As filed with the Securities and Exchange Commission on December 23, 1998
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. 30 (X)
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 33 (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 (650) 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)
[x] on January 1, 1999 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) 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.
Title of Securities Being Registered:
Shares of Beneficial Interest of:
Franklin California Growth Fund - Class A
Franklin California Growth Fund - Class B
Franklin California Growth Fund - Class C
Franklin Strategic Income Fund - Class A
Franklin Strategic Income Fund - Class B
Franklin Strategic Income Fund - Class C
Franklin MidCap Growth Fund - Class A
Franklin Global Utilities Fund - Class A
Franklin Global Utilities Fund - Class B
Franklin Global Utilities Fund - Class C
Franklin Global Health Care Fund - Class A
Franklin Global Health Care Fund - Class B
Franklin Global Health Care Fund - Class C
Franklin Natural Resources Fund - Class A
Franklin Blue Chip Fund - Class A
Franklin Biotechnology Discovery Fund - Class A
The Registrant's statements of additional information dated September 1,
1998, as filed with the Securities and Exchange Commission under Form Type
497 on September 8, 1998, (File Nos. 33-39088 and 811-6243) are hereby
incorporated by reference.
PROSPECTUS
FRANKLIN
STRATEGIC
SERIES
SEPTEMBER 1, 1998 AS AMENDED JANUARY 1, 1999
INVESTMENT STRATEGY
GROWTH
Franklin Blue Chip Fund - Class A
Franklin California Growth Fund - Class A, B & C
Franklin MidCap Growth Fund - Class A
Please read this prospectus before investing, and keep it for future
reference. It contains important information, including how the funds invest
and the services available to shareholders.
To learn more about each fund and its policies, you may request a copy of the
funds' Statement of Additional Information ("SAI"), dated September 1, 1998,
which we may amend from time to time. We have filed the SAI with the SEC and
have incorporated it by reference into this prospectus.
For a free copy of the SAI or a larger print version of this prospectus,
contact your investment representative or call 1-800/DIAL BEN.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE U.S.
GOVERNMENT. MUTUAL FUND SHARES INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL.
LIKE ALL MUTUAL FUND SHARES, THE SEC HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
FRANKLIN STRATEGIC SERIES
THIS PROSPECTUS IS NOT AN OFFERING OF THE SECURITIES HEREIN DESCRIBED IN ANY
STATE, JURISDICTION OR COUNTRY IN WHICH THE OFFERING IS NOT AUTHORIZED. NO
SALES REPRESENTATIVE, DEALER, OR OTHER PERSON IS AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS. FURTHER INFORMATION MAY BE OBTAINED FROM DISTRIBUTORS.
TABLE OF CONTENTS
ABOUT THE FUND
Expense Summary.................................................... 2
Financial Highlights............................................... 4
How Do the Funds Invest Their Assets?.............................. 8
What Are the Risks of Investing in the Funds?...................... 13
Who Manages the Funds?............................................. 17
How Taxation Affects the Funds and Their Shareholders ............. 22
How Is the Trust Organized?........................................ 25
ABOUT YOUR ACCOUNT
How Do I Buy Shares?............................................... 26
May I Exchange Shares for Shares of Another Fund?.................. 35
How Do I Sell Shares?.............................................. 38
What Distributions Might I Receive From the Funds?................. 41
Transaction Procedures and Special Requirements.................... 42
Services to Help You Manage Your Account........................... 46
What If I Have Questions About My Account?......................... 49
GLOSSARY
Useful Terms and Definitions....................................... 49
FRANKLIN
STRATEGIC
SERIES
September 1, 1998
as amended January 1, 1999
When reading this prospectus, you will see certain terms beginning with
capital letters. This means the term is explained in our glossary section.
777 Mariners Island Blvd.
P.O. Box 7777
San Mateo
CA 94403-7777
1-800/DIAL BEN(R)
ABOUT THE FUND
EXPENSE SUMMARY
This table is designed to help you understand the costs of investing in a
fund. It is based on the historical expenses of each fund for the fiscal year
ended April 30, 1998. Each fund's actual expenses may vary.
...... MIDCAP BLUE CHIP CALIFORNIA FUND -
FUND FUND CLASS A1 CLASS B2 CLASS C1
- ------------------------------------------------------------------------------
3
A. SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge (as a
percentage of Offering Price) 5.75% 5.75% 5.75% 4.00% 1.99%
Paid at time of purchase4 5.75% 5.75% 5.75% None 1.00%
Paid at redemption5 None None None 4.00% 0.99%
Exchange Fee (per transaction) None6 None6 None None None
B. ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.65% 0.87%7 0.49% 0.49% 0.49%
Rule 12b-1 Fees8 0.21% 0.25% 0.25% 1.00% 1.00%
Other Expenses 0.31% 0.83% 0.25% 0.25% 0.25%
-----------------------------------------
Total Fund Operating Expenses 1.17% 1.95%7 0.99% 1.74% 1.74%
=========================================
C. EXAMPLE
Assume the annual return for each class is 5%, operating expenses are as
described above, and you sell your shares after the number of years
shown. These are the projected expenses for each $10,000 that you invest
in a fund.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------
CALIFORNIA FUND - CLASS A $670 9 $ 872 $1,091 $1,718
CALIFORNIA FUND - CLASS B
Assuming you sold your shares
at the end of the period $577 $ 848 $1,144 $1,853 10
Assuming you stayed in the fund $177 $ 548 $ 944 $1,853 10
CALIFORNIA FUND - CLASS C $373 11 $ 643 $1,034 $2,131
MIDCAP FUND $687 9 $ 925 $1,182 $1,914
BLUE CHIP FUND $762 9 $1,152 $1,567 $2,719
THIS IS JUST AN EXAMPLE. IT DOES NOT REPRESENT PAST OR FUTURE EXPENSES OR
RETURNS. ACTUAL EXPENSES AND RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN.
Each fund pays its operating expenses. The effects of these expenses are
reflected in the Net Asset Value or dividends of each class and are not
directly charged to your account.
1. Before January 1, 1999, Class A shares were designated Class I and Class C
shares were designated Class II.
2. The fund began offering Class B shares on January 1, 1999. Annual fund
operating expenses are based on the expenses for Class A and C for the fiscal
year ended April 30, 1998. The Rule 12b-1 fees are based on the maximum fees
allowed under Class B's Rule 12b-1 plan.
3. If your transaction is processed through your Securities Dealer, you may
be charged a fee by your Securities Dealer for this service.
4. There is no front-end sales charge if you invest $1 million or more in
Class A shares. Although Class B and C have a lower front-end sales charge
than Class A, their Rule 12b-1 fees are higher. Over time you may pay more
for Class B and C shares. Please see "How Do I Buy Shares? - Choosing a Share
Class."
