to shareholders, assuming reinvestment of all distributions, plus (or minus)
the change in the value of the original investment, expressed as a percentage
of the purchase price.
Current yield reflects the income per share earned by the Fund's portfolio
investments. It is calculated by dividing the Fund's net investment income
per share during a recent 30-day period by the maximum public offering price
on the last day of that period and annualizing the result.
Current yield for the Fund, which is calculated according to a formula
prescribed by the SEC (see "General Information" in the SAI), is not
indicative of the dividends or distributions which were or will be paid to
the Fund's shareholders. Dividends or distributions paid to shareholders of
the Fund are reflected in the current distribution rate, which may be quoted
to you. The current distribution rate is computed by dividing the total
amount of dividends per share paid by the Fund during the past 12 months by a
current maximum offering price. Under certain circumstances, such as when
there has been a change in the amount of dividend payout or a fundamental
change in investment policies, it might be appropriate to annualize the
dividends paid during the period such policies were in effect, rather than
using the dividends during the past 12 months. The current distribution rate
differs from the current yield computation because it may include
distributions to shareholders from sources other than dividends and interest,
such as short-term capital gain, and is calculated over a different period of
time.
In each case, performance figures are based upon past performance, reflect
all recurring charges against Fund income and will assume the payment of the
maximum sales charge on the purchase of shares. When there has been a change
in the sales charge structure, the historical performance figures will be
restated to reflect the new rate. The investment results of the Fund, like
all other investment companies, will fluctuate over time; thus, performance
figures should not be considered to represent what an investment may earn in
the future or what the Fund's performance may be in any future period.
GENERAL INFORMATION
REPORTS TO SHAREHOLDERS
The Fund's fiscal year ends April 30. Annual Reports containing audited
financial statements of the Fund, including the auditors' report, and
Semi-Annual Reports containing unaudited financial statements are
automatically sent to shareholders. To reduce the volume of mail sent to each
household, as well as to reduce Fund expenses, Investor Services will attempt
to identify related shareholders within a household and send only one copy of
the report. Additional copies may be obtained, without charge, upon request
to the Fund at the telephone number or address set forth on the cover page of
this Prospectus.
Additional information on Fund performance is included in the Trust's Annual
Report to Shareholders and under "General Information" in the SAI.
ORGANIZATION AND VOTING RIGHTS
The Agreement and Declaration of Trust permits the trustees to issue an
unlimited number of full and fractional shares of beneficial interest of $.01
par value, which may be issued in any number of series and classes. Shares
issued will be fully paid and non-assessable and will have no preemptive,
conversion, or sinking rights. Shares of each series have equal and exclusive
rights as to dividends and distributions as declared by such series and the
net assets of such series upon liquidation or dissolution. Additional series
or classes may be added in the future by the Board.
Voting rights are noncumulative, so that in any election of trustees, the
holders of more than 50% of the shares voting can elect all of the trustees,
if they choose to do so, and in such event the holders of the remaining
shares voting will not be able to elect any person or persons to the Board.
The Trust does not intend to hold annual shareholder meetings. The Trust may,
however, hold a special shareholders' meeting of a series for such purposes
as changing fundamental investment restrictions, approving a new management
agreement or any other matters which are required to be acted on by
shareholders under the 1940 Act. A meeting may also be called by the trustees
in their discretion or by shareholders holding at least ten percent of the
outstanding shares of the Trust. Shareholders will receive assistance in
communicating with other shareholders in connection with the election or
removal of trustees such as that provided in Section 16(c) of the 1940 Act.
CONVERSION TO MASTER/FEEDER STRUCTURE
The Board reserves the right to convert the Fund to a master/feeder structure
at a future date. Currently, the Fund invests directly in a portfolio of
securities. Certain funds administered by the Manager participate as feeder
funds in master/feeder fund structures. Under a master/feeder structure, one
or more feeder funds, such as the Fund, invests its assets in a master fund
which, in turn, invests its assets directly in the securities. Various state
governments have adopted the North American Securities Administrators
Association Guidelines for registration of master/feeder funds. If required
by those guidelines, as then in effect, the Fund will seek shareholder
approval prior to converting the Fund to a master/feeder structure, subject
to there not being adopted a superseding contrary provision or ruling under
federal law. If it is determined by the requisite regulatory authorities that
such approval is not required, you will be deemed to have consented to such
conversion by your purchase of Fund shares and no further shareholder
approval will be sought or needed. You will, however, be informed in writing
in advance of the conversion. The determination to convert the Fund to a
master/feeder fund structure will not result in an increase in the fees or
expenses paid by you or the Fund. The investment objective and other
fundamental policies of the Fund, which can be changed only with shareholder
approval, are structured so as to permit the Fund to invest directly in
securities or indirectly in securities through a master/feeder fund structure.
REDEMPTIONS BY THE FUND
The Fund reserves the right to redeem your shares, at net asset value, if
your account has a value of less than $50, but only where the value of your
account has been reduced by the prior voluntary redemption of shares and has
been inactive (except for the reinvestment of distributions) for a period of
at least six months, provided you are given advance notice. For more
information, see "How Do I Buy and Sell Shares?" in the SAI.
REGISTERING YOUR ACCOUNT
An account registration should reflect your intentions as to ownership. Where
there are two co-owners on the account, the account will be registered as
"Owner 1" and "Owner 2"; the "or" designation is not used except for money
market fund accounts. If co-owners wish to have the ability to redeem or
convert on the signature of only one owner, a limited power of attorney may
be used.
Accounts should not be registered in the name of a minor, either as sole or
co-owner of the account. Transfer or redemption for such an account may
require court action to obtain release of the funds until the minor reaches
the legal age of majority. The account should be registered in the name of
one "Adult" as custodian for the benefit of the "Minor" under the Uniform
Transfer or Gifts to Minors Act.
A trust designation such as "trustee" or "in trust for" should only be used
if the account is being established pursuant to a legal, valid trust
document. Use of such a designation in the absence of a legal trust document
may cause difficulties and require court action for transfer or redemption of
the funds.
Shares, whether in certificate form or not, registered as joint tenants or
"Jt Ten" shall mean "as joint tenants with rights of survivorship" and not
"as tenants in common."
Except as indicated, you may transfer an account in the Fund carried in
"street" or "nominee" name by your securities dealer to a comparably
registered Fund account maintained by another securities dealer. Both the
delivering and receiving securities dealers must have executed dealer
agreements on file with Distributors. Unless a dealer agreement has been
executed and is on file with Distributors, the Fund will not process the
transfer and will so inform your delivering securities dealer. To effect the
transfer, you should instruct the securities dealer to transfer the account
to a receiving securities dealer and sign any documents required by the
securities dealers to evidence consent to the transfer. Under current
procedures, the account transfer may be processed by the delivering
securities dealer and the Fund after the Fund receives authorization in
proper form from your delivering securities dealer. Account transfers may be
effected electronically through the services of the NSCC.
The Fund may conclusively accept instructions from you or your nominee listed
in publicly available nominee lists, regardless of whether the account was
initially registered in the name of or by you, your nominee, or both. If a
securities dealer or other representative is of record on your account, you
will be deemed to have authorized the use of electronic instructions on the
account, including, without limitation, those initiated through the services
of the NSCC, to have adopted as instruction and signature any such electronic
instructions received by the Fund and Investor Services, and to have
authorized them to execute the instructions without further inquiry. At the
present time, such services which are available include the NSCC's
"Networking," "Fund/SERV," and "ACATS" systems.
Any questions regarding an intended registration should be answered by the
securities dealer handling the investment or by calling Franklin's Fund
Information Department.
IMPORTANT NOTICE REGARDING TAXPAYER IRS CERTIFICATIONS
Pursuant to the Code and U.S. Treasury regulations, the Fund may be required
to report to the IRS any taxable dividend, capital gain distribution, or
other reportable payment (including share redemption proceeds) and withhold
31% of any such payments made to individuals and other non-exempt
shareholders who have not provided a correct taxpayer identification number
("TIN") and made certain required certifications that appear in the
Shareholder Application. You may also be subject to backup withholding if the
IRS or a securities dealer notifies the Fund that the number furnished by you
is incorrect or that you are subject to backup withholding for previous
under-reporting of interest or dividend income.
The Fund reserves the right to (1) refuse to open an account for any person
failing to provide a TIN along with the required certifications and (2) close
an account by redeeming its shares in full at the then-current net asset
value upon receipt of notice from the IRS that the TIN certified as correct
by you is in fact incorrect or upon the failure of a shareholder who has
completed an "awaiting TIN" certification to provide the Fund with a
certified TIN within 60 days after opening the account.
USEFUL TERMS AND DEFINITIONS
1940 Act - Investment Company Act of 1940, as amended
Advisers - Franklin Advisers, Inc., the Fund's investment manager
Board - The Board of Trustees of the Trust
Class I and Class II - "Classes" of shares represent proportionate interests
in the same portfolio of investment securities but with different rights,
privileges and attributes, as determined by the trustees. Certain funds in
the Franklin Templeton Funds currently offer their shares in two classes,
designated "Class I" and "Class II." Because the Fund's sales charge
structure and plan of distribution are similar to those of Class I shares,
shares of the Fund may be considered Class I shares for redemption, exchange
and other purposes.
Code - Internal Revenue Code of 1986, as amended
Designated Retirement Plans - certain retirement plans, including
profit-sharing, pension, 401(k) and simplified employee pension plans, that:
(i) are sponsored by an employer with at least 200 employees; (ii) have
aggregate plan assets of at least $1 million; or (iii) agree to invest at
least $1 million in any of the Franklin Templeton Funds over a 13 month
period. Distributors determines the qualifications for Designated Retirement
Plans.
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
Investor Services - Franklin/Templeton Investor Services, Inc.
Letter - Letter of Intent
Manager - Franklin Advisers, Inc., the Fund's investment manager
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.
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. When you buy, sell or exchange shares, we
will use the NAV per share next calculated after we receive your request in
proper form.
Non-Designated Retirement Plans - employee benefit plans not included as
"Designated Retirement Plans" and not qualified under Section 401 of the Code
Offering price - The public offering price is equal to the net asset value
per share plus the 4.50% sales charge.
Proper Form (Purchases) - generally, the Fund must receive a completed
Shareholder Application accompanied by a negotiable check.
Resources - Franklin Resources, Inc.
SAI - Statement of Additional Information
SEC - Securities and Exchange Commission
Securities Dealer - financial institutions which, either directly or through
affiliates, have an agreement with Distributors to handle customer orders and
accounts with the Fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity.
TeleFACTS(R) - Franklin Templeton's automated customer servicing system
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
FRANKLIN BLUE CHIP FUND
777 Mariners Island Blvd.
P.O. Box 7777
San Mateo, California 94403-7777
INVESTMENT MANAGER
Franklin Advisers, Inc.
777 Mariners Island Blvd.
P.O. Box 7777
San Mateo, California 94403-7777
PRINCIPAL UNDERWRITER
Franklin/Templeton Distributors, Inc.
777 Mariners Island Blvd.
P.O. Box 7777
San Mateo, California 94403-7777
SHAREHOLDER SERVICES AGENT
Franklin/Templeton Investor Services, Inc.
777 Mariners Island Blvd.
P.O. Box 7777
San Mateo, California 94403-7777
CUSTODIAN
The Bank of New York
Mutual Funds Division
90 Washington Street
New York, New York 10286
INDEPENDENT AUDITORS
Coopers & Lybrand L.L.P.
333 Market Street
San Francisco, California 94105
LEGAL COUNSEL
Stradley, Ronon, Stevens & Young, LLP
2600 One Commerce Square
Philadelphia, Pennsylvania 19103-7098
For an enlarged version of this prospectus please call 1-800/DIAL BEN.
Your Representative Is:
[]P 05/96
FRANKLIN BLUE CHIP FUND
FRANKLIN STRATEGIC SERIES
STATEMENT OF ADDITIONAL INFORMATION
MAY 28, 1996
777 MARINERS ISLAND BLVD., P.O. BOX 7777
SAN MATEO, CA 94403-7777 1-800/DIAL BEN
CONTENTS PAGE
How Does the Fund Invest Its Assets?
What Are the Fund's Potential Risks?
Investment Restrictions
Officers and Trustees
Investment Advisory and Other Services
How Does the Fund Purchase Securities
For Its Portfolio?
How Do I Buy and Sell Shares?
How Are Fund Shares Valued?
Additional Information Regarding Taxation
The Fund's Underwriter
General Information
Useful Terms and Definitions
Appendix
The Franklin Blue Chip Fund (the "Fund") is a diversified series of Franklin
Strategic Series (the "Trust"), an open-end management investment company.
The Fund's investment objective is capital appreciation. In seeking to meet
this objective, the Fund invests primarily in equity securities of blue chip
companies. The Fund may also seek current income incidental to long-term
capital appreciation, although this is not an objective of the Fund.
A prospectus for the Fund, dated May 28, 1996, as may be amended from time to
time, provides the basic information you should know before investing in the
Fund and may be obtained without charge from the Fund or Distributors, at the
address or telephone number shown above.
THIS SAI IS NOT A PROSPECTUS. IT CONTAINS INFORMATION IN ADDITION TO AND IN
MORE DETAIL THAN SET FORTH IN THE FUND'S PROSPECTUS. THIS SAI IS INTENDED TO
PROVIDE YOU WITH ADDITIONAL INFORMATION REGARDING THE ACTIVITIES AND
OPERATIONS OF THE FUND, AND SHOULD BE READ IN CONJUNCTION WITH THE FUND'S
PROSPECTUS.
HOW DOES THE FUND INVEST ITS ASSETS?
The following provides more detailed information about some of the securities
the Fund may buy and its investment policies. You should read it together
with the section in the Fund's prospectus entitled "How Does the Fund Invest
Its Assets?"
American Depositary Receipts. The Fund may buy sponsored or unsponsored
American Depositary Receipts ("ADRs"). With a sponsored ADR, the issuing
facility is established by the participation of the issuer and the depositary
institution under a deposit agreement that sets out the rights and
responsibilities of the issuer, the depositary and the ADR holder. Under the
terms of most sponsored arrangements, depositaries agree to distribute
notices of shareholder meetings and voting instructions. This ensures ADR
holders will be able to exercise voting rights through the depositary with
respect to the deposited securities.
An unsponsored ADR has no sponsorship by the issuing facility and more than
one depositary institution may be involved in its issuance. An unsponsored
ADR typically clears through a depositary, such as the Depository Trust
Company, so there should be no additional delays in selling the security or
in obtaining dividends. Although not required, the depositary normally
requests a letter of non-objection from the issuer and is not required to
distribute notices of shareholder meetings or financial information to the
ADR holder.
Forward Currency Exchange Transactions. The Fund may enter into forward
currency exchange transactions in order to (i) "lock-in" the U.S. dollar
price of a security in its portfolio denominated in a foreign currency; (ii)
sell an amount of a foreign currency approximating the value of some or all
of its portfolio securities denominated in that foreign currency when
Advisers believes the foreign currency may decline substantially against the
U.S. dollar; or (iii) buy a foreign currency for a fixed dollar amount when
Advisers believes the U.S. dollar may substantially decline against that
foreign currency.
The value of securities denominated in a foreign currency may change during
the time between when a forward transaction is entered into and the time it
settles. It is therefore generally not possible to match precisely the
forward transaction amount and the value of the securities in the Fund's
portfolio denominated in the currency involved. Using a forward currency
transaction to protect the value of the Fund's portfolio securities against a
decline in the value of a currency does not eliminate fluctuations in the
underlying prices of the securities. It simply establishes a rate of exchange
that the Fund can achieve at some future time. The precise projection of
short-term currency market movements is not possible and short-term hedging
provides a way to fix the dollar value of only a portion of the Fund's
foreign securities.
To limit the potential risks of buying currency under forward currency
transactions, the Fund will keep cash, cash equivalents or readily marketable
high-grade debt securities equal to the amount of the purchase in a
segregated account with its custodian bank to be used to pay for the
commitment. The Fund will cover any commitments under these transactions to
sell currency by owning the underlying currency or an absolute right to
acquire the underlying currency. The segregated account will be
marked-to-market daily.
Convertible Securities. A convertible security is usually issued either by an
operating company or an investment bank. If it's issued by an operating
company, it tends to be senior to common stock, but subordinate to other
types of fixed-income securities issued by that company. When a convertible
security issued by an operating company is "converted," the operating company
often issues new stock to the holder of the convertible security. If the
parity price of the convertible security is less than the call price,
however, the operating company may pay out cash instead of common stock. If
the convertible security is issued by an investment bank, the security is an
obligation of that bank and is convertible through the bank. The holder of a
convertible security has recourse only to the issuer. Therefore, the issuer
may be important in determining the security's true value.
The Fund uses the same criteria to rate a convertible debt security that it
uses to rate a more conventional debt security and treats a convertible
preferred stock as 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 an issuer's insolvency.
An issuer's failure to make a dividend payment is generally not an event of
default entitling the holder of preferred stock to take action. A preferred
stock generally has no maturity date, so its market value is dependent on the
issuer's business prospects for an indefinite period of time. Distributions
from preferred stock are dividends, not interest payments, and are usually
treated as dividends for corporate tax purposes.
Options. The Fund may buy or write put and call options on securities listed
on a national securities exchange for portfolio hedging purposes. All options
written by the Fund will be covered. This means so long as the Fund is
obligated as the writer of a call option, it will own the underlying security
subject to the call or an absolute right to acquire the security without
additional cash consideration (or for additional cash consideration if the
amount is held in a segregated account with its custodian bank) upon
conversion of other securities in its portfolio. A call option is also
covered if the Fund holds a call on the same security and in the same
principal amount as the call written where the exercise price of the call
held is (a) equal to or less than the exercise price of the call written or
(b) greater than the exercise price of the call written if the difference is
held in cash or high-grade debt securities in a segregated account with the
Fund's custodian bank.
A put option written by the Fund is covered if the Fund maintains cash or
high-grade debt securities with a value equal to the exercise price of the
written put in a segregated account with its custodian bank. A put is also
covered if the Fund holds a put on the same security and in the same
principal amount as the put written where the exercise price of the put held
is equal to or greater than the exercise price of the put written.
The premium paid by the buyer of an option will reflect, among other things,
the relationship of the exercise price to the market price and volatility of
the underlying security, the remaining term of the option, supply and demand,
and interest rates.
The writer of an option may have no control over when the underlying
securities must be sold, in the case of a call option, or purchased, in the
case of a put option, since the writer may be assigned an exercise notice at
any time prior to the termination of the obligation. Whether or not an option
expires unexercised, the writer retains the amount of the premium. This
amount may, in the case of a covered call option, be offset by a decline in
the market value of the underlying security during the option period. If a
call option is exercised, the writer experiences a profit or loss from the
sale of the underlying security. If a put option is exercised, the writer
must fulfill the obligation to buy the underlying security at the exercise
price, which will usually exceed the market value of the underlying security
at that time.
If the writer of an option wants to terminate its obligation, the writer may
effect a "closing purchase transaction." This is done by buying an option of
the same series as the option previously written. The effect of the purchase
is that the writer's position will be canceled by the clearing corporation.
However, a writer may not effect a closing purchase transaction after being
notified of the exercise of an option. Likewise, the holder of an option may
liquidate its position by effecting a "closing sale transaction." This is
done by selling an option of the same series as the option previously
purchased. There is no guarantee that either a closing purchase or a closing
sale transaction may be made at the time desired by the Fund.
Effecting a closing transaction in the case of a written call option allows
the Fund to write another call option on the underlying security with a
different exercise price, expiration date or both. In the case of a written
put option, a closing transaction allows the Fund to write another covered
put option. Effecting a closing transaction also allows the cash or proceeds
from the sale of any securities subject to the option to be used for other
Fund investments. If the Fund wants to sell a particular security from its
portfolio on which it has written a call option, it will effect a closing
transaction prior to or at the same time as the sale of the security.
The Fund will realize a profit from a closing transaction if the price of the
transaction is less than the premium received from writing the option or is
more than the premium paid to buy the option. Likewise, the Fund will realize
a loss from a closing transaction if the price of the transaction is more
than the premium received from writing the option or is less than the premium
paid to buy the option. Because increases in the market price of a call
option will generally reflect increases in the market price of the underlying
security, any loss resulting from the repurchase of a call option is likely
to be offset in whole or in part by appreciation of the underlying security
owned by the Fund.
The writing of covered put options involves certain risks. For example, if
the market price of the underlying security rises or otherwise is above the
exercise price, the put option will expire worthless and the Fund's gain will
be limited to the premium received. If the market price of the underlying
security declines or otherwise is below the exercise price, the Fund may
elect to close the position or take delivery of the security at the exercise
price and the Fund's return will be the premium received from the put option
minus the amount by which the market price of the security is below the
exercise price.
The Fund may buy call options on securities it intends to buy in order to
limit the risk of a substantial increase in the market price of the security
before the purchase is effected. The Fund may also buy call options on
securities held in its portfolio and on which it has written call options.
Prior to its expiration, a call option may be sold in a closing sale
transaction. Profit or loss from the sale will depend on whether the amount
received is more or less than the premium paid for the call option plus any
related transaction costs.
The Fund may buy put options on securities to protect against a decline in
the market value of the underlying security below the exercise price less the
premium paid for the option. The ability to buy put options allows the Fund
to protect the unrealized gain in an appreciated security in its portfolio
without actually selling the security. In addition, the Fund continues to
receive interest or dividend income on the security. The Fund may sell a put
option it has previously purchased prior to the sale of the security
underlying the option. The sale of the option will result in a net gain or
loss depending on whether the amount received on the sale is more or less
than the premium and other transaction costs paid for the put option. Any
gain or loss may be wholly or partially offset by a change in the value of
the underlying security that the Fund owns or has the right to acquire.
The Fund may write covered put and call options and buy put and call options
that trade in the over-the-counter ("OTC") market to the same extent that it
may engage in exchange traded options. Like exchange traded options, OTC
options give the holder the right to buy, in the case of OTC call options, or
sell, in the case of OTC put options, an underlying security from or to the
writer at a stated exercise price. However, OTC options differ from exchange
traded options in certain material respects.
OTC options are arranged directly with dealers and not with a clearing
corporation. Thus, there is a risk of non-performance by the dealer. Because
there is no exchange, pricing is typically done based on information from
market makers. OTC options are available for a greater variety of securities
and in a wider range of expiration dates and exercise prices, however, than
exchange traded options and the writer of an OTC option is paid the premium
in advance by the dealer.
Futures. The Fund may buy and sell futures contracts for securities and
currencies. The Fund may also enter into closing purchase and sale
transactions with respect to these futures contracts. The Fund will engage in
futures transactions only for bona fide hedging or other appropriate risk
management purposes. All futures contracts entered into by the Fund are
traded on U.S. exchanges or boards of trade licensed and regulated by the
Commodities Futures Trading Commission ("CFTC") or on foreign exchanges.