5. A Contingent Deferred Sales Charge of 1% may apply to Class A purchases of
$1 million or more if you sell the shares within one year and to any Class C
purchase if you sell the shares within 18 months. A Contingent Deferred Sales
Charge of up to 4% may apply to any Class B purchase if you sell the shares
within six years. A Contingent Deferred Sales Charge may also apply to
purchases by certain retirement plans that qualify to buy Class A shares
without a front-end sales charge. The charge is based on the value of the
shares sold or the Net Asset Value at the time of purchase, whichever is
less. The number in the table shows the charge as a percentage of Offering
Price. While the percentage for Class C is different depending on whether the
charge is shown based on the Net Asset Value or the Offering Price, the
dollar amount you would pay is the same. See "How Do I Sell Shares? -
Contingent Deferred Sales Charge" for details.
6. There is a $5 fee for exchanges by Market Timers.
7. For the period shown, the manager had agreed in advance to limit its
management fees and to assume as its own expense certain expenses otherwise
payable by the fund. With this reduction, management fees were 0.17% and
total fund operating expenses were 1.25%.
8. These fees may not exceed 0.25% for the California Fund - Class A, 1.00%
for the California Fund - Class B and C, and 0.35% for the Blue Chip Fund and
the MidCap Fund. 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 charge permitted under the rules of
the National Association of Securities Dealers, Inc.
9. Assumes a Contingent Deferred Sales Charge will not apply.
10. Assumes conversion of Class B shares to Class A shares after eight years,
lowering your annual expenses from that time on.
11. For the same Class C investment, you would pay projected expenses of $275
if you did not sell your shares at the end of the first year. Your projected
expenses for the remaining periods would be the same.
FINANCIAL HIGHLIGHTS
This table summarizes each fund's financial history. The information has been
audited by PricewaterhouseCoopers LLP, the funds' independent auditor. The
audit report covering each of the most recent five years appears in the
Trust's Annual Report to Shareholders for the fiscal year ended April 30,
1998. The Annual Report to Shareholders also includes more information about
each fund's performance. For a free copy, please call Fund Information.
CALIFORNIA FUND - CLASS A
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
1998 1997 1996 1995 1994 1993 19921
---------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the year)
Net asset value, beginning of
<S> <C> <C> <C> <C> <C> <C> <C>
year $19.35 $18.26 $14.03 $12.05 $10.21 $9.87 $10.04
----------------------------------------------------------
Income from investment operations:
Net investment income .14 .13 .20 .16 .14 .12 .07
Net realized and unrealized gains 6.48 1.51 6.03 3.04 2.43 .34 (.17)
----------------------------------------------------------
Total from investment operations 6.62 1.64 6.23 3.20 2.57 .46 (.10)
----------------------------------------------------------
Less distributions from:
Net investment income (.14) (.12) (.23) (.12) (.15) (.12) (.07)
Net realized gains (.86) (.43) (1.77) (1.10) (.58) - -
----------------------------------------------------------
Total distributions (1.00) (.55) (2.00) (1.22) (.73) (.12) (.07)
-----------------------------------------------------------
Net asset value, end of year $24.97 $19.35 $18.26 $14.03 $12.05 $10.21 $9.87
============================================================
Total return* 34.98% 8.94% 47.42% 29.09% 25.55% 4.72% (1.77)%**
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $721,254 $282,898 $81,175 $13,844 $4,646 $3,412 $3,091
Ratios to average net assets:
Expenses .99% 1.08% .71% .25% .09% - -
Expenses excluding waiver and payments
by affiliate .99% 1.08% 1.09% 1.27% 1.89% 1.99% 1.61%**
Net investment income .67% .84% 1.42% 1.63% 1.16% 1.23% 1.27%**
Portfolio turnover rate 48.52% 44.81% 61.82% 79.52% 135.12% 38.28% 13.73%
Average commission rate paid*** $.0530 $.0544 $.0536 - - - -
CALIFORNIA FUND - CLASS C
</TABLE>
YEAR ENDED APRIL 30,
1998 19972
-------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year $19.27 $18.05
----------------
Income from investment operations:
Net investment income - .05
Net realized and unrealized gains 6.43 1.65
---------------
Total from investment operations 6.43 1.70
---------------
Less distributions from:
Net investment income (.03) (.05)
Net realized gains (.86) (.43)
--------------
Total distributions (.89) (.48)
---------------
Net asset value, end of year $24.81 $19.27
=================
Total return* 34.02% 9.32%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $122,701 $24,556
Ratios to average net assets:
Expenses 1.74% 1.86%**
Net investment income (loss) (.10%) .05%**
Portfolio turnover rate 48.52% 44.81%
Average commission rate paid*** $.0530 $.0544
MIDCAP FUND
YEAR ENDED APRIL 30,
1998 1997 1996 1995 19943
--------------------------------------
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year $13.34 $14.24 $10.81 $10.05 $10.00
Income from investment operations:
Net investment income (loss) - (.02) .18 .21 .15
Net realized and unrealized gains 4.66 .93 3.59 .77 .01
----------------------------------------
Total from investment operations 4.66 .91 3.77 .98 .16
----------------------------------------
Less distributions from:
Net investment income - (.05) (.21) (.20) (.08)
Net realized gains (.56) (1.76) (.13) (.02) (.03)
-----------------------------------------
Total distributions (.56) (1.81) (.34) (.22) (.11)
-----------------------------------------
Net asset value, end of year $17.44 $13.34 $14.24 $10.81 $10.05
===========================================
Total return* 35.53% 6.31% 35.40% 10.06% 1.62%
Ratios/supplemental data
Net assets, end of year (000's) $29,864 $12,853 $7,575 $5,591 $5,079
Ratios to average net assets:
Expenses 1.17% 1.07% .16% - -
Expenses excluding waiver and payments
by affiliate 1.17% 1.07% .96% .98% .91%**
Net investment income (loss) (.03%) (.22)% 1.42% 2.12% 2.21%**
Portfolio turnover rate 50.16% 76.35% 102.65% 163.54% 70.53%
Average commission rate paid*** $.0621 $.0550 $.0467 - -
BLUE CHIP FUND
YEAR ENDED APRIL 30,
1998 19974
--------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year $10.85 $10.00
---------------
Income from investment operations:
Net investment income .09 .09
Net realized and unrealized gains 1.67 .82
-------------
Total from investment operations 1.76 .91
-------------
Less distributions from:
Net investment income (.06) (.06)
Net realized gains (.09) --
-------------
Total distributions (.15) (.06)
-------------
Net asset value, end of year $12.46 $10.85
===============
Total return* 16.41% 9.14%
Ratios/supplemental data
Net assets, end of year (000's) $16,836 $5,600
Ratios to average net assets:
Expenses 1.25% 1.25%**
Expenses excluding waiver and payments by affiliate 1.95% 2.22%**
Net investment income 1.04% 1.07%**
Portfolio turnover rate 57.67 11.14%
Average commission rate paid*** $.0367 $.0525
1FOR THE PERIOD OCTOBER 18, 1991 (EFFECTIVE DATE) TO APRIL 30, 1992.