When securities prices are falling, the Fund may offset a decline in the
value of its current portfolio securities through the sale of futures
contracts. When prices are rising, the Fund can attempt to secure better
prices than might be available when it intends to buy securities through the
purchase of futures contracts. Similarly, the Fund can sell futures contracts
on a specified currency to protect against a decline in the value of that
currency and its portfolio securities denominated in that currency. The Fund
can buy futures contracts on a foreign currency to fix the price in U.S.
dollars of a security denominated in that currency that the Fund has
purchased or expects to buy.
Although futures contracts by their terms generally call for the actual
delivery or acquisition of underlying securities or currency, in most cases
the contractual obligation is fulfilled before the date of the contract
without having to make or take delivery. The contractual obligation is offset
by buying (or selling, as the case may be) on a commodities exchange an
identical futures contract calling for delivery in the same month. This
transaction, which is effected through a member of an exchange, cancels the
obligation to make or take delivery of the securities or currency underlying
the contractual obligation. The Fund may incur brokerage fees when it buys or
sells futures contracts.
Positions taken in the futures markets are not normally held to maturity, but
are liquidated through offsetting transactions that may result in a profit or
a loss. While the Fund's futures contracts on securities and currencies will
usually be liquidated in this manner, the Fund may instead make or take
delivery of the underlying securities or currencies whenever it appears
economically advantageous for it to do so. A clearing corporation associated
with the exchange on which futures on securities or currencies are traded
guarantees that, if still open, the sale or purchase will be performed on the
settlement date.
To the extent the Fund enters into a futures contract, it will deposit in a
segregated account with its custodian cash or U.S. Treasury obligations equal
to a specified percentage of the value of the futures contract (the "initial
margin"), as required by the relevant contract market and futures commission
merchant. The futures contract will be marked-to-market daily. Should the
value of the futures contract decline relative to the Fund's position, the
Fund will be required to pay the futures commission merchant an amount equal
to the change in value.
When-Issued or Delayed Delivery Transactions. If the Fund buys securities on
a when-issued basis, it will do so for the purpose of acquiring securities
consistent with its investment objective and polices and not for investment
leverage. The Fund may sell securities purchased on a when-issued basis
before the settlement date, however, if Advisers believes it is advisable to
do so.
When the Fund is the buyer in one of these transactions, it relies on the
seller to complete the transaction. If the seller fails to do so, the Fund
may miss an advantageous price or yield for the underlying security. When the
Fund is the buyer, it will keep cash or high-grade marketable securities in a
segregated account with its custodian bank until payment is made. The amount
held in the account will equal the amount the Fund must pay for the
securities at delivery.
Standby Commitment Agreements. The Fund may enter into a standby commitment
agreement to invest in the security underlying the commitment at a yield or
price that Advisers believes is advantageous to the Fund. The Fund will not
enter into a standby commitment if the remaining term of the commitment is
more than 45 days. If the Fund enters into a standby commitment, it will keep
cash or high-grade marketable securities in a segregated account with its
custodian bank in an amount equal to the purchase price of the securities
underlying the commitment.
The purchase of a security subject to a standby commitment agreement and the
related commitment fee will be recorded on the Fund's books on the date the
security can reasonably be expected to be issued. The value of the security
will then be reflected in the calculation of the Fund's net asset value. The
cost basis of the security will be adjusted by the amount of the commitment
fee. If the security is not issued, the commitment fee will be recorded as
income on the expiration date of the standby commitment.
Restricted Securities. The Board has authorized the Fund to invest in
restricted securities, if consistent with the Fund's investment objective. If
Advisers determines on a daily basis that there is a liquid institutional or
other market for these securities, the Board has authorized them to be
considered liquid securities and not subject to the Fund's policy on illiquid
investments. When determining whether a restricted security is properly
considered a liquid security, Advisers and the Board will consider: (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 other potential buyers;
(iii) dealer undertaking to make a market in the security; and (iv) the
nature of the security and the marketplace trades, for example the time
needed to sell the security, the method of soliciting offers, and the
mechanics of transfer.
WHAT ARE THE FUND'S POTENTIAL RISKS?
Forward Currency Exchange Transactions. While the Fund may enter into forward
currency transactions to reduce currency exchange rate risks, these
transactions involve certain other risks. Forward currency exchange
transactions may limit the potential gain to the Fund from a positive change
in the relationship between the U.S. dollar and foreign currencies or between
foreign currencies. Unanticipated changes in currency exchange rates may
result in poorer overall performance for the Fund than if it had not entered
into these transactions. Furthermore, there may be imperfect correlation
between the Fund's portfolio securities denominated in a particular currency
and forward currency transactions entered into by the Fund. This may cause
the Fund to sustain losses that will prevent the Fund from achieving a
complete hedge or expose the Fund to the risk of foreign exchange loss.
Convertible Securities. The value of a convertible debt security may be
influenced by both interest rate and market movements. Like a regular debt
security, it tends to increase in market value when interest rates decline
and decrease in value when interest rates rise. Like a common stock, it also
tends to increase as the market value of the underlying stock rises and
decrease as the market value of the underlying stock declines. Because its
value is influenced by both these factors, 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.
Options and Futures. The Fund's options and futures investments involve
certain risks. These risks include, among others, the risk that the
effectiveness of an options and futures strategy depends on the degree that
price movements in the underlying securities or currency, in the case of the
Fund's futures transactions, correlate with price movements in the relevant
portion of the Fund's portfolio. The Fund bears the risk that the prices of
its portfolio securities will not move in the same amount as the option or
future it has purchased, or that there may be a negative correlation that
would result in a loss on both the securities and the option or futures
contract. There is also the risk of loss by the Fund of margin deposits in
the event of bankruptcy of a broker with whom the Fund has an open position
in a futures contract or option.
Positions in exchange traded options and futures may be closed out only on an
exchange that provides a secondary market. There can be no assurance that a
liquid secondary market will exist for any particular option or futures
contract at any specific time. Thus, it may not be possible to close an
option or futures position. The inability to close options or futures
positions may have an adverse impact on the Fund's ability to effectively
hedge its securities. Furthermore, if the Fund is unable to close out a
futures or options position and if prices move adversely, the Fund will have
to continue to make daily cash payments to maintain its required margin. If
the Fund does not have sufficient cash to do this, it may have to sell
portfolio securities at a disadvantageous time. Of course, the Fund will
enter into an option or futures position only if there appears to be a liquid
secondary market for those options or futures.
Similarly, 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 by entering into a closing sale
transaction with the dealer that issued it. 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.
When-Issued or Delayed Delivery Transactions. The securities underlying these
transactions are subject to market fluctuation prior to delivery and
generally do not earn interest until their scheduled delivery date. There is
the risk that the value or yield of the security at the time of delivery may
be more or less than the price paid for the security or the yield available
when the transaction was entered into.
Standby Commitment Agreements. There can be no assurance that the securities
underlying a standby commitment agreement will be issued. If issued, the
value of the security may be more or less than its purchase price. Since the
issuance of the security is at the option of the issuer, the Fund may bear
the risk of a decline in value of the security and may not benefit if the
security appreciates in value during the commitment period.
INVESTMENT RESTRICTIONS
The Fund has adopted the following restrictions as fundamental policies,
which means that they may not be changed without the approval of a majority
of the outstanding voting securities of the Fund. Under the 1940 Act, a "vote
of a majority of the outstanding voting securities" of the Fund means the
affirmative vote of the lesser of (i) more than 50% of the outstanding 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. The Fund MAY NOT:
1. Borrow money or mortgage or pledge any of its assets, except it may borrow
up to 15% of its total assets (including the amount borrowed) 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 with these borrowings. The Fund may borrow
from banks, other Franklin Templeton Funds or other persons to the extent
permitted by applicable law. The Fund will not make any additional
investments while borrowings exceed 5% of its total assets.
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 short-term credit 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 these activities.
4. Loan money, except as is consistent with the Fund's investment objective, and
except that the Fund may (a) buy 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. Buy or sell commodities or commodity contracts, except that the Fund may
enter into financial futures contracts, options thereon, and forward contracts.
6. Invest more than 25% of the Fund's assets (at the time of the most recent
investment) in any single industry.
7. Issue securities senior to the Fund's presently authorized shares of
beneficial interest.
Additional Restrictions. The Fund has adopted the following additional
restrictions. These restrictions are not fundamental and 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. Buy securities on margin, except that the Fund may make margin payments in
connection with futures, options and currency transactions.
3. Buy or retain securities of any company in which officers, trustees or
directors of the Fund or its investment manager individually own more than
one-half of 1% of the securities of such company, and in the aggregate own
more than 5% of the securities of such company.
4. Buy securities of open-end or closed-end investment companies, except in
compliance with the 1940 Act, and except that the Fund may invest all or
substantially all of its assets in another registered investment company
having the same investment objective and policies as the Fund.
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
all or substantially all of its assets in another registered investment
company having the same investment objective and policies as the Fund.
7. 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) that are not listed on the New York or American
Stock Exchange.
If a percentage restriction contained herein is adhered to at the time of
investment, a later increase or decrease in the percentage resulting from a
change in the value of portfolio securities or 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
trustees, in turn, elect the officers of the Trust who are responsible for
administering day-to-day operations of the Fund. The affiliations of the
officers and trustees and their principal occupations for the past five years
are listed below. Trustees who are deemed to be "interested persons" of the
Fund, as defined in the 1940 Act, are indicated by an asterisk (*).
POSITIONS AND OFFICES PRINCIPAL OCCUPATION
NAME, AGE AND ADDRESS WITH THE TRUST DURING PAST FIVE YEARS
Frank H. Abbott, III (75)
1045 Sansome St.
San Francisco, CA 94111
Trustee
President and Director, Abbott Corporation (an investment company); and
director, trustee or managing general partner, as the case may be, of 31 of
the investment companies in the Franklin Group of Funds.
Harris J. Ashton (63)
General Host Corporation
Metro Center, 1 Station Place
Stamford, CT 06904-2045
Trustee
President, Chief Executive Officer and Chairman of the Board, General Host
Corporation (nursery and craft centers); Director, RBC Holdings, Inc. (a bank
holding company) and Bar-S Foods; and director, trustee or managing general
partner, as the case may be, of 56 of the investment companies in the
Franklin Templeton Group of Funds.
*Harmon E. Burns (51)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Trustee
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 61 of the investment companies in the Franklin
Templeton Group of Funds.
S. Joseph Fortunato (63)
Park Avenue at Morris County
P. O. Box 1945
Morristown, NJ 07962-1945
Trustee
Member of the law firm of Pitney, Hardin, Kipp & Szuch; Director of General
Host Corporation; director, trustee or managing general partner, as the case
may be, of 58 of the investment companies in the Franklin Templeton Group of
Funds.
David W. Garbellano (81)
111 New Montgomery St., #402
San Francisco, CA 94105
Trustee
Private Investor; Assistant Secretary/Treasurer and Director, Berkeley
Science Corporation (a venture capital company); and director, trustee or
managing general partner, as the case may be, of 30 of the investment
companies in the Franklin Group of Funds.
*Charles B. Johnson (63)
777 Mariners Island Blvd.
San Mateo, CA 94404
Chairman of the Board and Trustee
President and Director, Franklin Resources, Inc.; Chairman of the Board and
Director, Franklin Advisers, Inc. and Franklin Templeton Distributors, Inc.;
Director, Franklin/Templeton Investor Services, Inc. and General Host
Corporation; 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 57 of the investment companies in the Franklin
Templeton Group of Funds.
*Rupert H. Johnson, Jr. (55)
777 Mariners Island Blvd.
San Mateo, CA 94404
President and Trustee
Executive Vice President and Director, Franklin Resources, Inc. and Franklin
Templeton Distributors, Inc.; President and Director, Franklin Advisers,
Inc.; Director, Franklin/Templeton Investor Services, Inc.; and officer
and/or director, trustee or managing general partner, as the case may be, of
most other subsidiaries of Franklin Resources, Inc. and of 61 of the
investment companies in the Franklin Templeton Group of Funds.
Frank W. T. LaHaye (67)
20833 Stevens Creek Blvd.
Suite 102
Cupertino, CA 95014
Trustee
General Partner, Peregrine Associates and Miller & LaHaye, which are General
Partners of Peregrine Ventures and Peregrine Ventures II (venture capital
firms); Chairman of the Board and Director, Quarterdeck Office Systems, Inc.;
Director, FischerImaging Corporation; and director or trustee, as the case
may be, of 26 of the investment companies in the Franklin Group of Funds.
Gordon S. Macklin (68)
8212 Burning Tree Road
Bethesda, MD 20817
Trustee
Chairman, White River Corporation (information services); Director, Fund
American Enterprises Holdings, Inc., Lockheed Martin Corporation, MCI
Communications Corporation, MedImmune, Inc. (biotechnology), InfoVest
Corporation (information services), and Fusion Systems Corporation
(industrial technology); and director, trustee or managing general partner,
as the case may be, of 53 of the investment companies in the Franklin
Templeton Group of Funds; and formerly held the following positions:
Chairman, Hambrecht and Quist Group; Director, H & Q Healthcare Investors;
and President, National Association of Securities Dealers, Inc..
Kenneth V. Domingues (63)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President - Financial Reporting and Accounting Standards
Senior Vice President, Franklin Resources, Inc., Franklin Advisers, Inc., and
Franklin Templeton Distributors, Inc.; officer and/or director, as the case
may be, of other subsidiaries of Franklin Resources, Inc.; and officer and/or
managing general partner, as the case may be, of 37 of the investment
companies in the Franklin Group of Funds.
Martin L. Flanagan (35)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Chief Financial Officer
Senior Vice President, Chief Financial Officer and Treasurer, Franklin
Resources, Inc.; Executive Vice President, Templeton Worldwide, Inc.; Senior
Vice President and Treasurer, Franklin Advisers, Inc. and Franklin Templeton
Distributors, Inc.; Senior Vice President, Franklin/Templeton Investor
Services, Inc.; officer of most other subsidiaries of Franklin Resources,
Inc.; and officer and/or director or trustee, as the case may be, of 61 of
the investment companies in the Franklin Templeton Group of Funds.
Deborah R. Gatzek (47)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Secretary
Senior Vice President and General Counsel - Legal, Franklin Resources, Inc.
and Franklin Templeton Distributors, Inc.; Vice President, Franklin Advisers,
Inc. and officer of 61 of the investment companies in the Franklin Templeton
Group of Funds.
Charles E. Johnson (39)
500 East Broward Blvd.
Fort Lauderdale, FL 33394-3091
Vice President
Senior Vice President and Director, Franklin Resources, Inc.; Senior Vice
President, Franklin Templeton Distributors, Inc.; President and Director,
Templeton Worldwide, Inc. and Franklin Institutional Services Corporation;
officer and/or director, as the case may be, of some of the subsidiaries of
Franklin Resources, Inc.; and officer and/or director, trustee or managing
general partner, as the case may be, of 40 of the investment companies in the
Franklin Templeton Group of Funds.
Diomedes Loo-Tam (57)
777 Mariners Island Blvd.
San Mateo, CA 94404
Treasurer and Principal Accounting Officer
Employee of Franklin Advisers, Inc.; and officer of 37 of the investment
companies in the Franklin Group of Funds.
Edward V. McVey (58)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Senior Vice President/National Sales Manager, Franklin Templeton
Distributors, Inc.; and officer of 32 of the investment companies in the
Franklin Group of Funds.
The preceding table indicates those officers and trustees who are also
affiliated persons of Distributors and Advisers. Nonaffiliated trustees are
currently paid fees of $300 for each regularly scheduled meeting and $300 per
meeting attended. As indicated above, certain of the Trust's nonaffiliated
trustees also serve as directors, trustees or managing general partners of
other investment companies in the Franklin Templeton Group of Funds from
which they may receive fees for their services. The following table indicates
the total fees paid to nonaffiliated trustees by the Trust and by other funds
in the Franklin Templeton Group of Funds.
NUMBER OF BOARDS
TOTAL FEES IN THE FRANKLIN
RECEIVED FROM TEMPLETON GROUP OF
TOTAL FEES THE FRANKLIN FUNDS ON WHICH
RECEIVED FROM TEMPLETON GROUP EACH SERVES***
THE TRUST* OF FUNDS**
NAME
Frank H. Abbott, III $162,420 31
Harris J. Ashton 327,925 56
S. Joseph Fortunato 344,745 58
David Garbellano 146,100 30
Frank W.T. LaHaye 143,200 26
Gordon S. Macklin 321,525 53
*For the fiscal year ended April 30, 1996.
**For the calendar year ended December 31, 1995.
***The number of boards is based on the number of registered investment
companies in the Franklin Templeton Group of Funds and does not include the
total number of series or funds within each investment company for which the
trustees are responsible. The Franklin Templeton Group of Funds currently
includes 61 registered investment companies, consisting of approximately 162
U.S. based funds or series.
Nonaffiliated trustees are reimbursed for expenses incurred in connection
with attending board meetings, paid pro rata by each fund in the Franklin
Templeton Group of Funds for which they serve as director, trustee or
managing general partner. No officer or trustee received any other
compensation directly from the Trust. Certain officers or trustees who are
shareholders of Resources may be deemed to receive indirect remuneration by
virtue of their participation, if any, in the fees paid to its subsidiaries.
Charles B. Johnson and Rupert H. Johnson, Jr. are brothers and the father and
uncle, respectively, of Charles E. Johnson.
From time to time, the number of Fund shares held in the "street name"
accounts of various securities dealers for the benefit of their clients or in
centralized securities depositories may exceed 5% of the total shares
outstanding. As of the date of this SAI, Resources owned substantially all of
the outstanding shares of the Fund as a result of having provided the Fund's
initial capitalization.
INVESTMENT ADVISORY AND OTHER SERVICES
The investment manager of the Fund is Advisers. Advisers is a wholly owned
subsidiary of Resources, a publicly owned holding company whose shares are
listed on the Exchange. Resources owns several other subsidiaries involved in
investment management and shareholder services.
Pursuant to the management agreement, the Manager provides investment
research and portfolio management services, including the selection of
securities for the Fund to purchase, hold or sell and the selection of
brokers through whom the Fund's portfolio transactions are executed. The
Manager's activities are subject to the review and supervision of the Board
to whom the Manager renders periodic reports of the Fund's investment
activities. Under the terms of the management agreement, the Manager provides
office space and office furnishings, facilities and equipment required for
managing the business affairs of the Fund; maintains all internal
bookkeeping, clerical, secretarial and administrative personnel and services;
and provides certain telephone and other mechanical services. The Manager is
covered by fidelity insurance on its officers, directors and employees for
the protection of the Fund.
The Manager also provides management services to numerous other investment
companies or funds pursuant to management agreements with each fund. The
Manager may give advice and take action with respect to any of the other
funds it manages, or for its own account, which may differ from action taken
by the Manager on behalf of the Fund. Similarly, with respect to the Fund,
the Manager is not obligated to recommend, purchase or sell, or to refrain
from recommending, purchasing or selling any security that the Manager and
access persons, as defined by the 1940 Act, may purchase or sell for its or
their own account or for the accounts of any other fund. Furthermore, the
Manager is not obligated to refrain from investing in securities held by the
Fund or other funds which it manages or administers. Of course, any
transactions for the accounts of the Manager and other access persons will be
made in compliance with the Fund's Code of Ethics.
The management agreement is in effect until February 13, 1998. Thereafter, it
may continue in effect for successive annual periods providing such
continuance is specifically approved at least annually by a vote of the Board
or by a vote of the holders of a majority of the Fund's outstanding voting
securities, and in either event by a majority vote of the Trust's trustees
who are not parties to the management agreement or interested persons of any
such party (other than as trustees of the Trust), cast in person at a meeting
called for that purpose. The management agreement may be terminated without
penalty at any time by the Board or by a vote of the holders of a majority of
the Fund's outstanding voting securities, or by the Manager on 60 days'
written notice and will automatically terminate in the event of its
assignment, as defined in the 1940 Act.
Investor Services, a wholly owned subsidiary of Resources, is the shareholder
servicing agent for the Fund and acts as the Fund's transfer agent and
dividend-paying agent. Investor Services is compensated on the basis of a
fixed fee per account.
Bank of 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.
Coopers & Lybrand L.L.P., 333 Market Street, San Francisco, California 94105,
are the Fund's independent auditors.
HOW DOES THE FUND PURCHASE SECURITIES FOR ITS PORTFOLIO?
Under the current management agreement, the selection of brokers and dealers
to execute transactions in the Fund's portfolio is made by the Manager in
accordance with criteria set forth in the management agreement and any
directions which the Board may give.
When placing a portfolio transaction, the Manager attempts to obtain the best
net price and execution of the transaction. On portfolio transactions done on
a securities exchange, the amount of commission paid by the Fund is
negotiated between the Manager and the broker executing the transaction. The
Manager seeks to obtain the lowest commission rate available from brokers
that are felt to be capable of efficient execution of the transactions. The
determination and evaluation of the reasonableness of the brokerage
commissions paid in connection with portfolio transactions are based to a
large degree on the professional opinions of the persons responsible for the
placement and review of such transactions. These opinions are formed on the
basis of, among other things, the experience of these individuals in the
securities industry and information available to them concerning the level of
commissions being paid by other institutional investors of comparable size.
The Manager will ordinarily place orders for the purchase and sale of
over-the-counter securities on a principal rather than agency basis with a
principal market maker unless, in the opinion of the Manager, a better price
and execution can otherwise be obtained. Purchases of portfolio securities
from underwriters will include a commission or concession paid by the issuer
to the underwriter, and purchases from dealers will include a spread between
the bid and ask price. The Fund seeks to obtain prompt execution of orders at
the most favorable net price.
The amount of commission is not the only relevant factor to be considered in
the selection of a broker to execute a trade. If it is felt to be in the
Fund's best interest, the Manager may place portfolio transactions with
brokers who provide the types of services described below, even if it means
the Fund will pay a higher commission than if no weight were given to the
broker's furnishing of these services. This will be done only if, in the
opinion of the Manager, the amount of any additional commission is reasonable
in relation to the value of the services. Higher commissions will be paid
only when the brokerage and research services received are bona fide and
produce a direct benefit to the Fund or assist the Manager in carrying out
its responsibilities to the Fund, or when it is otherwise in the best
interest of the Fund to do so, whether or not such services may also be
useful to the Manager in advising other clients.
When it is felt that several brokers are equally able to provide the best net
price and execution, the Manager may decide to execute transactions through
brokers who provide quotations and other services to the Fund, specifically
including the quotations necessary to determine the value of the Fund's net
assets, in such amount of total brokerage as may reasonably be required in
light of such services, and through brokers who supply research, statistical
and other data to the Fund and Manager in such amount of total brokerage as
may reasonably be required.