2FOR THE PERIOD SEPTEMBER 3, 1996 (EFFECTIVE DATE) TO APRIL 30, 1997.
3FOR THE PERIOD AUGUST 17, 1993 (EFFECTIVE DATE) TO APRIL 30, 1994.
4FOR THE PERIOD JUNE 3, 1996 (EFFECTIVE DATE) TO APRIL 30, 1997.
*TOTAL RETURN DOES NOT REFLECT SALES COMMISSIONS OR THE CONTINGENT DEFERRED
SALES CHARGE, AND IS NOT ANNUALIZED. PRIOR TO MAY 1, 1994, DIVIDENDS FROM NET
INVESTMENT INCOME WERE REINVESTED AT THE OFFERING PRICE.
**ANNUALIZED
***RELATES TO PURCHASES AND SALES OF EQUITY SECURITIES. PRIOR TO FISCAL YEAR
END 1996 DISCLOSURE OF AVERAGE COMMISSION RATE WAS NOT REQUIRED.
HOW DO THE FUNDS INVEST THEIR ASSETS?
WHAT ARE THE FUNDS' GOALS?
The investment goal of the California Fund is capital appreciation. The
investment goal of the MidCap Fund is long-term capital growth. The
investment goal of the Blue Chip Fund is long-term capital appreciation.
These goals are fundamental, which means that they may not be changed without
shareholder approval.
The Blue Chip Fund may also seek current income incidental to long-term
capital appreciation, although this is not a fundamental policy of the fund.
WHAT KINDS OF SECURITIES DO THE FUNDS BUY?
Under normal market conditions, the CALIFORNIA FUND invests at least 65% of
its assets in the equity and debt securities of companies headquartered or
conducting a majority of their operations in the state of California.
The California Fund expects to invest a significant portion of its assets in
small to mid-size companies, but it may also invest in relatively well known,
larger capitalization companies in mature industries that the manager
believes have the potential for capital appreciation.
The California Fund may invest up to 35% of its assets in the securities of
companies headquartered or conducting a majority of their operations outside
of the state of California. In this way, the California Fund tries to benefit
from its research into companies and industries within or beyond its primary
region.
THE MIDCAP FUND tries to achieve its investment goal by investing primarily
in equity securities of medium capitalization companies that the manager
believes are positioned for rapid growth in revenues or earnings and assets,
characteristics that may provide for significant capital appreciation. Under
normal market conditions, the MidCap Fund will invest its assets primarily in
a diversified portfolio of medium capitalization stocks. The MidCap Fund
tries to be fully invested at all times in equity securities.
The MidCap Fund may invest up to 35% of its total assets in equity securities
that are outside the medium market capitalization range but with similar
potential for capital appreciation, or in corporate debt securities.
Under normal market conditions, the BLUE CHIP FUND invests at least 80%, and
intends to try to invest up to 100%, of its total assets in a diversified
portfolio of equity securities of "blue chip companies."
EQUITY SECURITIES generally entitle the holder to participate in a company's
general operating results. These include common stock; preferred stock;
convertible securities; and warrants.
Although the Blue Chip Fund may invest without limit in common stock,
convertible securities, and warrants, it intends to invest primarily in
common stock.
DEBT SECURITIES represent an obligation of the issuer to repay a loan of
money to it, and, generally, provide for the payment of interest. These
include bonds, notes, and debentures.
The California Fund and the MidCap may invest in debt securities that the
manager believes present an opportunity for capital appreciation as a result
of improvement in the creditworthiness of the issuer. The receipt of income
from debt securities is incidental to these funds' investment goals.
The California Fund may invest up to 35% of its total assets in debt
securities.
Independent rating organizations rate debt securities based upon their
assessment of the financial soundness of the issuer. Generally, a lower
rating indicates higher risk. Securities rated BBB by S&P or Baa by Moody's
or better are considered to be investment grade. The California Fund and the
MidCap Fund may buy both rated and unrated debt securities.
The California Fund may buy fixed-income securities, including convertible
securities and debt securities, that are rated B by Moody's or S&P or better,
or unrated securities of comparable quality. The California Fund will not
invest more than 5% of its assets in fixed-income securities rated below
investment grade.
The MidCap Fund may buy debt securities that are rated B by Moody's or S&P or
better, or unrated debt of comparable quality. The MidCap Fund will not
invest more than 5% of its total assets in securities rated below investment
grade.
Please see the SAI for more details on the risks associated with lower-rated
securities.
SMALL AND MEDIUM CAPITALIZATION COMPANIES. The California Fund expects to
invest a significant portion of its assets in small and medium size companies
with market capitalization of up to $2.5 billion at the time of its
investment. The MidCap Fund invests in medium capitalization companies that
have a market capitalization range between $200 million and $5 billion. These
securities are traded primarily on the NYSE and the American Stock Exchange
and in the over-the-counter market.
Market capitalization is defined as the total market value of a company's
outstanding stock. Medium capitalization companies may offer greater
potential for capital appreciation as these companies are often growing more
rapidly than larger companies, but tend to be more stable and established
than small capitalization or emerging companies.
The manager selects medium capitalization equity securities for the MidCap
Fund based on characteristics such as the financial strength of the company,
the expertise of management, the growth potential of the company within its
industry, and the growth potential of the industry itself.
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 Blue Chip Fund's portfolio, the manager
tries to identify quality blue chip companies based on a number of factors.
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.
REAL ESTATE SECURITIES. The California Fund may invest in securities of
companies operating in the real estate industry, including real estate
investment trusts.
CONVERTIBLE SECURITIES. A convertible security generally is a preferred stock
or debt security that pays dividends or interest and may be converted into
common stock.
Each fund may invest in convertible securities. The California Fund and the
MidCap Fund may also invest in enhanced convertible securities.
Although the Blue Chip Fund may invest in convertible securities without
limit, it currently intends to limit these investments to no more than 5% of
its net assets.
FOREIGN SECURITIES AND DEPOSITARY RECEIPTS. The MidCap Fund may invest in
foreign securities. The MidCap Fund intends to limit its investment in
foreign securities to 5% of its total assets. The MidCap Fund may buy the
securities of issuers in developing nations.
The Blue Chip Fund seeks investment opportunities across all markets in the
world and 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. Certain companies in emerging markets meet all
the criteria of a blue chip company. The amount of the fund's assets that it
will invest in foreign securities may vary over time depending on the
manager's outlook.