It is not possible to place a dollar value on the special executions or on
the research services received by the Manager from dealers effecting
transactions in portfolio securities. The allocation of transactions in order
to obtain additional research services permits the Manager to supplement its
own research and analysis activities and to receive the views and information
of individuals and research staff of other securities firms. As long as it is
lawful and appropriate to do so, the Manager and its affiliates may use this
research and data in their investment advisory capacities with other clients.
Provided that the Fund's officers are satisfied that the best execution is
obtained, the sale of Fund shares may also be considered as a factor in the
selection of broker-dealers to execute the Fund's portfolio transactions.
Because Distributors is a member of the National Association of Securities
Dealers, it is sometimes entitled to obtain certain fees when the Fund
tenders portfolio securities pursuant to a tender-offer solicitation. As a
means of recapturing brokerage for the benefit of the Fund, any portfolio
securities tendered by the Fund will be tendered through Distributors if it
is legally permissible to do so. In turn, the next management fee payable to
Advisers under the management agreement will be reduced by the amount of any
fees received by Distributors in cash, less any costs and expenses incurred
in connection therewith.
If purchases or sales of securities of the Fund and one or more other
investment companies or clients supervised by the Manager are considered at
or about the same time, transactions in such securities will be allocated
among the several investment companies and clients in a manner deemed
equitable to all by the Manager, taking into account the respective sizes of
the funds and the amount of securities to be purchased or sold. It is
recognized that in some cases this procedure could possibly have a
detrimental effect on the price or volume of the security so far as the Fund
is concerned. In other cases it is possible that the ability to participate
in volume transactions and to negotiate lower brokerage commissions will be
beneficial to the Fund.
HOW DO I BUY AND SELL SHARES?
All checks, drafts, wires and other payment mediums used for purchasing or
redeeming shares of the Fund must be denominated in U.S. dollars. The Fund
reserves the right, in its sole discretion, to either (a) reject any order
for the purchase or sale of shares denominated in any other currency or (b)
honor the transaction or make adjustments to your account for the transaction
as of a date and with a foreign currency exchange factor determined by the
drawee bank.
In connection with exchanges, it should be noted that since the proceeds from
the sale of shares of an investment company are generally not available until
the fifth business day following the redemption, the funds into which you are
seeking to exchange reserve the right to delay issuing shares pursuant to an
exchange until said fifth business day. The redemption of shares of the Fund
to complete an exchange will be effected at the close of business on the day
the request for exchange is received in proper form at the net asset value
then effective. Please see "What If My Investment Outlook Changes? - Exchange
Privilege" in the Prospectus.
If, in connection with the purchase of Fund shares, you submit a check or a
draft that is returned unpaid to the Fund, the Fund may impose a $10 charge
against your account for each returned item.
Dividend checks returned to the Fund marked "unable to forward" by the postal
service will be deemed to be a request to change your dividend option to
reinvest all distributions and the proceeds will be reinvested in additional
shares at net asset value until new instructions are received.
The Fund may deduct from your account the costs of its efforts to locate you
if mail is returned as undeliverable or the Fund is otherwise unable to
locate you or verify your current mailing address. These costs may include a
percentage of the account when a search company charges a percentage fee in
exchange for its location services.
Under agreements with certain banks in Taiwan, Republic of China, the Fund's
shares are available to such banks' discretionary trust funds at net asset
value. The banks may charge service fees to their customers who participate
in the discretionary trusts. Pursuant to agreements, a portion of such
service fees may be paid to Distributors or one of its affiliates to help
defray expenses of maintaining a service office in Taiwan, including expenses
related to local literature fulfillment and communication facilities.
Shares of the Fund may be offered to investors in Taiwan through securities
firms known locally as Securities Investment Consulting Enterprises. In
conformity with local business practices in Taiwan, shares of the Fund will
be offered with the following schedule of sales charges:
SIZE OF PURCHASE - U.S. DOLLARS SALES CHARGE
Up to $100,000 3%
$100,000 to $1,000,000 2%
Over $1,000,000 1%
PURCHASES AND REDEMPTIONS THROUGH SECURITIES DEALERS
Orders for the purchase of shares of the Fund received in proper form prior
to the scheduled close of the Exchange (generally 1:00 p.m. Pacific time) any
business day that the Exchange is open for trading and promptly transmitted
to the Fund will be based upon the public offering price determined that day.
Purchase orders received by securities dealers or other financial
institutions after the scheduled close of the Exchange will be effected at
the Fund's public offering price on the day it is next calculated.
Orders for the redemption of shares are effected at net asset
value subject to the same conditions concerning time of receipt in proper
form. It is the securities dealer's responsibility to transmit the order in a
timely fashion and any loss to you resulting from the failure to do so must
be settled between you and the securities dealer.
OTHER PAYMENTS TO SECURITIES DEALERS
As discussed in the Prospectus under "How Do I Buy Shares? - General," either
Distributors or one of its affiliates may make payments, out of its own
resources, to securities dealers who initiate and are responsible for
purchases made at net asset value by certain trust companies and trust
departments of banks, certain designated retirement plans (excluding IRA and
IRA Rollovers), certain non-designated plans, and certain retirement plans of
organizations with collective retirement plan assets of $1 million or more,
as described below. Distributors may make these payments in the form of
contingent advance payments, which may be recovered from the securities
dealer or set off against other payments due to the securities dealer in the
event shares are redeemed within 12 months of the calendar month of purchase.
Other conditions may apply. All terms and conditions may be imposed by an
agreement between Distributors, or one of its affiliates, and the securities
dealer.
Either Distributors or one of its affiliates may pay the following amounts,
out of its own resources, to securities dealers who initiate and are
responsible for purchases made at net asset value by certain designated
retirement plans (excluding IRA and IRA rollovers): 1% on sales of $1 million
but less than $2 million, plus 0.80% on sales of $2 million but less than $3
million, plus 0.50% on sales of $3 million but less than $50 million, plus
0.25% on sales of $50 million but less than $100 million, plus 0.15% on sales
of $100 million or more. These payment breakpoints are reset every 12 months
for purposes of additional purchases. With respect to purchases made at net
asset value by certain trust companies and trust departments of banks and
certain retirement plans of organizations with collective retirement plan
assets of $1 million or more, either Distributors or one of its affiliates,
out of its own resources, may pay up to 1% of the amount invested.
LETTER OF INTENT
You may qualify for a reduced sales charge on the purchase of shares of the
Fund, as described in the Prospectus. At any time within 90 days after the
first investment which you want to qualify for a reduced sales charge, you
may file with the Fund a signed Shareholder Application with the Letter of
Intent section completed. After the Letter is filed, each additional
investment will be entitled to the sales charge applicable to the level of
investment indicated on the Letter. Sales charge reductions based upon
purchases in more than one of the Franklin Templeton Funds will be effective
only after notification to Distributors that the investment qualifies for a
discount. Your holdings in the Franklin Templeton Funds, including Class II
shares, acquired more than 90 days before the Letter is filed, will be
counted towards completion of the Letter but will not be entitled to a
retroactive downward adjustment in the sales charge. Any redemptions you
make, unless by a designated retirement plan, during the 13-month period will
be subtracted from the amount of the purchases for purposes of determining
whether the terms of the Letter have been completed. If the Letter is not
completed within the 13-month period, there will be an upward adjustment of
the sales charge, depending upon the amount actually purchased (less
redemptions) during the period. The upward adjustment does not apply to
designated retirement plans. If you execute a Letter prior to a change in the
sales charge structure for the Fund, you will be entitled to complete the
Letter at the lower of the new sales charge structure or the sales charge
structure in effect at the time the Letter was filed.
As mentioned in the Prospectus, five percent (5%) of the amount of the total
intended purchase will be reserved in shares of the Fund registered in your
name. This policy of reserving shares does not apply to a designated
retirement plan. If the total purchases, less redemptions, equal the amount
specified under the Letter, the reserved shares will be deposited to an
account in your name or delivered to you or as you direct. If the total
purchases, less redemptions, exceed the amount specified under the Letter and
is an amount which would qualify for a further quantity discount, a
retroactive price adjustment will be made by Distributors and the securities
dealer through whom purchases were made pursuant to the Letter (to reflect
such further quantity discount) on purchases made within 90 days before and
on those made after filing the Letter. The resulting difference in offering
price will be applied to the purchase of additional shares at the offering
price applicable to a single purchase or the dollar amount of the total
purchases. If the total purchases, less redemptions, are less than the amount
specified under the Letter, you will remit to Distributors an amount equal to
the difference in the dollar amount of sales charge actually paid and the
amount of sales charge that would have applied to the aggregate purchases if
the total of such purchases had been made at a single time. Upon such
remittance, the reserved shares held for your account will be deposited to an
account in your name or delivered to you or as you direct. If within 20 days
after written request the difference in sales charge is not paid, the
redemption of an appropriate number of reserved shares to realize the
difference will be made. In the event of a total redemption of the account
prior to fulfillment of the Letter, the additional sales charge due will be
deducted from the proceeds of the redemption, and the balance will be
forwarded to you.
If a Letter is executed on behalf of a designated retirement plan, the level
and any reduction in sales charge for these plans will be based on actual
plan participation and the projected investments in the Franklin Templeton
Funds under the Letter. These plans are not subject to the requirement to
reserve 5% of the total intended purchase, or to any penalty as a result of
the early termination of a plan, nor are these plans entitled to receive
retroactive adjustments in price for investments made before executing the
Letter.
REDEMPTIONS IN KIND
The Fund has committed itself to pay in cash (by check) all requests for
redemption by any shareholder of record, limited in amount, however, during
any 90-day period to the lesser of $250,000 or 1% of the value of the Fund's
net assets at the beginning of the 90-day period. This commitment is
irrevocable without the prior approval of the SEC. In the case of redemption
requests in excess of these amounts, the trustees reserve the right to make
payments in whole or in part in securities or other assets of the Fund, in
case of an emergency, or if the payment of such a redemption in cash would be
detrimental to the existing shareholders of the Fund. In such circumstances,
the securities distributed would be valued at the price used to compute the
Fund's net assets. Should the Fund do so, you may incur brokerage fees in
converting the securities to cash. The Fund does not intend to redeem
illiquid securities in kind. Should it happen, however, you may not be able
to recover your investment in a timely manner and you may incur brokerage
costs in selling the securities.
REDEMPTIONS BY THE FUND
Due to the relatively high cost of handling small investments, the Fund
reserves the right to involuntarily redeem your shares at net asset value if
your account has a value of less than one-half of your initial required
minimum investment, but only where the value of your account has been reduced
by the prior voluntary redemption of shares. Until further notice, it is the
present policy of the Fund not to exercise this right if your account has a
value of $50 or more. In any event, before the Fund redeems your shares and
sends you the proceeds, it will notify you that the value of the shares in
your account is less than the minimum amount and allow you 30 days to make an
additional investment in an amount which will increase the value of your
account to at least $100.
REINVESTMENT DATE
Shares acquired through the reinvestment of dividends will be purchased at
the net asset value determined on the business day following the dividend
record date (sometimes known as the "ex-dividend date"). The processing date
for the reinvestment of dividends may vary from month to month and does not
affect the amount or value of the shares acquired.
REPORTS TO SHAREHOLDERS
The Fund sends annual and semiannual reports regarding its performance and
portfolio holdings to shareholders. If you would like to receive an interim
quarterly report, you may phone Fund Information at 1-800/DIAL BEN.
SPECIAL SERVICES
The Franklin Templeton Institutional Services Department provides specialized
services, including recordkeeping, for institutional investors of the Fund.
The cost of these services is not borne by the Fund.
Investor Services may pay certain financial institutions 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 which the Fund normally
pays Investor Services. These financial institutions may also charge a fee
for their services directly to their clients.
HOW ARE FUND SHARES VALUED?
As noted in the Prospectus, the Fund calculates net asset value as of the
scheduled close of the Exchange (generally 1:00 p.m. Pacific time) each day
that the Exchange is open for trading. As of the date of this SAI, the Fund
is informed that the Exchange observes the following holidays: New Year's
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
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 which are traded both
in the over-the-counter market and on a stock exchange are valued according
to the broadest and most representative market as determined by the Manager.
Portfolio securities underlying actively traded call options are valued at
their market price as determined above. The current market value of any
option held by the Fund is its last sale price on the relevant exchange prior
to the time when assets are valued. Lacking any sales that day or if the last
sale price is outside the bid and ask prices, the options are valued within
the range of the current closing bid and ask prices if such valuation is
believed to fairly reflect the contract's market value.
The value of a foreign security is determined as of the close of trading on
the foreign exchange on which it is traded or as of the scheduled close of
trading on the Exchange, if that is earlier, and that value is then converted
into its U.S. dollar equivalent at the foreign exchange rate in effect at
noon, New York time, on the day the value of the foreign security is
determined. If no sale is reported at that time, the mean between the current
bid and ask prices is used. Occasionally events which affect the values of
foreign securities and foreign exchange rates may occur between the times at
which they are determined and the close of the exchange and will, therefore,
not be reflected in the computation of the Fund's net asset value. If events
which materially affect the values of these foreign securities occur during
such period, then these 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 prior
to the scheduled close of the Exchange. The value of these securities used in
computing the net asset value of the Fund's shares is determined as of such
times. Occasionally, events affecting the values of such securities may occur
between the times at which they are determined and the scheduled close of the
Exchange which will not be reflected in the computation of the Fund's net
asset value. If events materially affecting the values of these securities
occur during such period, then the securities will be valued at their fair
value as determined in good faith by the Board.
Other securities for which market quotations are readily available are valued
at the current market price, which may be obtained from a pricing service,
based on a variety of factors including recent trades, institutional size
trading in similar types of securities (considering yield, risk and maturity)
and/or developments related to specific issues. Securities and other assets
for which market prices are not readily available are valued at fair value as
determined following procedures approved by the Board. With the approval of
trustees, the Fund may utilize a pricing service, bank or securities dealer
to perform any of the above described functions.
ADDITIONAL INFORMATION REGARDING TAXATION
As stated in the Prospectus, the Fund intends to qualify and elect to be
treated as a regulated investment company under Subchapter M of the Code. The
trustees reserve the right not to maintain the qualification of the Fund as a
regulated investment company if they determine such course of action to be
beneficial to shareholders. In such case, the Fund will be subject to federal
and possibly state corporate taxes on its taxable income and gains, and
distributions to shareholders will be taxable to the extent of the Fund's
available earnings and profits.
Subject to the limitations discussed below, all or a portion of the income
distributions paid by the Fund may be treated by corporate shareholders as
qualifying dividends for purposes of the dividends-received deduction under
federal income tax law. If the aggregate qualifying dividends received by the
Fund (generally, dividends from U.S. domestic corporations, the stock in
which is not debt-financed by the Fund and is held for at least a minimum
holding period) is less than 100% of its distributable income, then the
amount of the Fund's dividends paid to corporate shareholders that 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 the availability of the
corporate dividends-received deduction is subject to certain restrictions.
For example, the deduction is eliminated unless Fund shares have been held
(or deemed held) for at least 46 days in a substantially unhedged manner. The
dividends-received deduction may also be reduced to the extent interest paid
or accrued by a corporate shareholder is directly attributable to its
investment in Fund shares. The entire dividend, including the portion which
is treated as a deduction, is includable in the tax base on which the federal
alternative minimum tax is computed and may also result in a reduction in the
shareholder's tax basis in its Fund shares, under certain circumstances, if
the shares have been held for less than two years. Corporate shareholders
whose investment in the Fund is "debt financed" for these tax purposes should
consult with their tax advisors concerning the availability of the
dividends-received deduction.
The Code requires all funds to distribute at least 98% of their taxable
ordinary income earned during the calendar year and at least 98% of their
capital gain net income earned during the twelve month period ending October
31 of each year (in addition to amounts from the prior year that were neither
distributed nor taxed to the Fund) to shareholders by December 31 of each
year in order to avoid the imposition of a federal excise tax. Under these
rules, certain distributions which are declared in October, November or
December but which, for operational reasons, may not be paid to 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. 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 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.
Any loss realized upon the redemption of shares within six months from the
date of their purchase will be treated as long-term capital loss to the
extent of amounts treated as distributions of net long-term capital gain
during such six-month period.
All or a portion of the sales charge incurred in purchasing shares of the
Fund will not be included in the federal tax basis of such shares sold or
exchanged within 90 days of their purchase (for purposes of determining gain
or loss with respect to such shares) if the sales proceeds are reinvested in
the Fund or in another fund in the Franklin Templeton 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.
The Fund's investment in options, futures contracts and forward contracts,
including transactions involving actual or deemed short sales, or foreign
exchange gains or losses are subject to many complex and special tax rules.
For example, OTC options on debt securities and equity options, including
options on stock and on narrow-based stock indexes, will be subject to tax
under Section 1234 of the Code, generally producing a long-term or short-term
capital gain or loss upon exercise, lapse, or closing out of the option or
sale of the underlying stock or security. By contrast, the Fund's treatment
of certain other options, futures and forward contracts entered into by the
Fund is generally governed by Section 1256 of the Code. These "Section 1256"
positions generally include listed options on debt securities, options on
broad-based stock indexes, options on securities indexes, options on futures
contracts, regulated futures contracts and certain foreign currency contracts
and options thereon.
Absent a tax election to the contrary, each such Section 1256 position held
by the Fund will be marked-to-market (i.e., treated as if it were sold for
fair market value) on the last business day of the Fund's fiscal year, and
all gain or loss associated with fiscal year transactions and mark-to-market
positions at fiscal year end (except certain foreign currency gain or loss
covered by Section 988 of the Code) will generally be treated as 60%
long-term capital gain or loss and 40% short-term capital gain or loss. The
effect of Section 1256 mark-to-market rules may be to accelerate income or to
convert what otherwise would have been long-term capital gains into
short-term capital gains or short-term capital losses into long-term capital
losses within the Fund. The acceleration of income on Section 1256 positions
may require the Fund to accrue taxable income without the corresponding
receipt of cash. In order to generate cash to satisfy the distribution
requirements of the Code, the Fund may be required to dispose of portfolio
securities that it otherwise would have continued to hold or to use cash
flows from other sources such as the sale of Fund shares. In these ways, any
or all of these rules may affect the amount, character and time of income
distributed to shareholders by the Fund.
When the Fund holds an option or contract which substantially diminishes the
Fund's risk of loss with respect to another position of the Fund (as might
occur in some hedging transactions), this combination of positions could be
treated as a "straddle" for tax purposes, resulting in possible deferral of
losses, adjustments in the holding periods of Fund securities and conversion
of short-term capital losses into long-term capital losses.
As a regulated investment company, the Fund is also subject to the
requirement that less than 30% of its annual gross income be derived from the
sale or other disposition of securities and certain other investments held
for less than three months ("short-short income"). This requirement may limit
the Fund's ability to engage in options and hedging transactions because
these transactions are often consummated in less than three months, may
require the sale of portfolio securities held less than three months and may,
as in the case of short sales of portfolio securities, reduce the holding
periods of certain securities within the Fund, resulting in additional
short-short income for the Fund.
The Fund will monitor its transactions in such options and contracts and may
make certain other tax elections in order to mitigate the effect of the above
rules and prevent disqualification of the Fund as a regulated investment
company under Subchapter M of the Code.
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.
Foreign exchange gains and losses realized by the Fund in connection with
certain transactions involving foreign currencies, foreign currency payables
or receivables, or 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, its distributions to shareholders.
In order for the Fund to qualify as a regulated investment company, at least
90% of the Fund's annual gross income must consist of dividends, interest and
certain other types of qualifying income, and no more than 30% of its annual
gross income may be derived from the sale or other disposition of securities
or certain other instruments held for less than three months. Foreign
exchange gains are presently treated as qualifying income for purposes of
this 90% limitation. Foreign exchange gains derived by the Fund with respect
to the Fund's business of investing in stock or securities or options or
futures with respect to such stock or securities is qualifying income for
purposes of this 90% limitation.
If the Fund owns shares in a foreign corporation that constitutes a "passive
foreign investment company" (a "PFIC") for federal income tax purposes and
the Fund does not elect to treat the foreign corporation as a "qualified
electing fund" within the meaning of the Code, the Fund may be subject to
U.S. federal income taxation on a portion of any "excess distribution" it
receives from the PFIC or any gain it derives from the disposition of such
shares, even if such income is distributed as a taxable dividend by the Fund
to its U.S. shareholders. The Fund may be also subject to additional interest
charges in respect of deferred taxes arising from such distributions or
gains. Any tax paid by a Fund as a result of its ownership of shares in a
PFIC will not give rise to a deduction or credit to the Fund or to any
shareholder. A PFIC means any foreign corporation if, for the taxable year
involved, either (i) it derives at least 75 percent of its gross income from
"passive income" (including, but not limited to, interest, dividends,
royalties, rents and annuities), or (ii) on average, at least 50 percent of
the value (or adjusted basis, if elected) of the assets held by the
corporation produce "passive income."
On April 1, 1992, proposed U.S. Treasury regulations were issued regarding a
special mark-to-market election for regulated investment companies. Under
these regulations, the annual mark-to-market gain, if any, on shares held by
a Fund in a PFIC would be treated as an excess distribution received by the
Fund in the current year, eliminating the deferral and the related interest
charge. Such excess distribution amounts are treated as ordinary income,
which the Fund will be required to distribute to shareholders even though the
Fund has not received any cash to satisfy this distribution requirement.
These regulations would be effective for taxable years ending after the
promulgation of the proposed regulations as final regulations.
THE FUND'S UNDERWRITER
Pursuant to an underwriting agreement in effect until April 30, 1996,
Distributors acts as principal underwriter in a continuous public offering
for shares of the Fund. The underwriting agreement will continue in effect
for successive annual periods provided that its continuance is specifically
approved at least annually by a vote of the Board or by a vote of the holders
of a majority of the Fund's outstanding voting securities, and in either
event by a majority vote of the Trust's trustees who are not parties to the
underwriting agreement or interested persons of any such party (other than as
trustees of the Trust), 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.
DISTRIBUTION PLAN
The Fund has adopted a distribution plan pursuant to Rule 12b-1 under the
1940 Act (the "Plan") whereby the Fund may pay up to a maximum of 0.25% per
annum of its average daily net assets, payable quarterly, for expenses
incurred in the promotion and distribution of its shares. In addition, the
Fund is permitted to pay Distributors up to an additional 0.10% per annum of
its average daily net assets for reimbursement of such distribution expenses.
Pursuant to the Plan, Distributors or others will be entitled to be
reimbursed each quarter (up to the maximum stated above) for actual expenses
incurred in the distribution and promotion of the Fund's shares, including,
but not limited to, the printing of prospectuses and reports used for sales
purposes, expenses of preparing and distributing sales literature and related
expenses, advertisements, and other distribution-related expenses, including
a prorated portion of Distributors' overhead expenses attributable to the
distribution of Fund shares, as well as any distribution or service fees paid
to securities dealers or their firms or others who have executed a servicing
agreement with the Fund, Distributors or its affiliates.