Each fund may buy foreign securities traded in the U.S. or directly in
foreign markets. The MidCap Fund will ordinarily buy foreign securities that
are traded in the U.S. or sponsored or unsponsored American Depositary
Receipts. The California Fund may also buy American Depositary Receipts. The
Blue Chip Fund may buy American, European, and Global Depositary Receipts.
Depositary Receipts are certificates typically issued by a bank or trust
company that give their holders the right to receive securities issued by a
foreign or domestic corporation.
WHAT ARE SOME OF THE FUNDS' OTHER INVESTMENT STRATEGIES AND PRACTICES?
TEMPORARY INVESTMENTS. When the manager believes that there is or may be a
general decline in the market prices of stocks in which the California Fund
or the MidCap Fund invests, it may invest the fund's portfolio in a temporary
defensive manner. Under such circumstances, the California Fund and the
MidCap Fund may invest up to 100% of their respective assets in short-term
debt instruments. The California Fund and the MidCap Fund may also invest
their cash, including cash resulting from purchases and sales of fund shares,
temporarily in short-term debt instruments. Short-term debt instruments
include high-grade commercial paper, repurchase agreements, and other money
market equivalents. Subject to the terms of an exemption order from the SEC,
the California Fund and the MidCap Fund may also invest their cash in the
shares of affiliated money market funds that invest primarily in short-term
debt securities. The California Fund and the MidCap Fund will make temporary
investments with cash held to maintain liquidity to meet redemption
requirements or pending investment.
The Blue Chip Fund may occasionally hold cash or invest in high quality money
market instruments of U.S. and foreign issuers, pending investment of
proceeds from new sales of its shares or for cash management or temporary
defensive purposes. These securities include government securities,
commercial paper, bank certificates of deposit, bankers' acceptances, and
repurchase agreements secured by any of these instruments. These securities
will be rated "A1" or "A2" by S&P or "P1" or "P2" by Moody's, or unrated but
of comparable quality.
REPURCHASE AGREEMENTS. Each fund will generally have a portion of its assets
in cash or cash equivalents for a variety of reasons including waiting for a
special investment opportunity or taking a defensive position. To earn income
on this portion of its assets, the funds may enter into repurchase agreements
with certain banks and broker-dealers. Under a repurchase agreement, a fund
agrees to buy a U.S. government security from one of these issuers and then
to sell the security back to the issuer after a short period of time
(generally, less than seven days) at a higher price. The bank or
broker-dealer must transfer to the fund's custodian securities with an
initial value of at least 102% of the dollar amount invested by the fund in
each repurchase agreement.
OPTIONS, FUTURES, AND OPTIONS ON FUTURES. A stock option is a contract that
provides the holder the right to buy or sell shares of the stock at a fixed
price, within a specified period of time. An option on a stock index is a
contract that allows the buyer of the option the right to receive from the
seller cash, in an amount equal to the difference between the index's closing
price and the option's exercise price. A futures contract is an obligation to
buy or sell a specified security or currency at a set price on a specified
future date. A stock index futures contract is an agreement to take or make
delivery of an amount of cash based on the difference between the value of
the index at the beginning and end of the contract period. Options, futures,
and options on futures are considered "derivative securities."
The California Fund may buy and sell options on securities and securities
indices. The California Fund may only buy options if the premiums it paid for
such options total 5% or less of its total assets. The California Fund may
also buy and sell securities index futures and options on securities index
futures. The California Fund will not buy futures if the amount of its
initial deposits and premiums paid for its open contracts is more than 5% of
its total assets (taken at current value).
The MidCap Fund may buy options on stocks and stock indices, stock index
futures contracts, and options on stock index futures contracts to help
protect its portfolio against market and/or exchange rate movements, to help
protect against changes in the price of securities it intends to buy, and to
accommodate cash flows.
The MidCap Fund may only enter into futures contracts or related options
(except for closing transactions) if the initial deposits and premiums it
paid for such contracts and options is 5% or less of its total assets. The
MidCap Fund may only buy options if the total premiums it paid for such
options is 5% or less of its total assets.
For hedging purposes only, the Blue Chip Fund may buy or sell options on
securities listed on a national securities exchange. The options may be
traded on an exchange or over-the-counter. All options the Blue Chip Fund
sells will be covered. The Blue Chip Fund will not buy an option if the
amounts paid for its open option positions exceed 5% of its net assets.
The Blue Chip Fund may buy and sell futures contracts for securities and
currencies. The Blue Chip 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 Blue Chip Fund will not enter into a futures contract if
the amounts paid for its open contracts, including required initial deposits,
would exceed 5% of its net assets.
SECURITIES LENDING. To generate additional income, each fund may lend its
portfolio securities to qualified securities dealers or other institutional
investors. Such loans may not exceed 10% of the value of the California
Fund's total assets, 20% of the MidCap Fund's total assets, or one third of
the Blue Chip Fund's total assets, measured at the time of the most recent
loan. For each loan the borrower must maintain with the fund's custodian
collateral with a value at least equal to 100% of the current market value of
the loaned securities.
BORROWING. As a fundamental policy, the funds do not borrow money or mortgage
or pledge any of their assets, except that each fund may borrow from banks up
to a specified limit to meet redemption requests and for other temporary or
emergency purposes. The limits are 10% of the fund's total asset value for
the California Fund and the MidCap Fund, and 15% of the Blue Chip Fund's
total assets, including the amount borrowed. The Blue Chip Fund may pledge
its assets in connection with these borrowings. While borrowings exceed 5% of
a fund's total assets, the fund will not make any additional investments.
NON-DIVERSIFICATION. The California Fund is non-diversified, which means that
there is no restriction under the federal securities laws on the percentage
of the fund's assets that it may invest in the securities of any one issuer.
ILLIQUID INVESTMENTS. Each fund's policy is not to invest more than 10% of
its net assets in illiquid securities. Illiquid securities are generally
securities that cannot be sold within seven days in the normal course of
business at approximately the amount at which the fund has valued them.
OTHER POLICIES AND RESTRICTIONS. Each fund has a number of additional
investment policies and restrictions that govern its activities. Those that
are identified as "fundamental" may only be changed with shareholder
approval. The others may be changed by the Board alone. For a list of these
restrictions and more information about the funds' investment policies,
including those described above, please see "How Do the Funds Invest Their
Assets?" and "Investment Restrictions" in the SAI.
Generally, the policies and restrictions discussed in this prospectus and in
the SAI apply when a fund makes an investment. In most cases, a fund is not
required to sell a security because circumstances change and the security no
longer meets one or more of the fund's policies or restrictions.