In addition to the payments to which Distributors or others are entitled
under the Plan, the Plan also provides that to the extent the Fund, the
Manager or Distributors or other parties on behalf of the Fund, the Manager
or Distributors, make payments that are deemed to be payments for the
financing of any activity primarily intended to result in the sale of shares
of the Fund within the context of Rule 12b-1 under the 1940 Act, then such
payments shall be deemed to have been made pursuant to the Plan.
In no event shall the aggregate asset-based sales charges, which include
payments made under the Plan, plus any other payments deemed to be made
pursuant to the Plan, exceed the amount permitted to be paid pursuant to the
Rules of Fair Practice of the National Association of Securities Dealers,
Inc., Article III, Section 26(d)4.
The terms and provisions of the Plan relating to required reports, term, and
approval are consistent with Rule 12b-1.
To the extent fees are for distribution or marketing functions, as
distinguished from administrative servicing or agency transactions, certain
banks will not be entitled to participate in the Plan as a result of
applicable federal law prohibiting certain banks from engaging in the
distribution of mutual fund shares. Such banking institutions, however, are
permitted to receive fees under the Plan for administrative servicing or for
agency transactions. If you are a customer of a bank that is prohibited from
providing such services, you would be permitted to remain a shareholder of
the Fund, and alternate means for continuing the servicing would be sought.
In such an event, changes in the services provided might occur and you might
no longer be able to avail yourself of any automatic investment or other
services then being provided by the bank. It is not expected that you would
suffer any adverse financial consequences as a result of any of these changes.
The Plan has been approved in accordance with the provisions of Rule 12b-1.
The Plan is effective through [] and renewable annually by a vote of the
Board, including a majority vote of the trustees who are non-interested
persons of the Fund and who have no direct or indirect financial interest in
the operation of the Plan, cast in person at a meeting called for that
purpose. It is also required that the selection and nomination of such
trustees be done by the non-interested trustees. The Plan and any related
agreement may be terminated at any time, without penalty, by vote of a
majority of the non-interested trustees on not more than 60 days' written
notice, by Distributors on not more than 60 days' written notice, by any act
that constitutes an assignment of the management agreement with the Manager,
or by vote of a majority of the Fund's outstanding shares. Distributors or
any dealer or other firm may also terminate their respective distribution or
service agreement at any time upon written notice.
The Plan and any related agreements may not be amended to increase materially
the amount to be spent for distribution expenses without approval by a
majority of the Fund's outstanding shares, and all material amendments to the
Plan or any related agreements shall be approved by a vote of the
non-interested trustees, cast in person at a meeting called for the purpose
of voting on any such amendment.
Distributors is required to report in writing to the Board at least quarterly
on the amounts and purpose of any payment made under the Plan and any related
agreements, as well as to furnish the Board with such other information as
may reasonably be requested in order to enable the Board to make an informed
determination of whether the Plan should be continued.
GENERAL INFORMATION
PERFORMANCE
As noted in the Prospectus, the Fund may from time to time quote various
performance figures to illustrate the Fund's past performance and may
occasionally cite statistics to reflect its volatility or risk. Performance
quotations by investment companies are subject to rules adopted by the SEC.
These rules require the use of standardized performance quotations or,
alternatively, that every non-standardized performance quotation furnished by
the Fund be accompanied by certain standardized performance information
computed as required by the SEC. Current yield and average annual compounded
total return quotations used by the Fund are based on the standardized
methods of computing performance mandated by the SEC. An explanation of those
and other methods used by the Fund to compute or express performance follows.
TOTAL RETURN
The average annual total return is determined by finding the average annual
compounded rates of return over one-, five- and ten-year periods, or
fractional portion thereof, that would equate an initial hypothetical $1,000
investment to its ending redeemable value. The calculation assumes the
maximum front-end sales charge is deducted from the initial $1,000 purchase
order, and income dividends and capital gains are reinvested at net asset
value. The quotation assumes the account was completely redeemed at the end
of each one-, five- and ten-year period and the deduction of all applicable
charges and fees. If a change is made on the sales charge structure,
historical performance information will be restated to reflect the maximum
front-end sales charge currently in effect.
The average annual compounded rates of return for the Fund will be calculated
according to the SEC formula:
n
P(1+T) = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the one-, five- or
ten-year periods at the end of the one-, five- or ten-
year periods (or fractional portion thereof)
As discussed in the Prospectus, the Fund may quote total rates of return in
addition to its average annual total return. These quotations are computed in
the same manner as the Fund's average annual compounded rate, except they
will be based on the Fund's actual return for a specified period rather than
on its average return over one-, five- and ten-year periods, or fractional
portion thereof.
CURRENT YIELD
Current yield reflects the income per share earned by the Fund's portfolio
investments and is determined by dividing the net investment income per share
earned during a 30-day base period by the maximum offering price per share on
the last day of the period and annualizing the result. Expenses accrued for
the period include any fees charged to all shareholders during the base
period.
Current yield figures will be obtained using the following SEC formula:
6
Yield = 2 [(a-b + 1) - 1]
---
cd
where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends
d = the maximum offering price per share on the last day of the
period
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 the Fund. Amounts paid to shareholders are reflected in the
quoted current distribution rate. The current distribution rate is computed
by dividing the total amount of dividends per share paid by the Fund during
the past 12 months by a current maximum offering price. Under certain
circumstances, such as when there has been a change in the amount of dividend
payout or a fundamental change in investment policies, it might be
appropriate to annualize the dividends paid over the period such policies
were in effect, rather than using the dividends during the past 12 months.
The current distribution rate differs from the current yield computation
because it may include distributions to shareholders from sources other than
dividends and interest, such as premium income from option writing and
short-term capital gains and is calculated over a different period of time.
VOLATILITY
Occasionally statistics may be used to specify Fund volatility or risk.
Measures of volatility or risk are generally used to compare Fund net asset
value or performance relative to a market index. One measure of volatility is
beta. Beta is the volatility of a fund relative to the total market, as
represented by 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 investors who are permitted to purchase shares of the Fund at net asset
value, sales literature pertaining to the Fund may quote a current
distribution rate, yield, total return, average annual total return and other
measures of performance as described elsewhere in this SAI with the
substitution of net asset value for the public offering price.
Sales literature referring to the use of the Fund as a potential investment
for Individual Retirement Accounts (IRAs), Business Retirement Plans, and
other tax-advantaged retirement plans may quote a total return based upon
compounding of dividends on which it is presumed no federal income tax
applies.
Regardless of the method used, past performance is not necessarily indicative
of future results, but is an indication of the return to shareholders only
for the limited historical period used.
The Fund may include in its advertising or sales material information
relating to investment objectives and performance results of funds belonging
to the Templeton Group of Funds. Resources is the parent company of the
advisors and underwriter of both the Franklin Group of Funds and Templeton
Group of Funds.
COMPARISONS
To help you better evaluate how an investment in the Fund may satisfy your
investment objective, advertisements and other materials regarding the Fund
may discuss certain measures of Fund performance as reported by various
financial publications. Materials may also compare performance (as calculated
above) to performance as reported by other investments, indices, and
averages. Such comparisons may include, but are not limited to, the following
examples:
a) Dow Jones Composite Average or its component averages - an unmanaged index
composed of 30 blue-chip industrial corporation stocks (Dow Jones Industrial
Average), 15 utilities company stocks (Dow Jones Utilities Average), and 20
transportation company stocks. Comparisons of performance assume reinvestment
of dividends.
b) Standard & Poor's 500 Stock Index or its component indices - an unmanaged
index composed of 400 industrial stocks, 40 financial stocks, 40 utilities
stocks, and 20 transportation stocks. Comparisons of performance assume
reinvestment of dividends.
c) The New York Stock Exchange composite or component indices - an unmanaged
index of all industrial, utilities, transportation, and finance stocks listed
on the New York Stock Exchange.
d) Wilshire 5000 Equity Index - represents the return on the market value of
all common equity securities for which daily pricing is available.
Comparisons of performance assume reinvestment of dividends.
e) Lipper - Mutual Fund Performance Analysis and Lipper - Fixed Income Fund
Performance Analysis - measure total return and average current yield for the
mutual fund industry and rank individual mutual fund performance over
specified time periods, assuming reinvestment of all distributions, exclusive
of any applicable sales charges.
f) CDA Mutual Fund Report, published by CDA Investment Technologies, Inc. -
analyzes price, current yield, risk, total return, and average rate of return
(average annual compounded growth rate) over specified time periods for the
mutual fund industry.
g) Mutual Fund Source Book, published by Morningstar, Inc. - analyzes price,
yield, risk, and total return for equity funds.
h) Financial publications: The Wall Street Journal, Business Week, Changing
Times, Financial World, Forbes, Fortune, and Money magazines - provide
performance statistics over specified time periods.
i) Consumer Price Index (or Cost of Living Index), published by the U.S.
Bureau of Labor Statistics - a statistical measure of change, over time, in
the price of goods and services in major expenditure groups.
j) Stocks, Bonds, Bills, and Inflation, published by Ibbotson Associates -
historical measure of yield, price, and total return for common and small
company stock, long-term government bonds, Treasury bills, and inflation.
k) Savings and Loan Historical Interest Rates - as published in the U.S.
Savings & Loan League Fact Book.
l) Historical data supplied by the research departments of First Boston
Corporation, the J. P. Morgan companies, Salomon Brothers, Merrill Lynch,
Lehman Brothers and Bloomberg L.P.
m) Standard & Poor's 100 Stock Index - an unmanaged index based on the prices
of 100 blue-chip stocks, including 92 industrials, one utility, two
transportation companies, and 5 financial institutions. The S&P 100 Stock
Index is a smaller more flexible index for options trading.
From time to time, advertisements or information for the Fund may include a
discussion of certain attributes or benefits to be derived by an investment
in the Fund. Such advertisements or information may include symbols,
headlines, or other material which highlights or summarizes the information
discussed in more detail in the communication.
Advertisements or information may also compare the Fund's performance to the
return on certificates of deposit or other investments. You should be aware,
however, that an investment in the Fund involves the risk of fluctuation of
principal value, a risk generally not present in an investment in a
certificate of deposit issued by a bank. For example, as the general level of
interest rates rise, the value of the Fund's fixed-income investments, as
well as the value of its shares which are based upon the value of such
portfolio investments, can be expected to decrease. Conversely, when interest
rates decrease, the value of the Fund's shares can be expected to increase.
Certificates of deposit are frequently insured by an agency of the U.S.
government. An investment in the Fund is not insured by any federal, state or
private entity.
In assessing comparisons of performance, you should keep in mind that the
composition of the investments in the reported indices and averages is not
identical to the Fund's portfolio, the indices and averages are generally
unmanaged, and the items included in the calculations of the averages may not
be identical to the formula used by the Fund to calculate its figures. In
addition, there can be no assurance that the Fund will continue its
performance as compared to such other averages.
OTHER FEATURES AND BENEFITS
The Fund may help you achieve various investment goals such as accumulating
money for retirement, saving for a down payment on a home, college costs
and/or other long-term goals. The Franklin College Costs Planner may assist
you in determining how much money must be invested on a monthly basis in
order to have a projected amount available in the future to fund a child's
college education. (Projected college cost estimates are based upon current
costs published by the College Board.) The Franklin Retirement Planning Guide
leads you through the steps to start a retirement savings program. Of course,
an investment in the Fund cannot guarantee that such goals will be met.
MISCELLANEOUS INFORMATION
The Fund is a member of the Franklin Templeton Group of Funds, one of the
largest mutual fund organizations in the United States, and may be considered
in a program for diversification of assets. Founded in 1947, Franklin, one of
the oldest mutual fund organizations, has managed mutual funds for over 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 $135 billion in assets under management for more than 3.9 million
U.S. based mutual fund shareholder and other accounts. The Franklin Group of
Funds and the Templeton Group of Funds offers to the public 114 U.S. based
mutual funds. The Fund may identify itself by its NASDAQ symbol or CUSIP
number.
The Dalbar Surveys, Inc. broker-dealer survey has ranked Franklin number one
in service quality for five of the past seven years.
Employees of Resources or its subsidiaries who are access persons under the
1940 Act are permitted to engage in personal securities transactions subject
to the following general restrictions and procedures: (i) the trade must
receive advance clearance from a compliance officer and must be completed
within 24 hours after clearance; (ii) copies of all brokerage confirmations
must be sent to a compliance officer and, within 10 days after the end of
each calendar quarter, a report of all securities transactions must be
provided to the compliance officer; and (iii) access persons involved in
preparing and making investment decisions must, in addition to (i) and (ii)
above, file annual reports of their securities holdings each January and
inform the compliance officer (or other designated personnel) if they own a
security that is being considered for a fund or other client transaction or
if they are recommending a security in which they have an ownership interest
for purchase or sale by a fund or other client.
OWNERSHIP AND AUTHORITY DISPUTES
In the event of disputes involving multiple claims of ownership or authority
to control your account, the Fund has the right (but has no obligation) to:
(a) freeze the account and require the written agreement of all persons
deemed by the Fund to have a potential property interest in the account,
prior to executing instructions regarding the account; (b) interplead
disputed funds or accounts with a court of competent jurisdiction; or (c)
surrender ownership of all or a portion of the account to the Internal
Revenue Service in response to a Notice of Levy.
USEFUL TERMS AND DEFINITIONS
1940 Act - Investment Company Act of 1940, as amended
Advisers - Franklin Advisers, Inc., the Fund's investment manager
Board - The Board of Trustees of the Trust
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 FundsAE except
Franklin Valuemark Funds and the Franklin Government Securities Trust
Franklin Templeton Funds - the Franklin Funds and the Templeton Funds
Franklin Templeton Group of Funds - The funds in the Franklin Group of Funds(R)
and the Templeton Group of Funds
Investor Services - Franklin/Templeton Investor Services, Inc.
Letter - Letter of Intent
Manager - Franklin Advisers, Inc., the Fund's investment manager
Nonaffiliated Trustees - Trustees not affiliated with Advisers
Resources - Franklin Resources, Inc.
SAI - Statement of Additional Information
SEC - Securities and Exchange Commission
Securities Dealer - financial institutions that, either directly or through
affiliates, have an agreement with Distributors to handle customer orders and
accounts with the Fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity.
Templeton Funds - the U.S. registered mutual funds in the Templeton Group of
Funds except Templeton Capital Accumulator Fund, Inc., Templeton Variable
Annuity Fund, and Templeton Variable Products Series Fund
U.S. - United States
APPENDIX
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Moody's
Moody's commercial paper ratings, which are also applicable to municipal
paper investments permitted to be made by the Fund, are opinions of the
ability of issuers to repay punctually their promissory obligations not
having an original maturity in excess of nine months. Moody's employs the
following designations, all judged to be investment grade, to indicate the
relative repayment capacity of rated issuers:
P-1 (Prime-1): Superior capacity for repayment.
P-2 (Prime-2): Strong capacity for repayment.
S&P
S&P's ratings are a current assessment of the likelihood of timely payment of
debt having an original maturity of no more than 365 days. Ratings are graded
into four categories, ranging from "A" for the highest quality obligations to
"D" for the lowest. Issues within the "A" category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety, as follows:
A-1: This designation indicates the degree of safety regarding timely payment
is very strong. A "plus" (+) designation indicates an even stronger
likelihood of timely payment.
A-2: Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as overwhelming as for issues
designated A-1.
A-3: Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects
of changes in circumstances than obligations carrying the higher designations.
FRANKLIN STRATEGIC SERIES
File Nos. 33-39088
811-6243
FORM N-1A
PART C
Other Information
Item 24 Financial Statements and Exhibits
a) To be filed by Amendment.
b) Exhibits:
The following exhibits are incorporated by reference to the filings
noted, with the exception of exhibits 5(vii), 8(iii) and 8(iv)
which are attached.
(1) copies of the charter as now in effect;
(i) Agreement and Declaration of Trust of Franklin
California 250 Growth Index Fund as of January 22, 1991:
Filing: Post-Effective Amendment No. 14 to
Registration Statement on Form N-1A
File No. 33-39088
Filing Date: June 1, 1995
(ii) Certificate of Trust of Franklin California 250
Growth Index Fund dated January 22, 1991:
Filing: Post-Effective Amendment No. 14 to
Registration Statement on Form N-1A
File No. 33-39088
Filing Date: June 1, 1995
(iii)Certificate of Amendment to the Certificate of Trust
of Franklin California 250 Growth Index Fund dated November
19, 1991:
Filing: Post-Effective Amendment No. 14 to
Registration Statement on Form N-1A
File No. 33-39088
Filing Date: June 1, 1995
(iv) Certificate of Amendment to the Certificate of Trust
of Franklin Strategic Series dated May 14, 1992:
Filing: Post-Effective Amendment No. 14 to
Registration Statement on Form N-1A
File No. 33-39088
Filing Date: June 1, 1995
(2) copies of the existing By-Laws or instruments corresponding thereto;
(i) Amended and Restated By-Laws of Franklin
California 250 Growth Index Fund as of April 25, 1991:
Filing: Post-Effective Amendment No. 14 to
Registration Statement on Form N-1A
File No. 33-39088
Filing Date: June 1, 1995
(ii) Amendment to By-Laws dated October 27, 1994:
Filing: Post-Effective Amendment No. 14 to
Registration Statement on Form N-1A
File No. 33-39088
Filing Date: June 1, 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 Small Cap Growth Fund, Franklin Global
Health Care Fund, Franklin Global Utilities Fund and
Franklin Advisers, Inc. dated February 24, 1992:
Filing: Post-Effective Amendment No. 14 to
Registration Statement on Form N-1A
File No. 33-39088
Filing Date: June 1, 1995
(ii) Administration Agreement between the Registrant on
behalf of Franklin MidCap Growth Fund and Franklin Advisers,
Inc. dated April 12, 1993:
Registrant: Franklin Strategic Series
Filing: Post-Effective Amendment No. 14 to
Registration Statement on Form N-1A
File No. 33-39088
Filing Date: June 1, 1995
(iii)Administration Agreement between the Registrant on
behalf of FISCO MidCap Growth Fund and Franklin Advisers,
Inc. dated August 17, 1993:
Filing: Post-Effective Amendment No. 14 to
Registration Statement on Form N-1A
File No. 33-39088
Filing Date: June 1, 1995
(iv) Management Agreement between the Registrant on
behalf of Franklin Strategic Income Fund and Franklin
Advisers, Inc. effective May 24, 1994:
Filing: Post-Effective Amendment No. 14 to
Registration Statement on Form N-1A
File No. 33-39088
Filing Date: June 1, 1995
(v) Subadvisory Agreement between Franklin Advisers, Inc.
and Templeton Investment Counsel, Inc., providing for
services to Franklin Strategic Income Fund dated May
24, 1994:
Filing: Post-Effective Amendment No. 14 to
Registration Statement on Form N-1A
File No. 33-39088
Filing Date: June 1, 1995
(vi) Amended and Restated Management Agreement between
Franklin Advisers, Inc. and the Registrant on behalf of
Franklin California Growth Fund effective July 12, 1993:
Filing: Post-Effective Amendment No. 14 to
Registration Statement on Form N-1A
File No. 33-39088
Filing Date: June 1, 1995
(vii)Management Agreement between Registrant on behalf of
Franklin Blue Chip Fund and Franklin Advisers, Inc.
effective February 13, 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 on behalf of all Series except
Franklin Strategic Income Series and
Franklin/Templeton Distributors, Inc. dated April 23, 1995:
Filing: Post-Effective Amendment No. 14 to
Registration Statement on Form N-1A
File No. 33-39088
Filing Date: June 1, 1995
(ii) Amended and Restated Distribution Agreement
between the Registrant on behalf of Franklin Strategic
Income Series and Franklin/Templeton Distributors, Inc.
dated March 29, 1995:
Filing: Post-Effective Amendment No. 14 to
Registration Statement on Form N-1A
File No. 33-39088
Filing Date: June 1, 1995
(iii) Form of Dealer Agreement between
Franklin/Templeton Distributors, Inc. and Dealers
Filing: Post-Effective Amendment No. 16 to
Registration Statement on Form N-1A
File No. 33-39088
Filing Date: September 12, 1995
(7) copies of all bonus, profit sharing, pension or other
similar contracts or arrangements wholly or partly for the benefit
of Trustees or officers of the Registrant in their capacity as
such; any such plan that is not set forth in a formal document,
furnish a reasonably detailed description thereof;
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 May 24, 1994
Filing: Post-Effective Amendment No. 14 to Registration
Statement on form N-1A
File No. 33-39088
Filing Date: June 1, 1995
(ii) 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 - Deposits
and Disbursements of Funds
Registrant: Franklin Premier Return Fund
Filing: Post-Effective Amendment No. 55
to Registration Statement on Form N-1A
File No. 2-12647
Filing Date: March 1, 1996
(iii) Master Custody Agreement between Registrant and Bank of New
York dated February 16, 1996
(iv) Terminal Link Agreement between Registrant and Bank of New
York dated February 16, 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;
Not Applicable
(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 dated August 20, 1991.
Filing: Post-Effective Amendment No. 14 to
Registration Statement on Form N-1A
File No. 33-39088
Filing Date: June 1, 1995
(ii) Letter of Understanding dated April 12, 1995.
Filing: Post-Effective Amendment No. 14 to
Registration Statement on Form N-1A
File No. 33-39088
Filing Date: June 1, 1995
(iii)Letter of Understanding dated June 5, 1995
Filing: Post-Effective Amendment No. 17 to
Registration Statement on Form N-1A
File No. 33-39088
Filing Date: December 5, 1995
(14) copies of the model plan used in the establishment of any
retirement plan in conjunction with which Registrant
offers its securities, any instructions thereto and any other
documents making up the model plan. Such form(s) should
disclose the costs and fees charged in connection therewith;
Not Applicable
(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 Strategic Series on behalf of Franklin California
Growth Fund, Franklin Small Cap Growth Fund, Franklin Global
Health Care Fund and Franklin Global Utilities Fund
and Franklin Distributors, Inc. dated July 1, 1993:
Filing: Post-Effective Amendment No. 14 to
Registration Statement on Form N-1A
File No. 33-39088
Filing Date: June 1, 1995
(ii) Distribution Plan between Franklin Strategic
Series on behalf of Franklin Global Utilities Fund -
Class II and Franklin/Templeton Distributors,
Inc. dated March 30, 1995:
Filing: Post-Effective Amendment No. 14 to
Registration Statement on Form N-1A
File No. 33-39088
Filing Date: June 1, 1995
(iii)Distribution Plan pursuant to Rule 12b-1 between the
Registrant on behalf of the Franklin Strategic
Income Fund and Franklin Distributors, Inc. dated May 24,
1994 is Incorporated herein by reference to:
Registrant: Franklin Strategic Series
Filing: Post-Effective Amendment No. 14 to
Registration Statement on Form N-1A
File No. 33-39088
Filing Date: June 1, 1995
(iv) Distribution Plan pursuant to Rule 12b-1 between the
Registrant on behalf of the Franklin Natural Resources Fund
and Franklin/Templeton Distributors, Inc. dated
June 1, 1995
is Incorporated herein by reference to:
Registrant: Franklin Strategic Series
Filing: Post-Effective Amendment No. 14 to
Registration Statement on Form N-1A
File No. 33-39088
Filing Date: June 1, 1995
(16) schedule for computation of each performance quotation
provided in the registration statement in response to Item 22
(which need not be audited).
(i) Schedule for Computation of Performance and
Quotations
Registrant: Franklin Tax-Advantaged
U.S. Government Securities Fund
Filing: Post-Effective Amendment No. 8
to Registration Statement on Form N-1A
File No. 33-11963
Filing Date: March 1, 1995
(17) Powers of Attorney
(i) Power of Attorney for Franklin Strategic Series dated
February 16, 1995
Registrant: Franklin Strategic Series
Filing: Post-Effective Amendment No. 14 to
Registration Statement on Form N-1A
File No. 33-39088
Filing Date: June 1, 1995
(ii) Power of Attorney for MidCap Growth Portfolio dated
June 29, 1995:
Filing: Post-Effective Amendment No. 15 to
Registration Statement on Form N-1A
File No. 33-39088
Filing Date: July 3, 1995
(iii)Certificate of Secretary for Franklin Strategic
Series dated February 16, 1995:
Filing: Post-Effective Amendment No. 14 to
Registration Statement on Form N-1A
File No. 33-39088
Filing Date: June 1, 1995
(iv) Certificate of Secretary for MidCap Growth
Portfolio dated June 29, 1995:
Filing: Post-Effective Amendment No. 15 to
Registration Statement on Form N-1A
File No. 33-39088
Filing Date: July 3, 1995
(18) Copies of any plan entered into by Registrant pursuant to
Rule 18f-3 under the 1940 Act
(i) Form of Multiple Class Plan:
Filing: Post-Effective Amendment No. 15 to
Registration Statement on Form N-1A
File No. 33-39088
Filing Date: July 3, 1995
(27) Financial Data Schedule Computation
Not Applicable
Item 25 Persons Controlled by or under Common Control with Registrant
None
Item 26 Number of Holders of Securities
As of February 29, 1996 the number of record holders of the only classes of
securities of the Registrant was as follows:
Title of Class Number of Record Holders
Shares of Beneficial Interest Class I Class II
Franklin Blue Chip Fund 0 N/A
Franklin California Growth Fund 7,637 N/A
Franklin Global Health Care Fund 5,718 N/A
Franklin Global Utilities Fund 13,467 209
Franklin Small Cap Growth Fund 32,804 1,358
FISCO Midcap Growth Fund 1 N/A
Franklin MidCap Growth Fund 1 N/A
Franklin Strategic Income Fund 390 N/A
Franklin Natural Resources Fund 519 N/A
Item 27 Indemnification
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to Trustees, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a 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 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 is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
Item 28 Business and Other Connections of Investment Adviser
a) Franklin Advisers, Inc.
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 (Registered Trademark). 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 Funds' Investment Manager
(SEC File 801-26292), incorporated herein by reference, which sets forth the
officers and directors of the Investment Manager and information as to any
business, profession, vocation or employment of a substantial nature engaged
in by those officers and directors during the past two years.
b) Templeton Investment Counsel, Inc.
Templeton Investment Counsel, Inc. ("TICI"), an indirect, wholly owned
subsidiary of Franklin Resources, Inc., serves as the Franklin Strategic
Income Fund's Sub-adviser, furnishing to Franklin Advisers, Inc. in that
capacity, portfolio management services and investment research. For
additional information please see Part B and Schedules A and D of Form ADV of
the Franklin Strategic Income Fund's Sub-adviser (SEC File 801-15125),
incorporated herein by reference, which sets forth the officers and directors
of the Sub-adviser 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 AGE High Income Fund, Inc., 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 Templeton International Trust, Franklin Investors Securities Trust,
Franklin Managed Trust, Franklin Money Fund, Franklin Municipal Securities
Trust, Franklin New York Tax-Free Income Fund, Inc., Franklin New York
Tax-Free Trust, Franklin Premier Return Fund, Franklin Real Estate Securities
Trust, Franklin Strategic Mortgage Portfolio, Franklin Tax-Exempt Money Fund,
Franklin Tax-Advantaged High Yield Securities Fund, Franklin Tax-Advantaged
International Bond Fund, Franklin Tax-Advantaged U.S. Government Securities
Fund, Franklin Tax-Free Trust, Franklin Value Investors Trust, Institutional
Fiduciary Trust, Templeton American Trust, Inc., Franklin Templeton Japan
Fund, Franklin Templeton Money Fund Trust, Templeton Capital Accumulator
Fund, Inc., Templeton Developing Markets Trust, Templeton Funds, Inc.,
Templeton Global Investment Trust, Templeton Global Opportunities Trust,
Templeton Growth Fund, Inc., Templeton Income Trust, Templeton Institutional
Funds, Inc., Templeton Real Estate Securities Fund, Templeton Smaller
Companies Growth Fund, Inc., 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)
c) Not Applicable. Registrant's principal underwriter is an affiliated
person of an affiliated person of the Registrant.
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 N-1A by including the required information
in the Trust's annual report and to furnish each person to whom a prospectus
is delivered a copy of the annual report upon request and without charge.
c) The Registrant hereby undertakes to file a Post-Effective Amendment on
behalf of Franklin Blue Chip Fund using Financial Statements which need not
be certified, within four to six months from the effective date of
Registrant's Registration Statement under the Securities Act of 1933.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, as amended, the Registrant
has duly caused this Amendment 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 14th day of March 1996.
Franklin Strategic Series
(Registrant)
By: Rupert H. Johnson, Jr., President
Rupert H. Johnson, Jr., President
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
its Registration Amendment has been signed below by the following persons in
the capacities and on the dates indicated:
Rupert H. Johnson, Jr.* Principal Executive Officer and
Rupert H. Johnson, Jr. Trustee
Dated: March 14, 1995
Martin L. Flanagan* Principal Financial Officer
Martin L. Flanagan Dated: March 14, 1996
Diomedes Loo-Tam* Principal Accounting Officer
Diomedes Loo-Tam Dated: March 14, 1996
Frank H. Abbott, III* Trustee
Frank H. Abbott, III Dated: March 14, 1996
Harris J. Ashton* Trustee
Harris J. Ashton Dated: March 14, 1996
Harmon E. Burns* Trustee
Harmon E. Burns Dated: March 14, 1996
S. Joseph Fortunato* Trustee
S. Joseph Fortunato Dated: March 14, 1996
David W. Garbellano* Trustee
David W. Garbellano Dated: March 14, 1996
Charles B. Johnson* Trustee
Charles B. Johnson Dated: March 14, 1996
Frank W.T. LaHaye* Trustee
Frank W.T. LaHaye Dated: March 14, 1996
Gordon S. Macklin* Trustee
Gordon S. Macklin Dated: March 14, 1996
*By /S/ Larry L. Greene, Attorney-in-Fact
(Pursuant to Power of Attorney previously filed)
FRANKLIN STRATEGIC SERIES
REGISTRATION STATEMENT
EXHIBITS INDEX
EXHIBIT NO. DESCRIPTION LOCATION
EX-99.B1(i) Agreement and Declaration of *
Trust of Franklin California 250 Growth
Index Fund as of January 22, 1991
EX-99.B1(ii) Certificate of Trust of Franklin *
California 250 Growth Index Fund dated
January 22, 1991
EX-99.B1(iii) Certificate of Amendment of Certificate *
of Trust to the Franklin California 250
Growth Index Fund dated November 19, 1991
EX-99.B1(iv) Certificate of Amendment to the *
Certificate of Trust of Franklin
Strategic Series dated May 14, 1992
EX-99.B2(i) Amended and Restated By-Laws of *
Franklin California 250 Growth
Index Fund as of April 25, 1991
EX-99.B2(ii) Amendment to By-Laws dated *
October 27, 1994
EX-99.B5(i) Management Agreement between Registrant *
on behalf of Franklin Small Cap
Growth Fund, Franklin Global Healthcare
Fund, Franklin Global Utilities Fund and
Franklin Advisers, Inc. dated February 24,
1992
EX-99.B5(ii) Administration Agreement between *
Registrant on behalf of Franklin MidCap
Growth Fund and Franklin Advisers, Inc.
dated April 12, 1993
EX-99.B5(iii) Administration Agreement between *
Registrant on behalf of FISCO MidCap
Growth Fund and Franklin Advisers, Inc.
dated August 17, 1993
EX-99.B5(iv) Management Agreement between Registrant *
on behalf of Franklin Strategic
Income Fund and Franklin Advisers, Inc.
effective May 24, 1994
EX-99.B5(v) Subadvisory Agreement between Franklin *
Advisers, Inc. and Templeton Investment
Counsel, Inc., providing for services to
Franklin Strategic Income Fund dated May
24, 1994
EX-99.B5(vi) Amended and Restated Management Agreement *
between Franklin Advisers, Inc. and the
Registrant, on behalf of Franklin
California Growth Fund effective July 12,
1993
EX-99.B5(vii) Management Agreement between Attached
Registrant on behalf of Franklin
Blue Chip Fund and Franklin
Advisers, Inc. dated February 13, 1996
EX-99.B6(i) Amended and Restated Distribution *
Agreement between Registrant and
Franklin/Templeton Distributors, Inc.
on behalf of all Series except Franklin
Strategic Income Series dated April 23,
1995
EX-99.B6(ii) Amended and Restated Distribution *
Agreements between Registrant and
Franklin/Templeton Distributors, Inc. on
behalf of Franklin Strategic Income Series
dated March 29, 1995
Ex-99.B6(iii) Forms of Dealer Agreement between *
Franklin/Templeton Distributors, Inc.
and dealers
EX-99.B8(i) Custodian Agreement between Registrant *
and Bank of America NT&SA
(Franklin Small Cap Growth Fund)
dated May 24, 1994
EX-99.B8(ii) Custodian Agreements between Registrant *
and Citibank Delaware
EX-99.B8(iii) Master Custody Agreement between Attached
Registrant and Bank of New York dated
February 16, 1996
EX-99.B8(iv) Terminal Link Agreement between Attached
Registrant and Bank of New York dated
February 16, 1996
EX-99.B13(i) Letter of Understanding dated August 20, *
1991
EX-99.B13(ii) Letter of Understanding dated April 12, *
1995
EX-99.B13(iii) Letter of Understanding for Franklin *
Natural Resources Fund dated June 5, 1995
EX-99.B15(i) Amended and Restated Distribution Plan *
between Franklin Strategic Series and
Franklin Templeton Distributors, Inc. on
behalf of Franklin California Growth Fund,
Franklin Small Cap Growth Fund, Franklin
Global Health Care Fund and Franklin Global
Utilities Fund dated July 1, 1993
EX-99.B15(ii) Distribution Plan between Franklin *
Strategic Series and Franklin Templeton
Distributors, Inc. on behalf of Franklin
Global Utilities Fund-Class II dated March
30, 1995
EX-99.B15(iii) Distribution Plan pursuant to Rule 12b-1 *
between Registrant, on behalf of the
Franklin Strategic Income Fund, and
Franklin Distributors, Inc. dated May 24,
1994
EX-99.B15(iv) Distribution Plan pursuant to Rule 12b-1 *
between the Registrant on behalf of the
Franklin Natural Resources Fund and
Franklin/Templeton Distributors, Inc. dated
June 1, 1995
EX-99.B16(i) Schedule for Computation of Performance *
Quotations
EX-99.B17(i) Power of Attorney for Franklin Strategic *
Series dated February 16, 1995
EX-99.B17(ii) Power of Attorney for MidCap Growth *
Portfolio dated June 29, 1995
EX-99.B17(iii) Certificate of Secretary for Franklin *
Strategic Series dated February 16, 1995
EX-99.B17(iv) Certificate of Secretary for MidCap *
Growth Portfolio dated June 29, 1995
EX-99.B18(i) Form of Multiple Class Plan *
* Incorporated by reference
FRANKLIN STRATEGIC SERIES
on behalf of the
FRANKLIN BLUE CHIP FUND
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT made between FRANKLIN STRATEGIC SERIES, a
Delaware business trust (the "Trust"), on behalf of FRANKLIN BLUE CHIP FUND
(the "Fund"), a series of the Trust, and FRANKLIN ADVISERS, INC., a
California corporation, (the "Manager").
WHEREAS, the Trust has been organized and intends to operate as an
investment company registered under the Investment Company Act of 1940 (the
"1940 Act") for the purpose of investing and reinvesting its assets in
securities, as set forth in its Agreement and Declaration of Trust, its
By-Laws and its Registration Statements under the 1940 Act and the Securities
Act of 1933, all as heretofore and hereafter amended and supplemented; and
the Trust desires to avail itself of the services, information, advice,
assistance and facilities of an investment manager and to have an investment
manager perform various management, statistical, research, investment
advisory and other services for the Fund; and,
WHEREAS, the Manager is registered as an investment adviser under the
Investment Advisers Act of 1940, is engaged in the business of rendering
management, investment advisory, counseling and supervisory services to
investment companies and other investment counseling clients, and desires to
provide these services to the Fund.
NOW THEREFORE, in consideration of the terms and conditions hereinafter
set forth, it is mutually agreed as follows:
l. Employment of the Manager. The Trust hereby employs the Manager to
manage the investment and reinvestment of the Fund's assets and to administer
its affairs, subject to the direction of the Board of Trustees and the
officers of the Trust, for the period and on the terms hereinafter set
forth. The Manager hereby accepts such employment and agrees during such
period to render the services and to assume the obligations herein set forth
for the compensation herein provided. The Manager shall for all purposes
herein be deemed to be an independent contractor and shall, except as
expressly provided or authorized (whether herein or otherwise), have no
authority to act for or represent the Fund or the Trust in any way or
otherwise be deemed an agent of the Fund or the Trust.
2. Obligations of and Services to be Provided by the Manager. The
Manager undertakes to provide the services hereinafter set forth and to
assume the following obligations:
A. Administrative Services. The Manager shall furnish to the
Fund adequate (i) office space, which may be space within the offices of the
Manager or in such other place as may be agreed upon from time to time, (ii)
office furnishings, facilities and equipment as may be reasonably required
for managing the affairs and conducting the business of the Fund, including
conducting correspondence and other communications with the shareholders of
the Fund, maintaining all internal bookkeeping, accounting and auditing
services and records in connection with the Fund's investment and business
activities. The Manager shall employ or provide and compensate the
executive, secretarial and clerical personnel necessary to provide such
services. The Manager shall also compensate all officers and employees of
the Trust who are officers or employees of the Manager or its affiliates.
B. Investment Management Services.
(a) The Manager shall manage the Fund's assets subject
to and in accordance with the investment objectives and policies of the Fund
and any directions which the Trust's Board of Trustees may issue from time to
time. In pursuance of the foregoing, the Manager shall make all
determinations with respect to the investment of the Fund's assets and the
purchase and sale of its investment securities, and shall take such steps as
may be necessary to implement the same. Such determinations and services
shall include determining the manner in which any voting rights, rights to
consent to corporate action and any other rights pertaining to the Fund's
investment securities shall be exercised. The Manager shall render or cause
to be rendered regular reports to the Trust, at regular meetings of its Board
of Trustees and at such other times as may be reasonably requested by the
Trust's Board of Trustees, of (i) the decisions made with respect to the
investment of the Fund's assets and the purchase and sale of its investment
securities, (ii) the reasons for such decisions and (iii) the extent to which
those decisions have been implemented.
(b) The Manager, subject to and in accordance with any
directions which the Trust's Board of Trustees may issue from time to time,
shall place, in the name of the Fund, orders for the execution of the Fund's
securities transactions. When placing such orders, the Manager shall seek to
obtain the best net price and execution for the Fund, but this requirement
shall not be deemed to obligate the Manager to place any order solely on the
basis of obtaining the lowest commission rate if the other standards set
forth in this section have been satisfied. The parties recognize that there
are likely to be many cases in which different brokers are equally able to
provide such best price and execution and that, in selecting among such
brokers with respect to particular trades, it is desirable to choose those
brokers who furnish research, statistical, quotations and other information
to the Fund and the Manager in accordance with the standards set forth
below. Moreover, to the extent that it continues to be lawful to do so and
so long as the Board of Trustees determines that the Fund will benefit,
directly or indirectly, by doing so, the Manager may place orders with a
broker who charges a commission for that transaction which is in excess of
the amount of commission that another broker would have charged for effecting
that transaction, provided that the excess commission is reasonable in
relation to the value of "brokerage and research services" (as defined in
Section 28(e) (3) of the Securities Exchange Act of 1934) provided by that
broker.
Accordingly, the Trust and the Manager agree that the
Manager shall select brokers for the execution of the Fund's transactions
from among:
(i) Those brokers and dealers who provide quotations
and other services to the Fund, specifically including
the quotations necessary to determine the Fund's net
assets, in such amount of total brokerage as may
reasonably be required in light of such services; and
(ii) Those brokers and dealers who supply research,
statistical and other data to the Manager or its
affiliates which the Manager or its affiliates may
lawfully and appropriately use in their investment
advisory capacities, which relate directly to securities,
actual or potential, of the Fund, or which place the
Manager in a better position to make decisions in
connection with the management of the Fund's assets and
securities, whether or not such data may also be useful
to the Manager and its affiliates in managing other
portfolios or advising other clients, in such amount of
total brokerage as may reasonably be required. Provided
that the Trust's officers are satisfied that the best
execution is obtained, the sale of shares of the Fund may
also be considered as a factor in the selection of
broker-dealers to execute the Fund's portfolio
transactions.
(c) When the Manager has determined that the Fund
should tender securities pursuant to a "tender offer solicitation,"
Franklin/Templeton Distributors, Inc. ("Distributors") shall be designated as
the "tendering dealer" so long as it is legally permitted to act in such
capacity under the federal securities laws and rules thereunder and the rules
of any securities exchange or association of which Distributors may be a
member. Neither the Manager nor Distributors shall be obligated to make any
additional commitments of capital, expense or personnel beyond that already
committed (other than normal periodic fees or payments necessary to maintain
its corporate existence and membership in the National Association of
Securities Dealers, Inc.) as of the date of this Agreement. This Agreement
shall not obligate the Manager or Distributors (i) to act pursuant to the
foregoing requirement under any circumstances in which they might reasonably
believe that liability might be imposed upon them as a result of so acting,
or (ii) to institute legal or other proceedings to collect fees which may be
considered to be due from others to it as a result of such a tender, unless
the Trust on behalf of the Fund shall enter into an agreement with the
Manager and/or Distributors to reimburse them for all such expenses connected
with attempting to collect such fees, including legal fees and expenses and
that portion of the compensation due to their employees which is attributable
to the time involved in attempting to collect such fees.
(d) The Manager shall render regular reports to the
Trust, not more frequently than quarterly, of how much total brokerage
business has been placed by the Manager, on behalf of the Fund, with brokers
falling into each of the categories referred to above and the manner in which
the allocation has been accomplished.
(e) The Manager agrees that no investment decision
will be made or influenced by a desire to provide brokerage for allocation in
accordance with the foregoing, and that the right to make such allocation of
brokerage shall not interfere with the Manager's paramount duty to obtain the
best net price and execution for the Fund.
C. Provision of Information Necessary for Preparation of
Securities Registration Statements, Amendments and Other Materials. The Manager,
its officers and employees will make available and provide accounting and
statistical information required by the Fund in the preparation of registration
statements, reports and other documents required by federal and state securities
laws and with such information as the Fund may reasonably request for use in the
preparation of such documents or of other materials necessary or helpful for the
underwriting and distribution of the Fund's shares.
D. Other Obligations and Services. The Manager shall make its
officers and employees available to the Board of Trustees and officers of the
Trust for consultation and discussions regarding the administration and
management of the Fund and its investment activities.
3. Expenses of the Fund. It is understood that the Fund will pay all of
its own expenses other than those expressly assumed by the Manager herein, which
expenses payable by the Fund shall include:
A. Fees and expenses paid to the Manager as provided herein;
B. Expenses of all audits by independent public accountants;
C. Expenses of transfer agent, registrar, custodian, dividend
disbursing agent and shareholder record-keeping services, including the expenses
of issue, repurchase or redemption of its shares;
D. Expenses of obtaining quotations for calculating the value of
the Fund's net assets;
E. Salaries and other compensations of executive officers of the
Trust who are not officers, directors, stockholders or employees of the Manager
or its affiliates;
F. Taxes levied against the Fund;
G. Brokerage fees and commissions in connection with the purchase
and sale of securities for the Fund;
H. Costs, including the interest expense, of borrowing money;
I. Costs incident to meetings of the Board of Trustees and
shareholders of the Fund, reports to the Fund's shareholders, the filing of
reports with regulatory bodies and the maintenance of the Fund's and the
Trust's legal existence;
J. Legal fees, including the legal fees related to the
registration and continued qualification of the Fund's shares for sale;
K. Trustees' fees and expenses to trustees who are not
directors, officers, employees or stockholders of the Manager or any of its
affiliates;
L. Costs and expense of registering and maintaining the
registration of the Fund and its shares under federal and any applicable
state laws; including the printing and mailing of prospectuses to its
shareholders;
M. Trade association dues; and
N. The Fund's pro rata portion of fidelity bond, errors and
omissions, and trustees and officer liability insurance premiums.
4. Compensation of the Manager. The Fund shall pay a management fee
in cash to the Manager based upon a percentage of the value of the Fund's net
assets, calculated as set forth below, as compensation for the services
rendered and obligations assumed by the Manager, during the preceding month,
on the first business day of the month in each year.
A. For purposes of calculating such fee, the value of the
net assets of the Fund shall be determined in the same manner as that Fund
uses to compute the value of its net assets in connection with the
determination of the net asset value of its shares, all as set forth more
fully in the Fund's current prospectus and statement of additional
information. The rate of the management fee payable by the Fund shall be
calculated daily at the following annual rates:
0.75% of the average daily net assets up to and including
$500 million;
0.625% of the average daily net assets over $500 million
up to and including $1 billion; and
0.50% of the average daily net assets over $1 billion.
B. The management fee payable by the Fund shall be reduced
or eliminated to the extent that Distributors has actually received cash
payments of tender offer solicitation fees less certain costs and expenses
incurred in connection therewith and to the extent necessary to comply with
the limitations on expenses which may be borne by the Fund as set forth in
the laws, regulations and administrative interpretations of those states in
which the Fund's shares are registered. The Manager may waive all or a
portion of its fees provided for hereunder and such waiver shall be treated
as a reduction in purchase price of its services. The Manager shall be
contractually bound hereunder by the terms of any publicly announced waiver
of its fee, or any limitation of the Fund's expenses, as if such waiver or
limitation were full set forth herein.