TAX CONSIDERATIONS. Each fund's investments in options, futures, foreign
securities and other complex securities are subject to special tax rules that
may affect the amount, timing or character of the income earned by the fund
and distributed to you. Each fund may also be subject to withholding taxes on
earnings from certain of its foreign securities. These special tax rules are
discussed in the "Additional Information on Distributions and Taxes" section
of the SAI.
WHAT ARE THE RISKS OF INVESTING IN THE FUNDS?
There is no assurance that the funds will meet their investment goals.
The value of your shares will increase as the value of the securities owned
by the fund increases and will decrease as the value of the fund's
investments decrease. In this way, you participate in any change in the value
of the securities owned by the fund. In addition to the factors that affect
the value of any particular security that a fund owns, the value of fund
shares may also change with movements in the stock and bond markets as a
whole.
MEDIUM AND SMALL CAPITALIZATION RISK. Investing in small and medium
capitalization stocks may involve greater risk than investing in large
capitalization stocks, since they can be subject to more abrupt or erratic
movements. Medium capitalization stocks tend, however, to involve less risk
than stocks of small capitalization companies.
Historically, the prices of medium and small capitalization stocks have been
more volatile than the prices of larger capitalization stocks. Several
factors contribute to the greater price volatility of medium capitalization
stocks. The growth prospects of smaller firms are less certain than those of
larger firms. There is a lesser degree of liquidity in the market for these
stocks. Small and medium size companies are more sensitive to changing
economic conditions.
Medium and small company stocks may fluctuate independently of larger company
stocks. Medium and small company stocks may decline in price as large company
stocks rise or vice versa. You should therefore expect that the value of the
MidCap Fund's shares, and the value of the California Fund's shares to the
extent it invests in medium and small company stocks, may be more volatile
than the shares of a fund that invests in larger capitalization stocks.
In addition, medium and small size companies may have products and management
that have not been thoroughly tested by time or by the marketplace. These
companies may also be more dependent on a limited number of key personnel,
and their financial resources may not be as substantial as those of more
established companies.
NON-DIVERSIFICATION RISK. To the extent that the California Fund's
investments are not diversified, the fund may be more susceptible than a
fully diversified fund to adverse economic, political, business, or
regulatory developments affecting a single issuer or industry.
CALIFORNIA RISK. The financial prospects of a number of the companies in
which the California Fund invests may depend on the strength of the
California economy. However, the California Fund tries to reduce the effect
on its portfolio of fluctuations in economic conditions in California by
investing a significant portion of its assets in companies whose financial
prospects are dependent on the global economy.
Like many other states, California was significantly affected by the national
recession of the early 1990s, especially in the southern portion of the
state. Most of its job losses during its recession resulted from military
cutbacks and the downturn in the construction industry. Downsizing in the
state's aerospace industry, excess office capacity, and slow growth in
California's export market also contributed to the state's recession.
Since mid-1993, California's economic recovery has been fueled by growth in
the export, entertainment, tourism and computer services sectors. The state's
diverse employment base has reached prerecession levels, with manufacturing
accounting for 14.4% of employment (based on 1997 state estimates), trade
23%, services 31.1%, and government 16.4%. Despite strong employment growth,
California's unemployment rate has remained above the national average, and
wages, although still above national levels, have declined with the loss of
high-paying aerospace jobs. Recent economic problems in Asia may affect the
state's economy and reduce growth rates, although the impact of Asia's
economic problems on the state is uncertain.
The information above is based primarily on information from independent
credit reports and historically reliable sources, but the fund has not
independently verified the information. It is not a complete discussion of
the California economy.
TECHNOLOGY COMPANIES RISK. The California Fund expects to have a portion of
its assets invested in securities of companies involved in computing
technologies or related companies. Typically, the California Fund will invest
in technology companies whose products or services are marketed on a global
rather than a domestic or regional basis. The technology sector has
historically been volatile, and technology company securities tend to be
subject to abrupt or erratic price movements. The California Fund tries to
reduce these risks through extensive research and emphasis on more globally
competitive companies.
REAL ESTATE SECURITIES RISK. The California Fund's investments in real estate
securities are subject to the risks associated with the real estate industry.
Economic, regulatory, and social factors that affect the value of real estate
will affect the value of the real estate securities in the fund's portfolio.
These factors include overbuilding and increased competition, increases in
property taxes and operating expenses, changes in zoning laws, casualty or
condemnation losses, variations in rental income, changes in neighborhood
values, the appeal of properties to tenants, and increases in interest rates.
DERIVATIVE SECURITIES RISK. Derivative investments are those whose values are
dependent upon the performance of one or more other securities or investments
or indices; in contrast to common stock, for example, whose value is
dependent upon the operations of the issuer. To the extent each fund enters
into transactions in derivative securities, their success will depend upon
the manager's ability to predict pertinent market movements.
FOREIGN SECURITIES RISK. The value of foreign (and U.S.) securities is
affected by general economic conditions and individual company and industry
earnings prospects. While foreign securities may offer significant
opportunities for gain, they also involve additional risks that can increase
the potential for losses in the funds. These risks can be significantly
greater for investments in emerging markets. Investments in Depositary
Receipts also involve some or all of the risks described below.
The political, economic, and social structures of some countries in which the
funds invest may be less stable and more volatile than those in the U.S. 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.
There may be less publicly available information about a foreign company or
government than about a U.S. company or public entity. Certain countries'
financial markets and services are less developed than those in the U.S. or
other major economies. As a result, they 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. Transaction costs
on foreign securities markets are generally higher than in the U.S. The
settlement practices may be cumbersome and result in delays that may affect
portfolio liquidity. The funds may have greater difficulty voting proxies,
exercising shareholder rights, pursuing legal remedies, and obtaining
judgments with respect to foreign investments in foreign courts than with
respect to domestic issuers in U.S. courts.
Some of the countries in which the funds may invest such as Russia and
certain Asian and Eastern European countries are considered developing or
emerging markets. Investments in these markets are subject to all of the
risks of foreign investing generally, and have additional and heightened
risks due to a lack of legal, business, and social frameworks to support
securities markets.
Emerging markets involve additional significant risks, including political
and social uncertainty (for example, regional conflicts and risk of war),
currency exchange rate volatility, pervasiveness of corruption and crime,
delays in settling portfolio transactions, and risk of loss arising out of
the system of share registration and custody. For more information on the
risks associated with emerging markets securities, please see the SAI.
On July 1, 1997, Hong Kong reverted to the sovereignty of China. As with any
major political transfer of power, this could result in political, social,
economic, market, or other developments in Hong Kong, China, or other
countries that could affect the value of the funds' investments.
INTEREST RATE, CURRENCY AND MARKET RISK. To the extent a fund invests in debt
securities, changes in interest rates in any country where the fund is
invested will affect the value of the fund's portfolio and its share price.
Rising interest rates, which often occur during times of inflation or a
growing economy, are likely to have a negative effect on the value of the
fund's shares. To the extent a fund invests in common stocks, a general
market decline in any country where the fund is invested may cause the value
of what the fund owns, and thus the fund's share price, to decline. Changes
in currency valuations may also affect the price of fund shares. The value of
stock markets, currency valuations and interest rates throughout the world
have increased and decreased in the past. These changes are unpredictable.
EURO RISK. On January 1, 1999, the European Monetary Union (EMU) plans to
introduce a new single currency, the euro, which will replace the national
currency for participating member countries. If a fund holds investments in
countries with currencies replaced by the euro, the investment process,
including trading, foreign exchange, payments, settlements, cash accounts,
custody and accounting will be impacted.
Because this change to a single currency is new and untested, the
establishment of the euro may result in market volatility. For the same
reason, it is not possible to predict the impact of the euro on the business
or financial condition of European issuers which a fund may hold in its
portfolio, and their impact on the value of the fund's shares. To the extent
a fund holds non-U.S. dollar (euro or other) denominated securities, it will
still be exposed to currency risk due to fluctuations in those currencies
versus the U.S. dollar.
YEAR 2000. When evaluating current and potential portfolio positions, Year
2000 is one of the factors the funds' manager considers.
The manager will rely upon public filings and other statements made by
companies about their Year 2000 readiness. Issuers in countries outside the
U.S., particularly in emerging markets, may not be required to make the same
level of disclosure about Year 2000 readiness as is required in the U.S. The
manager, of course, cannot audit each company and its major suppliers to
verify their Year 2000 readiness.
If a company in which the funds are invested is adversely affected by Year
2000 problems, it is likely that the price of its security will also be
adversely affected. A decrease in the value of one or more of a fund's
portfolio holdings will have a similar impact on the price of the fund's
shares. Please see "Year 2000 Problem" under "Who Manages the Funds?" for
more information.
WHO MANAGES THE FUNDS?
THE BOARD. The Board oversees the management of the funds and elects their
officers. The officers are responsible for the funds' day-to-day operations.
The Board also monitors the California Fund to ensure no material conflicts
exist among the fund's classes of shares. While none is expected, the Board
will act appropriately to resolve any material conflict that may arise.
INVESTMENT MANAGER. Franklin Advisers, Inc. manages each fund's assets and
makes its investment decisions. The manager also performs similar services
for other funds. It is wholly owned by Resources, a publicly owned company
engaged in the financial services industry through its subsidiaries. Charles
B. Johnson and Rupert H. Johnson, Jr. are the principal shareholders of
Resources. Together, the manager and its affiliates manage over $208 billion
in assets. Please see "Investment Management and Other Services" and
"Miscellaneous Information" in the SAI for information on securities
transactions and a summary of the funds' Code of Ethics.
MANAGEMENT TEAMS. The teams responsible for the day-to-day management of the
funds' portfolios are:
CALIFORNIA FUND: Conrad B. Herrmann since 1993 and John P. Scandalios since
1997.
Conrad B. Herrmann, CFA
Senior Vice President of Franklin Advisers, Inc.
Mr. Herrmann is a Chartered Financial Analyst and holds a Master of Business
Administration degree from Harvard University. He earned a Bachelor of Arts
degree from Brown University. Mr. Herrmann has been with the Franklin
Templeton Group since 1989 and is a member of several securities
industry-related associations.
John P. Scandalios
Senior Securities Analyst of Franklin Advisers, Inc.
Mr. Scandalios holds a Master of Business Administration degree with an
emphasis in Finance and a Bachelor of Arts degree from the University of
California at Los Angeles. He has been in the securities industry since 1990
and with the Franklin Templeton Group since 1996. Prior thereto, he was with
Chase Manhattan Bank.
Frank Felicelli, CFA
Senior Vice President of Franklin Advisers, Inc.
Mr. Felicelli has been generally involved with investment strategy of the
California Fund's portfolio since its inception. Mr. Felicelli is a Chartered
Financial Analyst and has a Master of Business Administration degree from Golden
Gate University. He earned a Bachelor of Arts degree in Economics from the
University of Illinois. He has been with the Franklin Templeton Group since
1986. He is a member of several securities industry-related associations.
MIDCAP FUND: Edward B. Jamieson and Catherine Roberts Bowman since 1996.
Edward B. Jamieson
Executive Vice President of Franklin Advisers, Inc.
Mr. Jamieson holds a Master's degree in Accounting and Finance from the
University of Chicago Graduate School of Business and a Bachelor of Arts
degree from Bucknell University. He has been with the Franklin Templeton
Group since 1987.
Catherine Roberts Bowman
Vice President of Franklin Advisers, Inc.
Ms. Bowman holds a Master of Business Administration degree from the J.L.
Kellogg Graduate School of Management at Northwestern University. She
received her Bachelor of Arts degree from Princeton University. She joined
the Franklin Templeton Group in 1990.
BLUE CHIP FUND: Suzanne Willoughby Killea and Shan C. Green since the fund's
inception.
Suzanne Willoughby Killea
Vice President of Franklin Advisers, Inc.
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 the Franklin Templeton Group since 1991. She is a member of several
securities industry-related associations.
Shan C. Green
Vice President of Franklin Advisers, Inc.
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 the Franklin Templeton
Group since 1994.
MANAGEMENT FEES. During the fiscal year ended April 30, 1998, management fees
paid to the manager and total operating expenses, as a percentage of average
daily net assets, were as follows:
TOTAL
MANAGEMENT OPERATING
FEES EXPENSES
- ------------------------------------------------------------------------------
California Fund - Class A 0.49% 0.99%
California Fund - Class C 0.49% 1.74%
MidCap Fund 0.65% 1.17%
Blue Chip Fund* 0.17% 1.25%
*Management fees, before any advance waiver, totaled 0.87% and total
operating expenses were 1.95%. Under an agreement by the manager to limit its
fees, the Blue Chip Fund paid the management fees and total operating
expenses shown. The manager may end this arrangement at any time upon notice
to the Board.
PORTFOLIO TRANSACTIONS. The manager tries to obtain the best execution on all
transactions. If the manager believes more than one broker or dealer can
provide the best execution, it may consider research and related services and
the sale of fund shares, as well as shares of other funds in the Franklin
Templeton Group of Funds, when selecting a broker or dealer. Please see "How
Do the Funds Buy Securities for Their Portfolios?" in the SAI for more
information.