C. If this Agreement is terminated prior to the end of any
month, the accrued management fee shall be paid to the date of termination.
5. Activities of the Manager. The services of the Manager to the
Fund hereunder are not to be deemed exclusive, and the Manager and any of its
affiliates shall be free to render similar services to others. Subject to
and in accordance with the Agreement and Declaration of Trust and By-Laws of
the Trust and Section 10(a) of the 1940 Act, it is understood that trustees,
officers, agents and shareholders of the Trust are or may be interested in
the Manager or its affiliates as directors, officers, agents or stockholders;
that directors, officers, agents or stockholders of the Manager or its
affiliates are or may be interested in the Trust as trustees, officers,
agents, shareholders or otherwise; that the Manager or its affiliates may be
interested in the Fund as shareholders or otherwise; and that the effect of
any such interests shall be governed by said Agreement and Declaration of
Trust, By-Laws and the 1940 Act.
6. Liabilities of the Manager.
A. In the absence of willful misfeasance, bad faith, gross
negligence, or reckless disregard of obligations or duties hereunder on the
part of the Manager, the Manager shall not be subject to liability to the
Trust or the Fund or to any shareholder of the Fund for any act or omission
in the course of, or connected with, rendering services hereunder or for any
losses that may be sustained in the purchase, holding or sale of any security
by the Fund.
B. Notwithstanding the foregoing, the Manager agrees to
reimburse the Trust for any and all costs, expenses, and counsel and
trustees' fees reasonably incurred by the Trust in the preparation, printing
and distribution of proxy statements, amendments to its Registration
Statement, holdings of meetings of its shareholders or trustees, the conduct
of factual investigations, any legal or administrative proceedings (including
any applications for exemptions or determinations by the Securities and
Exchange Commission) which the Trust incurs as the result of action or
inaction of the Manager or any of its affiliates or any of their officers,
directors, employees or stockholders where the action or inaction
necessitating such expenditures (i) is directly or indirectly related to any
transactions or proposed transaction in the stock or control of the Manager
or its affiliates (or litigation related to any pending or proposed or future
transaction in such shares or control) which shall have been undertaken
without the prior, express approval of the Trust's Board of Trustees; or,
(ii) is within the control of the Manager or any of its affiliates or any of
their officers, directors, employees or stockholders. The Manager shall not
be obligated pursuant to the provisions of this Subparagraph 6(B), to
reimburse the Trust for any expenditures related to the institution of an
administrative proceeding or civil litigation by the Trust or a shareholder
seeking to recover all or a portion of the proceeds derived by any
stockholder of the Manager or any of its affiliates from the sale of his
shares of the Manager, or similar matters. So long as this Agreement is in
effect, the Manager shall pay to the Trust the amount due for expenses
subject to this Subparagraph 6(B) within 30 days after a bill or statement
has been received by the Manager therefor. This provision shall not be
deemed to be a waiver of any claim the Trust may have or may assert against
the Manager or others for costs, expenses or damages heretofore incurred by
the Trust or for costs, expenses or damages the Trust may hereafter incur
which are not reimbursable to it hereunder.
C. No provision of this Agreement shall be construed to
protect any trustee or officer of the Trust, or director or officer of the
Manager, from liability in violation of Sections 17(h) and (i) of the 1940
Act.
7. Renewal and Termination.
A. This Agreement shall become effective on the date written
below and shall continue in effect for two (2) years thereafter, unless
sooner terminated as hereinafter provided and shall continue in effect
thereafter for periods not exceeding one (1) year so long as such
continuation is approved at least annually (i) by a vote of a majority of the
outstanding voting securities of each Fund or by a vote of the Board of
Trustees of the Trust, and (ii) by a vote of a majority of the Trustees of
the Trust who are not parties to the Agreement (other than as Trustees of the
Trust), cast in person at a meeting called for the purpose of voting on the
Agreement.
B. This Agreement:
(i) may at any time be terminated without the payment
of any penalty either by vote of the Board of Trustees of the Trust or by
vote of a majority of the outstanding voting securities of the Fund on 60
days' written notice to the Manager;
(ii) shall immediately terminate with respect to the
Fund in the event of its assignment; and
(iii) may be terminated by the Manager on 60 days'
written notice to the Fund.
C. As used in this Paragraph the terms "assignment,"
"interested person" and "vote of a majority of the outstanding voting
securities" shall have the meanings set forth for any such terms in the 1940
Act.
D. Any notice under this Agreement shall be given in
writing addressed and delivered, or mailed post-paid, to the other party at
any office of such party.
8. Severability. If any provision of this Agreement shall be held
or made invalid by a court decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby.
9. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of California.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and effective on the 13th day of February, 1996.
FRANKLIN STRATEGIC SERIES
By: /s/ Deborah R. Gatzek
Deborah R. Gatzek
Vice President & Secretary
FRANKLIN ADVISERS, INC.
By: /s/ Harmon E. Burns
Harmon E. Burns
Executive Vice President
MASTER CUSTODY AGREEMENT
THIS CUSTODY AGREEMENT ("Agreement") is made and entered into as of
February 16, 1996, by and between each Investment Company listed on Exhibit A,
for itself and for each of its Series listed on Exhibit A, and BANK OF NEW YORK,
a New York corporation authorized to do a banking business (the "Custodian").
RECITALS
A. Each Investment Company is an investment company registered under
the Investment Company Act of 1940, as amended (the "Investment Company Act")
that invests and reinvests, for itself or on behalf of its Series, in Domestic
Securities and Foreign Securities.
B. The Custodian is, and has represented to each Investment Company
that the Custodian is, a "bank" as that term is defined in Section 2(a)(5) of
the Investment Company Act of 1940, as amended, and is eligible to receive and
maintain custody of investment company assets pursuant to Section 17(f) and Rule
17f-2 thereunder.
C. The Custodian and each Investment Company, for itself and for
each of its Series, desire to provide for the retention of the Custodian as a
custodian of the assets of each Investment Company and each Series, on the terms
and subject to the provisions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein, and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties hereto agree
as follows:
Section 1.0 FORM OF AGREEMENT
Although the parties have executed this Agreement in the form of a
Master Custody Agreement for administrative convenience, this Agreement shall
create a separate custody agreement for each Investment Company and for each
Series designated on Exhibit A, as though each Investment Company had separately
executed an identical custody agreement for itself and for each of its Series.
No rights, responsibilities or liabilities of any Investment Company or Series
shall be attributed to any other Investment Company or Series.
Section 1.1 DEFINITIONS
For purposes of this Agreement, the following terms shall have the
respective meanings specified below:
"Agreement" shall mean this Custody Agreement.
"Board" shall mean the Board of Trustees, Directors or Managing
General Partners, as applicable, of an Investment Company.
"Business Day" with respect to any Domestic Security means any day,
other than a Saturday or Sunday, that is not a day on which banking institutions
are authorized or required by law to be closed in The City of New York and, with
respect to Foreign Securities, a London Business Day. "London Business Day"
shall mean any day on which dealings and deposits in U.S. dollars are transacted
in the London interbank market.
"Custodian" shall mean Bank of New York.
"Domestic Securities" shall have the meaning provided in Subsection
2.1 hereof.
"Executive Committee" shall mean the executive committee of a Board.
"Foreign Custodian" shall have the meaning provided in Section 4.1
hereof.
"Foreign Securities" shall have the meaning provided in Section 2.1
hereof.
"Foreign Securities Depository" shall have the meaning provided in
Section 4.1 hereof.
"Fund" shall mean an entity identified on Exhibit A as an Investment
Company, if the Investment Company has no series, or a Series.
"Investment Company" shall mean an entity identified on Exhibit A
under the heading "Investment Company."
"Investment Company Act" shall mean the Investment Company Act of
1940, as amended.
"Securities" shall have the meaning provided in Section 2.1 hereof.
"Securities System" shall have the meaning provided in Section 3.1
hereof.
"Securities System Account" shall have the meaning provided in
Subsection 3.8(a) hereof.
"Series" shall mean a series of an Investment Company which is
identified as such on Exhibit A.
"Shares" shall mean shares of beneficial interest of the Investment
Company.
"Subcustodian" shall have the meaning provided in Subsection 3.7
hereof, but shall not include any Foreign Custodian.
"Transfer Agent" shall mean the duly appointed and acting transfer
agent for each Investment Company.
"Writing" shall mean a communication in writing, a communication by
telex, facsimile transmission, bankwire or other teleprocess or electronic
instruction system acceptable to the Custodian.
Section 2. APPOINTMENT OF CUSTODIAN; DELIVERY OF ASSETS
2.1 Appointment of Custodian. Each Investment Company hereby
appoints and designates the Custodian as a custodian of the assets of each Fund,
including cash denominated in U.S. dollars or foreign currency ("cash"),
securities the Fund desires to be held within the United States ("Domestic
Securities") and securities it desires to be held outside the United States
("Foreign Securities"). Domestic Securities and Foreign Securities are sometimes
referred to herein, collectively, as "Securities." The Custodian hereby accepts
such appointment and designation and agrees that it shall maintain custody of
the assets of each Fund delivered to it hereunder in the manner provided for
herein.
2.2 Delivery of Assets. Each Investment Company may deliver to the
Custodian Securities and cash owned by the Funds, payments of income, principal
or capital distributions received by the Funds with respect to Securities owned
by the Funds from time to time, and the consideration received by the Funds for
such Shares or other securities of the Funds as may be issued and sold from time
to time. The Custodian shall have no responsibility whatsoever for any property
or assets of the Funds held or received by the Funds and not delivered to the
Custodian pursuant to and in accordance with the terms hereof. All Securities
accepted by the Custodian on behalf of the Funds under the terms of this
Agreement shall be in "street name" or other good delivery form as determined by
the Custodian.
2.3 Subcustodians. The Custodian may appoint BNY Western Trust
Company as a Subcustodian to hold assets of the Funds in accordance with the
provisions of this Agreement. In addition, upon receipt of Proper Instructions
and a certified copy of a resolution of the Board or of the Executive Committee,
and certified by the Secretary or an Assistant Secretary, of an Investment
Company, the Custodian may from time to time appoint one or more other
Subcustodians or Foreign Custodians to hold assets of the affected Funds in
accordance with the provisions of this Agreement.
2.4 No Duty to Manage. The Custodian, a Subcustodian or a Foreign
Custodian shall not have any duty or responsibility to manage or recommend
investments of the assets of any Fund held by them or to initiate any purchase,
sale or other investment transaction in the absence of Proper Instructions or
except as otherwise specifically provided herein.
Section 3. DUTIES OF THE CUSTODIAN WITH RESPECT TO ASSETS OF THE FUNDS HELD
BY THE CUSTODIAN
3.1 Holding Securities. The Custodian shall hold and physically
segregate from any property owned by the Custodian, for the account of each
Fund, all non-cash property delivered by each Fund to the Custodian hereunder
other than Securities which, pursuant to Subsection 3.8 hereof, are held through
a registered clearing agency, a registered securities depository, the Federal
Reserve's book-entry securities system (referred to herein, individually, as a
"Securities System"), or held by a Subcustodian, Foreign Custodian or in a
Foreign Securities Depository.
3.2 Delivery of Securities. Except as otherwise provided in
Subsection 3.5 hereof, the Custodian, upon receipt of Proper Instructions, shall
release and deliver Securities owned by a Fund and held by the Custodian in the
following cases or as otherwise directed in Proper Instructions:
(a) except as otherwise provided herein, upon sale of such
Securities for the account of the Fund and receipt by the Custodian, a
Subcustodian or a Foreign Custodian of payment therefor;
(b) upon the receipt of payment by the Custodian, a
Subcustodian or a Foreign Custodian in connection with any repurchase agreement
related to such Securities entered into by the Fund;
(c) in the case of a sale effected through a Securities
System, in accordance with the provisions of Subsection 3.8 hereof;
(d) to a tender agent or other authorized agent in connection
with (i) a tender or other similar offer for Securities owned by the Fund, or
(ii) a tender offer or repurchase by the Fund of its own Shares;
(e) to the issuer thereof or its agent when such Securities
are called, redeemed, retired or otherwise become payable; provided, that in any
such case, the cash or other consideration is to be delivered to the Custodian,
a Subcustodian or a Foreign Custodian;
(f) to the issuer thereof, or its agent, for transfer into the
name or nominee name of the Fund, the name or nominee name of the Custodian, the
name or nominee name of any Subcustodian or Foreign Custodian; or for exchange
for a different number of bonds, certificates or other evidence representing the
same aggregate face amount or number of units; provided that, in any such case,
the new Securities are to be delivered to the Custodian, a Subcustodian or
Foreign Custodian;
(g) to the broker selling the same for examination in
accordance with the "street delivery" custom;
(h) for exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, or reorganization of the issuer of such
Securities, or pursuant to a conversion of such Securities; provided that, in
any such case, the new Securities and cash, if any, are to be delivered to the
Custodian or a Subcustodian;
(i) in the case of warrants, rights or similar securities, the
surrender thereof in connection with the exercise of such warrants, rights or
similar Securities or the surrender of interim receipts or temporary Securities
for definitive Securities; provided that, in any such case, the new Securities
and cash, if any, are to be delivered to the Custodian, a subcustodian or a
Foreign Custodian;
(j) for delivery in connection with any loans of Securities
made by the Fund, but only against receipt by the Custodian, a Subcustodian or a
Foreign Custodian of adequate collateral as determined by the Fund (and
identified in Proper Instructions communicated to the Custodian), which may be
in the form of cash or obligations issued by the United States government, its
agencies or instrumentalities, except that in connection with any loans for
which collateral is to be credited to the account of the Custodian, a
Subcustodian or a Foreign Custodian in the Federal Reserve's book-entry
securities system, the Custodian will not be held liable or responsible for the
delivery of Securities owned by the Fund prior to the receipt of such
collateral;
(k) for delivery as security in connection with any borrowings
by the Fund requiring a pledge of assets by the Fund, but only against receipt
by the Custodian, a Subcustodian or a Foreign Custodian of amounts borrowed;
(l) for delivery in accordance with the provisions of any
agreement among the Fund, the Custodian, a Subcustodian or a Foreign Custodian
and a broker-dealer relating to compliance with the rules of registered clearing
corporations and of any registered national securities exchange, or of any
similar organization or organizations, regarding escrow or other arrangements in
connection with transactions by the Fund;
(m) for delivery in accordance with the provisions of any
agreement among the Fund, the Custodian, a Subcustodian or a Foreign Custodian
and a futures commission merchant, relating to compliance with the rules of the
Commodity Futures Trading Commission and/or any contract market, or any similar
organization or organizations, regarding account deposits in connection with
transactions by the Fund;
(n) upon the receipt of instructions from the Transfer Agent
for delivery to the Transfer Agent or to the holders of Shares in connection
with distributions in kind in satisfaction of requests by holders of Shares for
repurchase or redemption; and
(o) for any other proper purpose, but only upon receipt of
Proper Instructions, and a certified copy of a resolution of the Board or of the
Executive Committee certified by the Secretary or an Assistant Secretary of the
Fund, specifying the securities to be delivered, setting forth the purpose for
which such delivery is to be made, declaring such purpose to be a proper
purpose, and naming the person or persons to whom delivery of such securities
shall be made.
3.3 Registration of Securities. Securities held by the Custodian, a
Subcustodian or a Foreign Custodian (other than bearer Securities) shall be
registered in the name or nominee name of the appropriate Fund, in the name or
nominee name of the Custodian or in the name or nominee name of any Subcustodian
or Foreign Custodian. Each Fund agrees to hold the Custodian, any such nominee,
Subcustodian or Foreign Custodian harmless from any liability as a holder of
record of such Securities.
3.4 Bank Accounts. The Custodian shall open and maintain a separate
bank account or accounts for each Fund, subject only to draft or order by the
Custodian acting pursuant to the terms of this Agreement, and shall hold in such
account or accounts, subject to the provisions hereof, all cash received by it
hereunder from or for the account of each Fund, other than cash maintained by a
Fund in a bank account established and used in accordance with Rule 17f-3 under
the Fund Act. Funds held by the Custodian for a Fund may be deposited by it to
its credit as Custodian in the banking departments of the Custodian, a
Subcustodian or a Foreign Custodian. Such funds shall be deposited by the
Custodian in its capacity as Custodian and shall be withdrawable by the
Custodian only in that capacity. In the event a Fund's account for any reason
becomes overdrawn, or in the event an action requested in Proper Instructions
would cause such an account to become overdrawn, the Custodian shall immediately
notify the affected Fund.
3.5 Collection of Income; Trade Settlement; Crediting of Accounts.
The Custodian shall collect income payable with respect to Securities owned by
each Fund, settle Securities trades for the account of each Fund and credit and
debit each Fund's account with the Custodian in connection therewith as stated
in this Subsection 3.5. This Subsection shall not apply to repurchase
agreements, which are treated in Subsection 3.2(b), above.
(a) Upon receipt of Proper Instructions, the Custodian shall
effect the purchase of a Security by charging the account of the Fund on the
contractual settlement date, and by making payment against delivery. If the
seller or selling broker fails to deliver the Security within a reasonable
period of time, the Custodian shall notify the Fund and credit the transaction
amount to the account of the Fund, but the Custodian shall have no further
liability or responsibility for the transaction.
(b) Upon receipt of Proper Instructions, the Custodian shall
effect the sale of a Security by withdrawing a certificate or other indicia of
ownership from the account of the Fund and by making delivery against payment,
and shall credit the account of the Fund with the amount of such proceeds on the
contractual settlement date. If the purchaser or the purchasing broker fails to
make payment within a reasonable period of time, the Custodian shall notify the
Fund, debit the Fund's account for any amounts previously credited to it by the
Custodian as proceeds of the transaction and, if delivery has not been made,
redeposit the Security into the account of the Fund.
(c) The Fund is responsible for ensuring that the Custodian
receives timely and accurate Proper Instructions to enable the Custodian to
effect settlement of any purchase or sale. If the Custodian does not receive
such instructions within the required time period, the Custodian shall have no
liability of any kind to any person, including the Fund, for failing to effect
settlement on the contractual settlement date. However, the Custodian shall use
its best reasonable efforts to effect settlement as soon as possible after
receipt of Proper Instructions.
(d) The Custodian shall credit the account of the Fund with
interest income payable on interest bearing Securities on payable date.
Dividends and other amounts payable with respect to Domestic Securities and
Foreign Securities shall be credited to the account of the Fund when received by
the Custodian. The Custodian shall not be required to commence suit or
collection proceedings or resort to any extraordinary means to collect such
income and other amounts payable with respect to Securities owned by the Fund.
The collection of income due the Fund on Domestic Securities loaned pursuant to
the provisions of Subsection 3.2(j) shall be the responsibility of the Fund. The
Custodian will have no duty or responsibility in connection therewith, other
than to provide the Fund with such information or data as may be necessary to
assist the Fund in arranging for the timely delivery to the Custodian of the
income to which the Fund is entitled. The Custodian shall have no liability to
any person, including the Fund, if the Custodian credits the account of the Fund
with such income or other amounts payable with respect to Securities owned by
the Fund (other than Securities loaned by the Fund pursuant to Subsection 3.2(j)
hereof) and the Custodian subsequently is unable to collect such income or other
amounts from the payors thereof within a reasonable time period, as determined
by the Custodian in its sole discretion. In such event, the Custodian shall be
entitled to reimbursement of the amount so credited to the account of the Fund.
3.6 Payment of Fund Monies. Upon receipt of Proper Instructions
the Custodian shall pay out monies of a Fund in the following cases or as
otherwise directed in Proper Instructions:
(a) upon the purchase of Securities, futures contracts or
options on futures contracts for the account of the Fund but only, except as
otherwise provided herein, (i) against the delivery of such securities, or
evidence of title to futures contracts or options on futures contracts, to the
Custodian or a Subcustodian registered pursuant to Subsection 3.3 hereof or in
proper form for transfer; (ii) in the case of a purchase effected through a
Securities System, in accordance with the conditions set forth in Subsection 3.8
hereof; or (iii) in the case of repurchase agreements entered into between the
Fund and the Custodian, another bank or a broker-dealer (A) against delivery of
the Securities either in certificated form to the Custodian or a Subcustodian or
through an entry crediting the Custodian's account at the appropriate Federal
Reserve Bank with such Securities or (B) against delivery of the confirmation
evidencing purchase by the Fund of Securities owned by the Custodian or such
broker-dealer or other bank along with written evidence of the agreement by the
Custodian or such broker-dealer or other bank to repurchase such Securities from
the Fund;
(b) in connection with conversion, exchange or surrender of
Securities owned by the Fund
as set forth in Subsection 3.2 hereof;
(c) for the redemption or repurchase of Shares issued by the
Fund;
(d) for the payment of any expense or liability incurred by
the Fund, including but not limited to the following payments for the account of
the Fund: custodian fees, interest, taxes, management, accounting, transfer
agent and legal fees and operating expenses of the Fund whether or not such
expenses are to be in whole or part capitalized or treated as deferred expenses;
and
(e) for the payment of any dividends or distributions
declared by the Board with respect to the Shares.
3.7 Appointment of Subcustodians. The Custodian may appoint BNY
Western Trust Company or, upon receipt of Proper Instructions, another bank or
trust company, which is itself qualified under the Investment Company Act to act
as a custodian (a "Subcustodian"), as the agent of the Custodian to carry out
such of the duties of the Custodian hereunder as a Custodian may from time to
time direct; provided, however, that the appointment of any Subcustodian shall
not relieve the Custodian of its responsibilities or liabilities hereunder.
3.8 Deposit of Securities in Securities Systems. The Custodian may
deposit and/or maintain Domestic Securities owned by a Fund in a Securities
System in accordance with applicable Federal Reserve Board and Securities and
Exchange Commission rules and regulations, if any, and subject to the following
provisions:
(a) the Custodian may hold Domestic Securities of the Fund in
the Depository Trust Company or the Federal Reserve's book entry system or, upon
receipt of Proper Instructions, in another Securities System provided that such
securities are held in an account of the Custodian in the Securities System
("Securities System Account") which shall not include any assets of the
Custodian other than assets held as a fiduciary, custodian or otherwise for
customers;
(b) the records of the Custodian with respect to Domestic
Securities of the Fund which are maintained in a Securities System shall
identify by book-entry those Domestic Securities belonging to the Fund;
(c) the Custodian shall pay for Domestic Securities purchased
for the account of the Fund upon (i) receipt of advice from the Securities
System that such securities have been transferred to the Securities System
Account, and (ii) the making of an entry on the records of the Custodian to
reflect such payment and transfer for the account of the Fund. The Custodian
shall transfer Domestic Securities sold for the account of the Fund upon (A)
receipt of advice from the Securities System that payment for such securities
has been transferred to the Securities System Account, and (B) the making of an
entry on the records of the Custodian to reflect such transfer and payment for
the account of the Fund. Copies of all advices from the Securities System of
transfers of Domestic Securities for the account of the Fund shall be maintained
for the Fund by the Custodian and be provided to the Fund at its request. Upon
request, the Custodian shall furnish the Fund confirmation of the transfer to or
from the account of the Fund in the form of a written advice or notice; and
(d) upon request, the Custodian shall provide the Fund with
any report obtained by the Custodian on the Securities System's accounting
system, internal accounting control and procedures for safeguarding domestic
securities deposited in the Securities System.
3.9 Segregated Account. The Custodian shall upon receipt of Proper
Instructions establish and maintain a segregated account or accounts for and on
behalf of a Fund, into which account or accounts may be transferred cash and/or
Securities, including Securities maintained in an account by the Custodian
pursuant to Section 3.8 hereof, (i) in accordance with the provisions of any
agreement among the Fund, the Custodian and a broker-dealer or futures
commission merchant, relating to compliance with the rules of registered
clearing corporations and of any national securities exchange (or the Commodity
Futures Trading Commission or any registered contract market), or of any similar
organization or organizations, regarding escrow or other arrangements in
connection with transactions by the Fund, (ii) for purposes of segregating cash
or securities in connection with options purchased, sold or written by the Fund
or commodity futures contracts or options thereon purchased or sold by the Fund,
and (iii) for other proper corporate purposes, but only, in the case of this
clause (iii), upon receipt of, in addition to Proper Instructions, a certified
copy of a resolution of the Board or of the Executive Committee certified by the
Secretary or an Assistant Secretary, setting forth the purpose or purposes of
such segregated account and declaring such purposes to be proper corporate
purposes.
3.10 Ownership Certificates for Tax Purposes. The Custodian shall
execute ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other payments with
respect to domestic securities of each Fund held by it and in connection with
transfers of such securities.
3.11 Proxies. The Custodian shall, with respect to the Securities
held hereunder, promptly deliver to each Fund all proxies, all proxy soliciting
materials and all notices relating to such Securities. If the Securities are
registered otherwise than in the name of a Fund or a nominee of a Fund, the
Custodian shall use its best reasonable efforts, consistent with applicable law,
to cause all proxies to be promptly executed by the registered holder of such
Securities in accordance with Proper Instructions.
3.12 Communications Relating to Fund Portfolio Securities. The
Custodian shall transmit promptly to each Fund all written information
(including, without limitation, pendency of calls and maturities of Securities
and expirations of rights in connection therewith and notices of exercise of put
and call options written by the Fund and the maturity of futures contracts
purchased or sold by the Fund) received by the Custodian from issuers of
Securities being held for the Fund. With respect to tender or exchange offers,
the Custodian shall transmit promptly to each Fund all written information
received by the Custodian from issuers of the Securities whose tender or
exchange is sought and from the party (or its agents) making the tender or
exchange offer. If a Fund desires to take action with respect to any tender
offer, exchange offer or any other similar transaction, the Fund shall notify
the Custodian at least three Business Days prior to the date of which the
Custodian is to take such action.
3.13 Reports by Custodian. The Custodian shall each business day
furnish each Fund with a statement summarizing all transactions and entries for
the account of the Fund for the preceding day. At the end of every month, the
Custodian shall furnish each Fund with a list of the cash and portfolio
securities showing the quantity of the issue owned, the cost of each issue and
the market value of each issue at the end of each month. Such monthly report
shall also contain separate listings of (a) unsettled trades and (b) when-issued
securities. The Custodian shall furnish such other reports as may be mutually
agreed upon from time-to-time.
Section 4. CERTAIN DUTIES OF THE CUSTODIAN WITH RESPECT TO ASSETS OF THE
FUNDS HELD OUTSIDE THE UNITED STATES
4.1 Custody Outside the United States. Each Fund authorizes the
Custodian to hold Foreign Securities and cash in custody accounts which have
been established by the Custodian with (i) its foreign branches, (ii) foreign
banking institutions, foreign branches of United States banks and subsidiaries
of United States banks or bank holding companies (each a "Foreign Custodian")
and (iii) Foreign Securities depositories or clearing agencies (each a "Foreign
Securities Depository"); provided, however, that the appropriate Board or
Executive Committee has approved in advance the use of each such Foreign
Custodian and Foreign Securities Depository and the contract between the
Custodian and each Foreign Custodian and that such approval is set forth in
Proper Instructions and a certified copy of a resolution of the Board or of the
Executive Committee certified by the Secretary or an Assistant Secretary of the
appropriate Investment Company. Unless expressly provided to the contrary in
this Section 4, custody of Foreign Securities and assets held outside the United
States by the Custodian, a Foreign Custodian or through a Foreign Securities
Depository shall be governed by this Agreement, including Section 3 hereof.
4.2 Assets to be Held. The Custodian shall limit the securities and
other assets maintained in the custody of its foreign branches, Foreign
Custodians and Foreign Securities Depositories to: (i) "foreign securities", as
defined in paragraph (c) (1) of Rule 17f-5 under the Fund Act, and (ii) cash and
cash equivalents in such amounts as the Custodian or an affected Fund may
determine to be reasonably necessary to effect the Fund's Foreign Securities
transactions.
4.3 Omitted.
4.4 Segregation of Securities. The Custodian shall identify on its
books and records as belonging to the appropriate Fund, the Foreign Securities
of each Fund held by each Foreign Custodian.
4.5 Agreements with Foreign Custodians. Each agreement between the
Custodian and a Foreign Custodian shall be substantially in the form as
delivered to the Investment Companies for their Boards' review, and shall not be
amended in a way that materially adversely affects any Fund without the prior
written consent of the Fund. Upon request, the Custodian shall certify to the
Funds that an agreement between the Custodian and a Foreign Custodian meets the
requirements of Rule 17f-5 under the 1940 Act.
4.6 Access of Independent Accountants of the Funds. Upon request of
a Fund, the Custodian will use its best reasonable efforts to arrange for the
independent accountants or auditors of the Fund to be afforded access to the
books and records of any Foreign Custodian insofar as such books and records
relate to the custody by any such Foreign Custodian of assets of the Fund.
4.7 Transactions in Foreign Custody Accounts. Upon receipt of Proper
Instructions, the Custodian shall instruct the appropriate Foreign Custodian to
transfer, exchange or deliver Foreign Securities owned by a Fund, but, except to
the extent explicitly provided herein, only in any of the cases specified in
Subsection 3.2. Upon receipt of Proper Instructions, the Custodian shall pay out
or instruct the appropriate Foreign Custodian to pay out monies of a Fund in any
of the cases specified in Subsection 3.6. Notwithstanding anything herein to the
contrary, settlement and payment for Foreign Securities received for the account
of a Fund and delivery of Foreign Securities maintained for the account of a
Fund may be effected in accordance with the customary or established securities
trading or securities processing practices and procedures in the jurisdiction or
market in which the transaction occurs, including, without limitation,
delivering securities to the purchaser thereof or to a dealer therefor (or an
agent for such purchaser or dealer) against a receipt with the expectation of
receiving later payment for such securities from such purchaser or dealer.
Foreign Securities maintained in the custody of a Foreign Custodian may be
maintained in the name of such entity or its nominee name to the same extent as
set forth in Section 3.3 of this Agreement and each Fund agrees to hold any
Foreign Custodian and its nominee harmless from any liability as a holder of
record of such securities.
4.8 Liability of Foreign Custodian. Each agreement between the
Custodian and a Foreign Custodian shall, unless otherwise mutually agreed to by
the Custodian and a Fund, require the Foreign Custodian to exercise reasonable
care or, alternatively, impose a contractual liability for breach of contract
without an exception based upon a standard of care in the performance of its
duties and to indemnify and hold harmless the Custodian from and against any
loss, damage, cost, expense, liability or claim arising out of or in connection
with the Foreign Custodian's performance of such obligations, excepting,
however, Citibank, N.A., and its subsidiaries and branches, where the
indemnification is limited to direct money damages and requires that the claim
be promptly asserted. At the election of a Fund, it shall be entitled to be
subrogated to the rights of the Custodian with respect to any claims against a
Foreign Custodian as a consequence of any such loss, damage, cost, expense,
liability or claim if and to the extent that the Fund has not been made whole
for any such loss, damage, cost, expense, liability or claim, unless such
subrogation is prohibited by local law.
4.9 Monitoring Responsibilities.
(a) The Custodian will promptly inform each Fund in the event
that the Custodian learns of a material adverse change in the financial
condition of a Foreign Custodian or learns that a Foreign Custodian's financial
condition has declined or is likely to decline below the minimum levels required
by Rule 17f-5 of the 1940 Act.
(b) The custodian will furnish such information as may be
reasonably necessary to assist each Investment Company's Board in its annual
review and approval of the continuance of all contracts or arrangements with
Foreign Subcustodians.
Section 5. PROPER INSTRUCTIONS
As used in this Agreement, the term "Proper Instructions" means
instructions of a Fund received by the Custodian via telephone or in Writing
which the Custodian believes in good faith to have been given by Authorized
Persons (as defined below) or which are transmitted with proper testing or
authentication pursuant to terms and conditions which the Custodian may specify.
Any Proper Instructions delivered to the Custodian by telephone shall promptly
thereafter be confirmed in accordance with procedures, and limited in subject
matter, as mutually agreed upon by the parties. Unless otherwise expressly
provided, all Proper Instructions shall continue in full force and effect until
canceled or superseded. If the Custodian requires test arrangements,
authentication methods or other security devices to be used with respect to
Proper Instructions, any Proper Instructions given by the Funds thereafter shall
be given and processed in accordance with such terms and conditions for the use
of such arrangements, methods or devices as the Custodian may put into effect
and modify from time to time. The Funds shall safeguard any testkeys,
identification codes or other security devices which the Custodian shall make
available to them. The Custodian may electronically record any Proper
Instructions given by telephone, and any other telephone discussions, with
respect to its activities hereunder. As used in this Agreement, the term
"Authorized Persons" means such officers or such agents of a Fund as have been
properly appointed pursuant to a resolution of the appropriate Board or
Executive Committee, a certified copy of which has been provided to the
Custodian, to act on behalf of the Fund under this Agreement. Each of such
persons shall continue to be an Authorized Person until such time as the
Custodian receives Proper Instructions that any such officer or agent is no
longer an Authorized Person.
Section 6. ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY
The Custodian may in its discretion, without express authority from
a Fund:
(a) make payments to itself or others for minor expenses of
handling Securities or other similar items relating to its duties under this
Agreement, provided that all such payments shall be accounted for to the Fund;
(b) endorse for collection, in the name of the Fund, checks,
drafts and other negotiable instruments; and
(c) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase, transfer and other
dealings with the Securities and property of the Fund except as otherwise
provided in Proper Instructions.
Section 7. EVIDENCE OF AUTHORITY
The Custodian shall be protected in acting upon any instructions
(conveyed by telephone or in Writing), notice, request, consent, certificate or
other instrument or paper believed by it to be genuine and to have been properly
given or executed by or on behalf of a Fund. The Custodian may receive and
accept a certified copy of a resolution of a Board or Executive Committee as
conclusive evidence (a) of the authority of any person to act in accordance with
such resolution or (b) of any determination or of any action by the Board or
Executive Committee as described in such resolution, and such resolution may be
considered as in full force and effect until receipt by the Custodian of written
notice by an Authorized Person to the contrary.
Section 8. DUTY OF CUSTODIAN TO SUPPLY INFORMATION
The Custodian shall cooperate with and supply necessary information
in its possession (to the extent permissible under applicable law) to the entity
or entities appointed by the appropriate Board to keep the books of account of a
Fund and/or compute the net asset value per Share of the outstanding Shares of a
Fund.
Section 9. RECORDS
The Custodian shall create and maintain all records relating to its
activities under this Agreement which are required with respect to such
activities under Section 31 of the Investment Company Act and Rules 31a-1 and
31a-2 thereunder. All such records shall be the property of the appropriate
Investment Company and shall at all times during the regular business hours of
the Custodian be open for inspection by duly authorized officers, employees or
agents of the Investment Company and employees and agents of the Securities and
Exchange Commission. The Custodian shall, at a Fund's request, supply the Fund
with a tabulation of Securities and Cash owned by the Fund and held by the
Custodian and shall, when requested to do so by the Fund and for such
compensation as shall be agreed upon between the Fund and the Custodian, include
certificate numbers in such tabulations.
Section 10. COMPENSATION OF CUSTODIAN
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between
each Investment Company, on behalf of each Fund, and the Custodian. In addition,
should the Custodian in its discretion advance funds (to include overdrafts) to
or on behalf of a Fund pursuant to Proper Instructions, the Custodian shall be
entitled to prompt reimbursement of any amounts advanced. In the event of such
an advance, and to the extent permitted by the 1940 Act and the Fund's policies,
the Custodian shall have a continuing lien and security interest in and to the
property of the Fund in the possession or control of the Custodian or of a third
party acting in the Custodian's behalf, until the advance is reimbursed. Nothing
in this Agreement shall obligate the Custodian to advance funds to or on behalf
of a Fund, or to permit any borrowing by a Fund except for borrowings for
temporary purposes, to the extent permitted by the Fund's policies.
Section 11. RESPONSIBILITY OF CUSTODIAN
The Custodian shall be responsible for the performance of only such
duties as are set forth herein or contained in Proper Instructions and shall use
reasonable care in carrying out such duties. The Custodian shall be liable to a
Fund for any loss which shall occur as the result of the failure of a Foreign
Custodian engaged directly or indirectly by the Custodian to exercise reasonable
care with respect to the safekeeping of securities and other assets of the Fund
to the same extent that the Custodian would be liable to the Fund if the
Custodian itself were holding such securities and other assets. Nothing in this
Agreement shall be read to limit the responsibility or liability of the
Custodian or a Foreign Custodian for their failure to exercise reasonable care
with regard to any decision or recommendation made by the Custodian or
Subcustodian regarding the use or continued use of a Foreign Securities
Depository. In the event of any loss to a Fund by reason of the failure of the
Custodian or a Foreign Custodian engaged by such Foreign Custodian or the
Custodian to utilize reasonable care, the Custodian shall be liable to the Fund
to the extent of the Fund's damages, to be determined based on the market value
of the property which is the subject of the loss at the date of discovery of
such loss and without reference to any special conditions or circumstances. The
Custodian shall be held to the exercise of reasonable care in carrying out this
Agreement, and shall not be liable for acts or omissions unless the same
constitute negligence or willful misconduct on the part of the Custodian or any
Foreign Custodian engaged directly or indirectly by the Custodian. Each Fund
agrees to indemnify and hold harmless the Custodian and its nominees from all
taxes, charges, expenses, assessments, claims and liabilities (including legal
fees and expenses) incurred by the Custodian or its nominess in connection with
the performance of this Agreement with respect to such Fund, except such as may
arise from any negligent action, negligent failure to act or willful misconduct
on the part of the indemnified entity or any Foreign Custodian. The Custodian
shall be entitled to rely, and may act, on advice of counsel (who may be counsel
for a Fund) on all matters and shall be without liability for any action
reasonably taken or omitted pursuant to such advice. The Custodian need not
maintain any insurance for the benefit of any Fund.
All collections of funds or other property paid or distributed in
respect of Securities held by the Custodian, agent, Subcustodian or Foreign
Custodian hereunder shall be made at the risk of the Funds. The Custodian shall
have no liability for any loss occasioned by delay in the actual receipt of
notice by the Custodian, agent, Subcustodian or by a Foreign Custodian of any
payment, redemption or other transaction regarding securities in respect of
which the Custodian has agreed to take action as provided in Section 3 hereof.
The Custodian shall not be liable for any action taken in good faith upon Proper
Instructions or upon any certified copy of any resolution of the Board and may
rely on the genuineness of any such documents which it may in good faith believe
to be validly executed. Notwithstanding the foregoing, the Custodian shall not
be liable for any loss resulting from, or caused by, the direction of a Fund to
maintain custody of any Securities or cash in a foreign country including, but
not limited to, losses resulting from nationalization, expropriation, currency
restrictions, civil disturbance, acts of war or terrorism, insurrection,
revolution, nuclear fusion, fission or radiation or other similar occurrences,
or events beyond the control of the Custodian. Finally, the Custodian shall not
be liable for any taxes, including interest and penalties with respect thereto,
that may be levied or assessed upon or in respect of any assets of any Fund held
by the Custodian.
Section 12. LIMITED LIABILITY OF EACH INVESTMENT COMPANY
The Custodian acknowledges that it has received notice of and
accepts the limitations of liability as set forth in each Investment Company's
Agreement and Declaration of Trust, Articles of Incorporation, or Agreement of
Limited Partnership. The Custodian agrees that each Fund's obligation hereunder
shall be limited to the assets of the Fund, and that the Custodian shall not
seek satisfaction of any such obligation from the shareholders of the Fund nor
from any Board Member, officer, employee, or agent of the Fund or the Investment
Company on behalf of the Fund.
Section 13. EFFECTIVE PERIOD; TERMINATION
This Agreement shall become effective as of the date of its
execution and shall continue in full force and effect until terminated as
hereinafter provided. This Agreement may be terminated by each Investment
Company, on behalf of a Fund, or by the Custodian by 90 days notice in Writing
to the other provided that any termination by an Investment Company shall be
authorized by a resolution of the Board, a certified copy of which shall
accompany such notice of termination, and provided further, that such resolution
shall specify the names of the persons to whom the Custodian shall deliver the
assets of the affected Funds held by the Custodian. If notice of termination is
given by the Custodian, the affected Investment Companies shall, within 90 days
following the giving of such notice, deliver to the Custodian a certified copy
of a resolution of the Boards specifying the names of the persons to whom the
Custodian shall deliver assets of the affected Funds held by the Custodian. In
either case the Custodian will deliver such assets to the persons so specified,
after deducting therefrom any amounts which the Custodian determines to be owed
to it hereunder (including all costs and expenses of delivery or transfer of
Fund assets to the persons so specified). If within 90 days following the giving
of a notice of termination by the Custodian, the Custodian does not receive from
the affected Investment Companies certified copies of resolutions of the Boards
specifying the names of the persons to whom the Custodian shall deliver the
assets of the Funds held by the Custodian, the Custodian, at its election, may
deliver such assets to a bank or trust company doing business in the State of
California to be held and disposed of pursuant to the provisions of this
Agreement or may continue to hold such assets until a certified copy of one or
more resolutions as aforesaid is delivered to the Custodian. The obligations of
the parties hereto regarding the use of reasonable care, indemnities and payment
of fees and expenses shall survive the termination of this Agreement.
Section 14. MISCELLANEOUS
14.1 Relationship. Nothing contained in this Agreement shall (i)
create any fiduciary, joint venture or partnership relationship between the
Custodian and any Fund or (ii) be construed as or constitute a prohibition
against the provision by the Custodian or any of its affiliates to any Fund of
investment banking, securities dealing or brokerages services or any other
banking or financial services.
14.2 Further Assurances. Each party hereto shall furnish to the
other party hereto such instruments and other documents as such other party may
reasonably request for the purpose of carrying out or evidencing the
transactions contemplated by this Agreement.
14.3 Attorneys' Fees. If any lawsuit or other action or proceeding
relating to this Agreement is brought by a party hereto against the other party
hereto, the prevailing party shall be entitled to recover reasonable attorneys'
fees, costs and disbursements (including allocated costs and disbursements of
in-house counsel), in addition to any other relief to which the prevailing party
may be entitled.
14.4 Notices. Except as otherwise specified herein, each notice or
other communication hereunder shall be in Writing and shall be delivered to the
intended recipient at the following address (or at such other address as the
intended recipient shall have specified in a written notice given to the other
parties hereto):
if to a Fund or Investment Company: if to the Custodian:
[Fund or Investment Company] The Bank of New York
c/o Franklin Resources, Inc. Mutual Fund Custody Manager
777 Mariners Island Blvd. BNY Western Trust Co.
San Mateo, CA 94404 550 Kearney St., Suite 60
Attention: Chief Legal Officer San Francisco, CA 94108
14.5 Headings. The underlined headings contained herein are for
convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the interpretation
hereof.
14.6 Counterparts. This Agreement may be executed in counterparts,
each of which shall constitute an original and both of which, when taken
together, shall constitute one agreement.
14.7 Governing Law. This Agreement shall be construed in accordance
with, and governed in all respects by, the laws of the State of New York
(without giving effect to principles of conflict of laws).
14.8 Force Majeure. Notwithstanding the provisions of Section 11
hereof regarding the Custodian's general standard of care, no failure, delay or
default in performance of any obligation hereunder shall constitute an event of
default or a breach of this agreement, or give rise to any liability whatsoever
on the part of one party hereto to the other, to the extent that such failure to
perform, delay or default arises out of a cause beyond the control and without
negligence of the party otherwise chargeable with failure, delay or default;
including, but not limited to: action or inaction of governmental, civil or
military authority; fire; strike; lockout or other labor dispute; flood; war;
riot; theft; earthquake; natural disaster; breakdown of public or common carrier
communications facilities; computer malfunction; or act, negligence or default
of the other party. This paragraph shall in no way limit the right of either
party to this Agreement to make any claim against third parties for any damages
suffered due to such causes.
14.9 Successors and Assigns. This Agreement shall be binding upon,
and shall inure to the benefit of, the parties hereto and their respective
successors and assigns, if any.
14.10 Waiver. No failure on the part of any person to exercise any
power, right, privilege or remedy hereunder, and no delay on the part of any
person in the exercise of any power, right, privilege or remedy hereunder, shall
operate as a waiver thereof; and no single or partial exercise of any such
power, right, privilege or remedy shall preclude any other or further exercise
thereof or of any other power, right, privilege or remedy.
14.11 Amendments. This Agreement may not be amended, modified,
altered or supplemented other than by means of an agreement or instrument
executed on behalf of each of the parties hereto.
14.12 Severability. In the event that any provision of this
Agreement, or the application of any such provision to any person or set of
circumstances, shall be determined to be invalid, unlawful, void or
unenforceable to any extent, the remainder of this Agreement, and the
application of such provision to persons or circumstances other than those as to
which it is determined to be invalid, unlawful, void or unenforceable, shall not
be impaired or otherwise affected and shall continue to be valid and enforceable
to the fullest extent permitted by law.
14.13 Parties in Interest. None of the provisions of this Agreement
is intended to provide any rights or remedies to any person other than the
Investment Companies, for themselves and for the Funds, and the Custodian and
their respective successors and assigns, if any.
14.14 Pre-Emption of Other Agreements. In the event of any conflict
between this Agreement, including without limitation any amendments hereto, and
any other agreement which may now or in the future exist between the parties,
the provisions of this Agreement shall prevail.