ADMINISTRATIVE SERVICES. Under an agreement with the manager, FT Services
provides certain administrative services and facilities for the funds. During
the fiscal year ended April 30, 1998, administration fees paid to FT
Services, as a percentage of average daily net assets, were as follows:
ADMINISTRATION
FEES
- ------------------------------------------------------------------------------
California Fund 0.14%
MidCap Fund 0.15%
Blue Chip Fund 0.15%
These fees are paid by the manager. They are not a separate expense of the
funds. Please see "Investment Management and Other Services" in the SAI for
more information.
YEAR 2000 PROBLEM. The funds' business operations depend on a worldwide
network of computer systems that contain date fields, including securities
trading systems, securities transfer agent operations and stock market links.
Many of the systems currently use a two digit date field to represent the
date, and unless these systems are changed or modified, they may not be able
to distinguish the Year 1900 from the Year 2000 (commonly referred to as the
Year 2000 problem). In addition, the fact that the Year 2000 is a
non-standard leap year may create difficulties for some systems.
When the Year 2000 arrives, the funds' operations could be adversely affected if
the computer systems used by the manager, its service providers and other third
parties it does business with are not Year 2000 ready. For example, the funds'
portfolio and operational areas could be impacted, including securities trade
processing, interest and dividend payments, securities pricing, shareholder
account services, reporting, custody functions and others. A fund could
experience difficulties in effecting transactions if any of its foreign
subcustodians, or if foreign broker-dealers or foreign markets are not ready for
Year 2000.
The funds' manager and their affiliated service providers are making a
concerted effort to take steps they believe are reasonably designed to
address their Year 2000 problems. Of course, the funds' ability to reduce the
effects of the Year 2000 problem is also very much dependent upon the efforts
of third parties over which the funds and their manager may have no control.
THE RULE 12B-1 PLANS
Each class has a separate distribution or "Rule 12b-1" plan under which the fund
shall pay or may reimburse Distributors or others for the expenses of activities
that are primarily intended to sell shares of the class. These expenses may
include, among others, distribution or service fees paid to Securities Dealers
or others who have executed a servicing agreement with the funds, Distributors
or its affiliates; a prorated portion of Distributors' overhead expenses; and
the expenses of printing prospectuses and reports used for sales purposes, and
preparing and distributing sales literature and advertisements.
Payments by the California Fund under the Class A plan may not exceed 0.25%
per year of Class A's average daily net assets. Payments by the Blue Chip
Fund and MidCap Fund under the plan may not exceed 0.35% per year of the
respective fund's average daily net assets. Of this amount, the MidCap Fund
and the Blue Chip Fund may each reimburse up to 0.35% to Distributors or
others, out of which 0.10% will generally be retained by Distributors for
distribution expenses. All distribution expenses over this amount will be
borne by those who have incurred them. During the first year after certain
Class A purchases made without a sales charge, Securities Dealers may not be
eligible to receive the Rule 12b-1 fees associated with the purchase.
Under the Class B plan, the California Fund pays Distributors up to 0.75% per
year of Class B's average daily net assets to pay Distributors for providing
distribution and related services and bearing certain Class B expenses. All
distribution expenses over this amount will be borne by those who have
incurred them. Securities Dealers are not eligible to receive this portion of
the Rule 12b-1 fees associated with the purchase.
The California Fund may also pay a servicing fee of up to 0.25% per year of
Class B's average daily net assets under the Class B plan. This fee may be
used to pay Securities Dealers or others for, among other things, helping to
establish and maintain customer accounts and records, helping with requests
to buy and sell shares, receiving and answering correspondence, monitoring
dividend payments from the California Fund on behalf of customers, and
similar servicing and account maintenance activities. Securities Dealers may
be eligible to receive this portion of the Rule 12b-1 fees from the date of
purchase. After 8 years, Class B shares convert to Class A shares and
Securities Dealers may then receive the Rule 12b-1 fees applicable to Class A.
The expenses relating to the Class B plan are also used to pay Distributors
for advancing the commission costs to Securities Dealers with respect to the
initial sale of Class B shares. Further, the expenses relating to the Class B
plan may be used by Distributors to pay third party financing entities that
have provided financing to Distributors in connection with advancing
commission costs to Securities Dealers.
Under the Class C plan, the California Fund may pay Distributors up to 0.75%
per year of Class C's average daily net assets to pay Distributors or others
for providing distribution and related services and bearing certain Class C
expenses. All distribution expenses over this amount will be borne by those
who have incurred them. During the first year after a purchase of Class C
shares, Securities Dealers may not be eligible to receive this portion of the
Rule 12b-1 fees associated with the purchase.
The California Fund may also pay a servicing fee of up to 0.25% per year of
Class C's average daily net assets under the Class C plan. This fee may be
used to pay Securities Dealers or others for, among other things, helping to
establish and maintain customer accounts and records, helping with requests
to buy and sell shares, receiving and answering correspondence, monitoring
dividend payments from the fund on behalf of customers, and similar servicing
and account maintenance activities.
The Rule 12b-1 fees charged to each class are based only on the fees
attributable to that particular class. For more information, please see "The
Funds' Underwriter" in the SAI.
<TABLE>
<CAPTION>
HOW TAXATION AFFECTS THE FUNDS AND THEIR SHAREHOLDERS
TAXATION OF THE FUNDS' INVESTMENTS
<S> <C>
Each fund invests your money in the --------------------------------------------
stocks, bonds and other securities that HOW DO THE FUNDS EARN INCOME AND GAINS?
are described in the section "How Do the
Funds Invest Their Assets?" Special tax Each fund earns dividends and interest
rules may apply in determining the income (the fund's "income") on its investments.
and gains that each fund earns on its When a fund sells a security for a price
investments. These rules may, in turn, that is higher than it paid, it has a
affect the amount of distributions that a gain. When a fund sells a security for a
fund pays to you. These special tax rules price that is lower than it paid, it has
are discussed in the SAI. a loss. If a fund has held the security
for more than one year, the gain or loss
TAXATION OF THE FUNDS. As a regulated will be a long-term capital gain or loss.
investment company, each fund generally If a fund has held the security for one
pays no federal income tax on the income year or less, the gain or loss will be a
and gains that it distributes to you. short-term capital gain or loss. A fund's
gains and losses are netted together,
FOREIGN TAXES. Foreign governments may and, if the fund has a net gain (the
impose taxes on the income and gains from fund's "gains"), that gain will generally
a fund's investments in foreign stocks and be distributed to you.
bonds. These taxes will reduce the amount
of the fund's distributions to you, but, -------------------------------------------
depending upon the amount of the fund's assets that are invested in foreign securities
and foreign taxes paid, may be passed through to you as a foreign tax credit on your
income tax return. Each fund may also invest in the securities of foreign companies that
are "passive foreign investment companies" ("PFICs"). These investments in PFICs may
cause the fund to pay income taxes and interest charges. If possible, the funds will adopt
strategies to avoid PFIC taxes and interest charges.