14.15 Variations of Pronouns. Whenever required by the context
hereof, the singular number shall include the plural, and vice versa; the
masculine gender shall include the feminine and neuter genders; and the neuter
gender shall include the masculine and feminine genders.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered as of the date first above written.
THE BANK OF NEW YORK
By: _____________________________
Its: _____________________________
THE INVESTMENT COMPANIES LISTED ON EXHIBIT A
By: ______________________________
Harmon E. Burns
Their: Vice President
By: ______________________________
Deborah R. Gatzek
Their: Vice President & Secretary
THE BANK OF NEW YORK
MASTER CUSTODY AGREEMENT
EXHIBIT A
The following is a list of the Investment Companies and their respective Series
for which the Custodian shall serve under the Master Custody Agreement dated as
of February 16, 1996.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Adjustable Rate Securities Delaware Business Trust U.S. Government Adjustable Rate Mortgage
Portfolios Portfolio
Adjustable Rate Securities Portfolio
AGE High Income Fund, Inc. Colorado Corporation
Franklin California Tax-Free Income Maryland Corporation
Fund, Inc.
Franklin California Tax-Free Trust Massachusetts Business Franklin California Insured Tax-Free Income
Trust Fund
Franklin California Tax-Exempt Money Fund
Franklin California Intermediate-Term Tax-Free
Income Fund
Franklin Custodian Funds, Inc. Maryland Corporation Growth Series
Utilities Series
Dynatech Series
Income Series
U.S. Government Securities Series
- -------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------------------------------------------------------------------------
Franklin Equity Fund California Corporation
Franklin Federal Money Fund California Corporation
Franklin Federal Tax- Free Income California Corporation
Fund
Franklin Gold Fund California Corporation
Franklin Government Securities Trust Massachusetts Business
Trust
Franklin Templeton International Delaware Business Trust Templeton Pacific Growth Fund
Trust Franklin International Equity Fund
Franklin Investors Securities Trust Massachusetts Business Franklin Global Government Income Fund
Trust Franklin Short-Intermediate U.S. Gov't
Securities Fund
Franklin Convertible Securities Fund
Franklin Adjustable U.S. Government Securities
Fund
Franklin Equity Income Fund
Franklin Adjustable Rate Securities Fund
- -------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------------------------------------------------------------------------
Franklin Managed Trust Massachusetts Business Franklin Corporate Qualified Dividend Fund
Trust Franklin Rising Dividends Fund
Franklin Investment Grade Income Fund
Franklin Institutional Rising Dividends Fund
Franklin Money Fund California Corporation
Franklin Municipal Securities Trust Delaware Business Trust Franklin Hawaii Municipal Bond Fund
Franklin California High Yield Municipal Fund
Franklin Washington Municipal Bond Fund
Franklin Tennessee Municipal Bond Fund
Franklin Arkansas Municipal Bond Fund
Franklin New York Tax-Free Income New York Corporation
Fund, Inc.
Franklin New York Tax-Free Trust Massachusetts Business Franklin New York Tax-Exempt Money Fund
Trust Franklin New York Intermediate-Term Tax-Free
Income Fund
Franklin New York Insured Tax-Free Income Fund
- -------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------------------------------------------------------------------------
Franklin Tax-Advantaged California Limited
International Bond Fund Partnership
Franklin Tax-Advantaged U.S. California Limited
Government Securities Fund Partnership
Franklin Tax-Advantaged High Yield California Limited
Securities Fund. Partnership
Franklin Premier Return Fund California Corporation
Franklin Real Estate Securities Delaware Business Trust Franklin Real Estate Securities Fund
Trust
Franklin Strategic Mortgage Delaware Business Trust
Portfolio
Franklin Strategic Series Delaware Business Trust Franklin California Growth Fund
Franklin Strategic Income Fund
Franklin MidCap Growth Fund
Franklin Institutional MidCap Growth Fund
Franklin Global Utilities Fund
Franklin Small Cap Growth Fund
Franklin Global Health Care Fund
Franklin Natural Resources Fund
Franklin Tax-Exempt Money Fund California Corporation
- -------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES---(IF APPLICABLE)
- -------------------------------------------------------------------------------------------------------------
Franklin Tax-Free Trust Massachusetts Business Franklin Massachusetts Insured Tax-Free Income Fund
Franklin Michigan Insured Tax-Free Income Fund
Franklin Minnesota Insured Tax-Free Income Fund
Franklin Insured Tax-Free Income Fund
Franklin Ohio Insured Tax-Free Income Fund
Franklin Puerto Rico Tax-Free Income Fund
Franklin Arizona Tax-Free Income Fund
Franklin Colorado Tax-Free Income Fund
Franklin Georgia Tax-Free Income Fund
Franklin Pennsylvania Tax-Free Income Fund
Franklin High Yield Tax-Free Income Fund
Franklin Missouri Tax-Free Income Fund
Franklin Oregon Tax-Free Income Fund
Franklin Texas Tax-Free Income Fund
Franklin Virginia Tax-Free Income Fund
Franklin Alabama Tax-Free Income Fund
Franklin Florida Tax-Free Income Fund
Franklin Connecticut Tax-Free Income Fund
Franklin Indiana Tax-Free Income Fund
Franklin Louisiana Tax-Free Income Fund
Franklin Maryland Tax-Free Income Fund
- -------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------------------------------------------------------------------------
Franklin Tax-Free Trust Massachusetts Business Franklin North Carolina Tax-Free Income Fund
(cont.) Trust Franklin New Jersey Tax-Free Income Fund
Franklin Kentucky Tax-Free Income Fund
Franklin Federal Intermediate-Term Tax-Free
Income Fund
Franklin Arizona Insured Tax-Free Income Fund
Franklin Florida Insured Tax-Free Income fund
Franklin Templeton Global Trust Massachusetts Business Franklin Templeton German Government Bond Fund
Trust Franklin Templeton Global Currency Fund
Franklin Templeton Hard Currency Fund
Franklin Templeton High Income Currency Fund
Franklin Templeton Money Fund Trust Delaware Business Trust Franklin Templeton Money Fund II
Franklin Value Investors Trust Massachusetts Business Franklin Balance Sheet Investment Fund
Trust Franklin MicroCap Value Fund
Franklin Value Fund
- -------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------------------------------------------------------------------------
Franklin Valuemark Funds Massachusetts Business Money Market Fund
Trust Growth and Income Fund
Precious Metals
Fund Real Estate
Securities Fund
Utility Equity Fund
High Income Fund
Templeton Global
Income Securities
Fund Investment
Grade Intermediate
Bond Fund Income
Securities Fund
U.S. Government
Securities Fund
Zero Coupon Fund -
2000 Zero Coupon
Fund - 2005 Zero
Coupon Fund - 2010
Adjustable U.S.
Government Fund
Rising Dividends
Fund Templeton
Pacific Growth Fund
Templeton
International
Equity Fund
Templeton
Developing Markets
Equity Fund
Templeton Global
Growth Fund
Templeton Global
Asset Allocation
Fund Small Cap Fund
- -------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------------------------------------------------------------------------
Institutional Fiduciary Trust Massachusetts Business Money Market Portfolio
Trust Franklin Late Day Money Market Portfolio
Franklin U.S. Government Securities Money
Market
Portfolio
Franklin U.S. Treasury Money Market Portfolio
Franklin Institutional Adjustable U.S.
Government
Securities Fund
Franklin Institutional Adjustable Rate
Securities Fund
Franklin U.S. Government Agency Money Market
Fund
Franklin Cash Reserves Fund
MidCap Growth Portfolio Delaware Business Trust
The Money Market Portfolios Delaware Business Trust The Money Market Portfolio
The U.S. Government Securities Money Market
Portfolio
CLOSED END FUNDS:
Franklin Multi-Income Trust Massachusetts Business
Trust
Franklin Principal Maturity Trust Massachusetts Business
Trust
Franklin Universal Trust Massachusetts Business
Trust
- ------------------------------------------------------------------------------------------------------------
</TABLE>
TERMINAL LINK AGREEMENT
AGREEMENT made as of February 16, 1996 between The Bank of New York as custodian
(the "Custodian") and each Investment Company listed on Exhibit A, for itself
and for each of Series listed on Exhibit A (each, a "Fund").
WHEREAS, the parties have entered into a Master Custody Agreement dated
as of February 16, 1996;
WHEREAS, the parties desire to provide for the electronic transmission
of instructions from each Fund to the Custodian, as and to the extent permitted
by the Master Custody Agreement; and
WHEREAS, the Board of Directors, Trustees or Managing General Partners,
as applicable, of each Investment Company have previously authorized each
Investment Company to enter into the Master Custody Agreement;
NOW, THEREFORE, in consideration for the mutual promises set forth, the parties
agree as follows:
A. Except as otherwise provided herein, all terms shall have the same meaning as
in the Master Custody Agreement.
B. The term "Certificate" shall mean any Proper Instruction by a Fund to the
Custodian communicated by the Terminal Link.
C . The term "Officer" shall mean an Authorized Person as defined in section 5
of the Master Custody Agreement.
D. The term "Terminal Link" shall mean an electronic data transmission link
between a Fund, Franklin Templeton Investor Services, Inc. acting as agent for
the Fund ("FTISI"), and the Custodian requiring in connection with each use of
the Terminal Link by or on behalf of the Fund use of an authorization code
provided by the Custodian and at least two access codes established by the Fund.
Each Fund represents that FTISI will maintain a transmission line to the
Custodian and has been selected by the Fund to receive electronic data
transmissions from the Custodian or the Fund and forward the same to the Fund or
the Custodian, respectively.
E. Terminal Link
1. The Terminal Link shall be utilized by a Fund only for the purpose of the
Fund providing Certificates to the Custodian with respect to transactions
involving Securities or for the transfer of money to be applied to the payment
of dividends, distributions or redemptions of Fund Shares, and shall be utilized
by the Custodian only for the purpose of providing notices to the Fund. Such use
shall commence only after a Fund shall have established access codes and
safekeeping procedures to safeguard and protect the confidentiality and
availability of such access codes, and shall have reviewed the safekeeping
procedures established by FTISI to assure that transmissions inputted by the
Fund, and only such transmissions, are forwarded by FTISI to the Custodian
without any alteration or omission. Each use of the Terminal Link by a Fund
shall constitute a representation and warranty that the Terminal Link is being
used only for the purposes permitted hereby, that at least two Officers have
each utilized an access code, that such safekeeping procedures have been
established by the Fund, that FTISI has safekeeping procedures reviewed by the
Fund to assure that all transmissions inputted by the Fund, and only such
transmissions, are forwarded by FTISI to the Custodian without any alteration or
omission by FTISI, and that such use does not, to the Fund's knowledge,
contravene the Investment Company Act of 1940, as amended, or the rules or
regulations thereunder.
2. Each Fund shall obtain and maintain at its own cost and expense all equipment
and services, including, but not limited to communications services, necessary
for it to utilize the Terminal Link, and the Custodian shall not be responsible
for the reliability or availability of any such equipment or services.
3. Each Fund acknowledges that any data bases made available as part of, or
through the Terminal Link and any proprietary data, software, processes,
information and documentation (other than which are or become part of the public
domain or are legally required to be made available to the public)
(collectively, the "Information"), are the exclusive and confidential property
of the Custodian. Each Fund shall, and shall cause others to which it discloses
the Information, including without limitation FTISI, to keep the Information
confidential, by using the same care and discretion it uses with respect to its
own confidential property and trade secrets, and shall neither make nor permit
any disclosure without the express prior written consent of the Custodian.
4. Upon termination of this Agreement for any reason, the Fund shall return to
the Custodian any and all copies of the Information which are in the Fund's
possession or under its control, or which the Fund distributed to third parties,
including without limitation FTISI. The provisions of this Article shall not
affect the copyright status of any of the Information which may be copyrighted
and shall apply to all information whether or not copyrighted.
5. The Custodian reserves the right to modify the Terminal Link from time to
time without notice to the Funds or FTISI, except that the Custodian shall give
the Funds notice not less than 75 days in advance of any modification which
would materially adversely affect the Funds' operation. The Funds agree that
neither the Funds nor FTISI shall modify or attempt to modify the Terminal Link
without the Custodian's prior written consent. Each Fund acknowledges that any
software or procedures provided the Fund or FTISI as part of the Terminal Link
are the property of the Custodian and, accordingly, agrees that any
modifications to the Terminal Link, whether by the Fund, FTISI or the Custodian
and whether with or without the Custodian's consent, shall become the property
of the Custodian.
6. The Custodian, the Funds, FTISI and any manufacturers and suppliers utilized
by the Custodian, the Funds or FTISI in connection with the Terminal Link, make
no warranties or representations to any other party, express or implied, in fact
or in law, including but not limited to warranties of merchantability and
fitness for a particular purpose.
7. Each Fund will cause its officers and employees to treat the authorization
codes and the access codes applicable to Terminal Link with extreme care, and
irrevocably authorizes the Custodian to act in accordance with and rely on
Certificates received by it through the Terminal Link. Each Fund acknowledges
that it is its responsibility to assure that only its officers and authorized
persons of FTISI use the Terminal Link on its behalf, and that the Custodian
shall not be responsible nor liable for any action taken in good faith in
reliance upon a Certificate, nor for any alteration, omission, or failure to
promptly forward by FTISI.
8. (a) Except as otherwise specifically provided in Section 8(b) of this
Article, the Custodian shall have no liability for any losses, damages,
injuries, claims, costs or expenses arising out of or in connection with any
failure, malfunction or other problem relating to the Terminal Link except for
money damages suffered as the result of the negligence of the Custodian,
provided however, that the Custodian shall have no liability under this Section
8 if the Fund fails to comply with the provisions of section 10.
(b) The Custodian's liability for its negligence in executing or failing
to act in accordance with a Certificate received through Terminal Link shall be
only with respect to a transfer of funds or assets which is not made in
accordance with such Certificate, and shall be subject to Section 11 of this
Article and contingent upon the Fund complying with the provisions of Section 10
of this Article, and shall be limited to the extent of the Fund's damages,
without reference to any special conditions or circumstances.
9. Without limiting the generality of the foregoing, in no event shall the
Custodian or any manufacturer or supplier of its computer equipment, software or
services relating to the Terminal Link be responsible for any special, indirect,
incidental or consequential damages which a Fund or FTISI may incur or
experience by reason of any malfunction of such equipment or software, even if
the Custodian or any manufacturer or supplier has been advised of the
possibility of such damages, nor with respect to the use of the Terminal Link
shall the Custodian or any such manufacturer or supplier be liable for acts of
God, or with respect to the following to the extent beyond such person's
reasonable control: machine or computer breakdown or malfunction, interruption
or malfunction of communication facilities, labor difficulties or any other
similar or dissimilar cause.
10. Each Fund shall notify the Custodian of any errors, omissions or
interruptions in, or delay or unavailability of, the Terminal Link as promptly
as practicable, and in any event within 24 hours after the earliest of (i)
discovery thereof, or (ii) the business day on which discovery should have
occurred through the exercise of reasonable care. The Custodian shall promptly
advise the Fund or FTISI whenever the Custodian learns of any errors, omissions
or interruption in, or delay or unavailability of, the Terminal Link.
11. The Custodian shall acknowledge to each affected Fund or to FTISI, by use of
the Terminal Link, receipt of each Certificate the Custodian receives through
the Terminal Link, and in the absence of such acknowledgment the Custodian shall
not be liable for any failure to act in accordance with such Certificate and the
Funds may not claim that such Certificate was received by the Custodian. Such
acknowledgment, which may occur after the Custodian has acted upon such
Certificate, shall be given on the same day on which such Certificate is
received.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed
by their respective officers, thereunto duly authorized and their respective
seals to be hereto affixed as of the day and year first above written.
THE BANK OF NEW YORK
By: ______________________
Title: ______________________
THE INVESTMENT COMPANIES LISTED ON EXHIBIT A
By: ______________________
Harmon E. Burns
Title: Vice President
By: ______________________
Deborah R. Garzek
Title: Vice President & Secretary
<TABLE>
<CAPTION>
THE BANK OF NEW YORK
MASTER CUSTODY AGREEMENT
EXHIBIT A
The following is a list of the Investment Companies and their respective Series
for which the Custodian shall serve under the Master Custody Agreement dated as
of February 16, 1996.
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
<S> <C> <C>
Adjustable Rate Securities Portfolios Delaware Business Trust U.S. Government Adjustable Rate Mortgage Portfolio
Adjustable Rate Securities Portfolio
AGE High Income Fund, Inc. Colorado Corporation
Franklin California Tax-Free Income Maryland Corporation
Fund, Inc.
Franklin California Tax-Free Trust Massachusetts Business Franklin California Insured Tax-Free Income Fund
Trust Franklin California Tax-Exempt Money Fund
Franklin California Intermediate-Term Tax-Free
Income Fund
Franklin Custodian Funds, Inc. Maryland Corporation Growth Series
Utilities Series
Dynatech Series
Income Series
U.S. Government Securities Series
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
Franklin Equity Fund California Corporation
Franklin Federal Money Fund California Corporation
Franklin Federal Tax- Free Income Fund California Corporation
Franklin Gold Fund California Corporation
Franklin Government Securities Trust Massachusetts Business
Trust
Franklin Templeton International Trust Delaware Business Trust Templeton Pacific Growth Fund
Franklin International Equity Fund
Franklin Investors Securities Trust Massachusetts Business Franklin Global Government Income Fund
Trust Franklin Short-Intermediate U.S. Gov't Securities Fund
Franklin Convertible Securities Fund
Franklin Adjustable U.S. Government Securities Fund
Franklin Equity Income Fund
Franklin Adjustable Rate Securities Fund
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
Franklin Managed Trust Massachusetts Business Franklin Corporate Qualified Dividend Fund
Trust Franklin Rising Dividends Fund
Franklin Investment Grade Income Fund
Franklin Institutional Rising Dividends Fund
Franklin Money Fund California Corporation
Franklin Municipal Securities Trust Delaware Business Trust Franklin Hawaii Municipal Bond Fund
Franklin California High Yield Municipal Fund
Franklin Washington Municipal Bond Fund
Franklin Tennessee Municipal Bond Fund
Franklin Arkansas Municipal Bond Fund
Franklin New York Tax-Free Income Fund, New York Corporation
Inc.
Franklin New York Tax-Free Trust Massachusetts Business Franklin New York Tax-Exempt Money Fund
Trust Franklin New York Intermediate-Term Tax-Free
Income Fund
Franklin New York Insured Tax-Free Income Fund
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
Franklin Tax-Advantaged International Bond California Limited
Fund Partnership
Franklin Tax-Advantaged U.S. Government California Limited
Securities Fund Partnership
Franklin Tax-Advantaged High Yield California Limited
Securities Fund. Partnership
Franklin Premier Return Fund California Corporation
Franklin Real Estate Securities Trust Delaware Business Trust Franklin Real Estate Securities Fund
Franklin Strategic Mortgage Portfolio Delaware Business Trust
Franklin Strategic Series Delaware Business Trust Franklin California Growth Fund
Franklin Strategic Income Fund
Franklin MidCap Growth Fund
Franklin Institutional MidCap Growth Fund
Franklin Global Utilities Fund
Franklin Small Cap Growth Fund
Franklin Global Health Care Fund
Franklin Natural Resources Fund
Franklin Tax-Exempt Money Fund California Corporation
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES---(IF APPLICABLE)
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
Franklin Tax-Free Trust Massachusetts Business Franklin Massachusetts Insured Tax-Free Income Fund
Trust Franklin Michigan Insured Tax-Free Income Fund
Franklin Minnesota Insured Tax-Free Income Fund
Franklin Insured Tax-Free Income Fund
Franklin Ohio Insured Tax-Free Income Fund
Franklin Puerto Rico Tax-Free Income Fund
Franklin Arizona Tax-Free Income Fund
Franklin Colorado Tax-Free Income Fund
Franklin Georgia Tax-Free Income Fund
Franklin Pennsylvania Tax-Free Income Fund
Franklin High Yield Tax-Free Income Fund
Franklin Missouri Tax-Free Income Fund
Franklin Oregon Tax-Free Income Fund
Franklin Texas Tax-Free Income Fund
Franklin Virginia Tax-Free Income Fund
Franklin Alabama Tax-Free Income Fund
Franklin Florida Tax-Free Income Fund
Franklin Connecticut Tax-Free Income Fund
Franklin Indiana Tax-Free Income Fund
Franklin Louisiana Tax-Free Income Fund
Franklin Maryland Tax-Free Income Fund
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
Franklin Tax-Free Trust Massachusetts Business Franklin North Carolina Tax-Free Income Fund
(cont.) Trust Franklin New Jersey Tax-Free Income Fund
Franklin Kentucky Tax-Free Income Fund
Franklin Federal Intermediate-Term Tax-Free Income Fund
Franklin Arizona Insured Tax-Free Income Fund
Franklin Florida Insured Tax-Free Income fund
Franklin Templeton Global Trust Massachusetts Business Franklin Templeton German Government Bond Fund
Trust Franklin Templeton Global Currency Fund
Franklin Templeton Hard Currency Fund
Franklin Templeton High Income Currency Fund
Franklin Templeton Money Fund Trust Delaware Business Trust Franklin Templeton Money Fund II
Franklin Value Investors Trust Massachusetts Business Franklin Balance Sheet Investment Fund
Trust Franklin MicroCap Value Fund
Franklin Value Fund
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
Franklin Valuemark Funds Massachusetts Business Money Market Fund
Trust Growth and Income Fund
Precious Metals Fund
Real Estate Securities Fund
Utility Equity Fund
High Income Fund
Templeton Global Income
Securities Fund Investment
Grade Intermediate Bond
Fund Income Securities
Fund U.S. Government
Securities Fund Zero
Coupon Fund -2000 Zero
Coupon Fund -2005 Zero Coupon
Fund -2010 Adjustable U.S. Government
Fund Rising Dividends Fund
Templeton Pacific Growth Fund
Templeton International Equity
Fund Templeton Developing
Markets Equity Fund Templeton
Global Growth Fund Global
Asset Allocation Fund Small
Cap Fund
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
Institutional Fiduciary Trust Massachusetts Business Money Market Portfolio
Trust Franklin Late Day Money Market Portfolio
Franklin U.S. Government Securities Money Market
Portfolio
Franklin U.S. Treasury Money Market Portfolio
Franklin Institutional Adjustable U.S. Government
Securities Fund
Franklin Institutional Adjustable Rate Securities Fund
Franklin U.S. Government Agency Money Market Fund
Franklin Cash Reserves Fund
MidCap Growth Portfolio Delaware Business Trust
The Money Market Portfolios Delaware Business Trust The Money Market Portfolio
The U.S. Government Securities Money Market Portfolio
CLOSED END FUNDS:
Franklin Multi-Income Trust Massachusetts Business
Trust
Franklin Principal Maturity Trust Massachusetts Business
Trust
Franklin Universal Trust Massachusetts Business
Trust
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
</TABLE>