TAXATION OF SHAREHOLDERS -------------------------------------------
WHAT IS A DISTRIBUTION?
DISTRIBUTIONS. Distributions from a fund,
whether you receive them in cash or in As a shareholder, you will receive your
additional shares, are generally subject share of a fund's income and gains on its
to income tax. The fund will send you a investments in stocks, bonds and other
statement in January of the current year securities. A fund's income and
that reflects the amount of ordinary short-term capital gains are paid to you
dividends, capital gain distributions and as ordinary dividends. A fund's long-term
non-taxable distributions you received capital gains are paid to you as capital
from the fund in the prior year. This gain distributions. If a fund pays you an
statement will include distributions amount in excess of its income and gains,
declared in December and paid to you in this excess will generally be treated as
January of the current year, but which are a non-taxable distribution. These
taxable as if paid on December 31 of the amounts, taken together, are what we call
prior year. The IRS requires you to report a fund's distributions to you.
these amounts on your income tax return -------------------------------------------
for the prior year.
DISTRIBUTIONS TO RETIREMENT PLANS. Fund distributions received by your qualified
retirement plan, such as a 401(k) plan or IRA, are generally tax-deferred; this means
that you are not required to report fund distributions on your income tax return when
paid to your plan, but, rather, when your plan makes payments to you. Special rules
apply to payouts from Roth and Education IRAs.
DIVIDENDS-RECEIVED DEDUCTION. Corporate investors may be entitled to a
dividends-received deduction on a portion of the ordinary dividends they receive from
a fund.
REDEMPTIONS AND EXCHANGES. If you redeem -------------------------------------------
your shares or if you exchange your shares WHAT IS A REDEMPTION?
in a fund for shares in another Franklin
Templeton Fund, you will generally have a A redemption is a sale by you to a fund
gain or loss that the IRS requires you to of some or all of your shares in the
report on your income tax return. If you fund. The price per share you receive
exchange fund shares held for 90 days or when you redeem fund shares may be more
less and pay no sales charge, or a reduced or less than the price at which you
sales charge, for the new shares, all or a purchased those shares. An exchange of
portion of the sales charge you paid on shares in a fund for shares of another
the purchase of the shares you exchanged Franklin Templeton Fund is treated as a
is not included in their cost for purposes redemption of fund shares and then a
of computing gain or loss on the exchange. purchase of shares of the other fund.
If you hold your shares for six months or When you redeem or exchange your shares,
less, any loss you have will be treated as you will generally have a gain or loss,
a long-term capital loss to the extent of depending upon whether the amount you
any capital gain distributions received by receive for your shares is more or less
you from the fund. All or a portion of any than your cost or other basis in the
loss on the redemption or exchange of shares.
your shares will be disallowed by the IRS -------------------------------------------
if you purchase other shares in the fund within 30 days before or after your redemption
or exchange.
U.S.GOVERNMENT INTEREST. Many states grant tax-free status to dividends paid from
interest earned on direct obligations of the U.S. government, subject to certain
restrictions. Each fund in which you are a shareholder will provide you with
information at the end of each calendar year on the amount of such dividends that may
qualify for exemption from reporting on your individual income tax returns.
NON-U.S. INVESTORS. Ordinary dividends generally will be subject to U.S. income tax
withholding. Your home country may also tax ordinary dividends, capital gain
distributions and gains arising from redemptions or exchanges of your fund shares.
Fund shares held by the estate of a non-U.S. investor may be subject to U.S. estate
tax. You may wish to contact your tax advisor to determine the U.S. and non-U.S. tax
consequences of your investment in a fund.
STATE TAXES. Ordinary dividends and capital gain distributions that you receive from
a fund, and gains arising from redemptions or exchanges of your fund shares will
generally be subject to state and local income tax. The holding of fund shares may
also be subject to state and local intangibles taxes. You may wish to contact your
tax advisor to determine the state and local tax consequences of your investment in a
fund.
BACKUP WITHHOLDING. When you open an -------------------------------------------
account, IRS regulations require that you WHAT IS A
provide your taxpayer identification BACKUP WITHHOLDING?
number ("TIN"), certify that it is
correct, and certify that you are not Backup withholding occurs when a fund is
subject to backup withholding under IRS required to withhold and pay over to the
rules. If you fail to provide a correct IRS 31% of your distributions and
TIN or the proper tax certifications, the redemption proceeds. You can avoid backup
fund is required to withhold 31% of all withholding by providing the fund with
the distributions (including ordinary your TIN, and by completing the tax
dividends and capital gain distributions), certifications on your shareholder
and redemption proceeds paid to you. The application that you were asked to sign
fund is also required to begin backup when you opened your account. However, if
withholding on your account if the IRS the IRS instructs a fund to begin backup
instructs the fund to do so. The funds withholding, it is required to do so even
reserve the right not to open your if you provided the fund with your TIN
account, or, alternatively, to redeem your and these tax certifications, and backup
shares at the current Net Asset Value, withholding will remain in place until
less any taxes withheld, if you fail to the fund is instructed by the IRS that it
provide a correct TIN, fail to provide the is no longer required.
proper tax certifications, or the IRS -------------------------------------------
instructs the funds to begin backup withholding on your account.
THIS TAX DISCUSSION IS FOR GENERAL INFORMATION ONLY. PROSPECTIVE INVESTORS
SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE FEDERAL, STATE, LOCAL OR
FOREIGN TAX CONSEQUENCES OF AN INVESTMENT IN A FUND. A MORE COMPLETE
DISCUSSION OF THESE RULES AND RELATED MATTERS IS CONTAINED IN THE SECTION
ENTITLED "ADDITIONAL INFORMATION ON DISTRIBUTIONS AND TAXES" IN THE SAI.
</TABLE>
HOW IS THE TRUST ORGANIZED?
The California Fund is a non-diversified series, and the MidCap Fund and the
Blue Chip Fund are diversified series of Franklin Strategic Series (the
"Trust"), an open-end management investment company, commonly called a mutual
fund. It was organized as a Delaware business trust on January 25, 1991, and is
registered with the SEC. The California Fund offers three classes of shares:
Franklin California Growth Fund - Class A, Franklin California Growth Fund -
Class B and Franklin California Growth Fund - Class C. Shares of the MidCap Fund
and the Blue Chip Fund are considered Class A shares for redemption, exchange
and other purposes. Additional series and classes of shares may be offered in
the future.
Before July 12, 1993, the California Fund was named the Franklin California
250 Growth Fund. On that date, the fund's investment objective and various
investment policies were changed. Consistent with these changes, the fund's
name was changed to the Franklin California Growth Fund.
The MidCap Fund changed its name from FISCO MidCap Growth Fund to Franklin
Institutional MidCap Growth Fund on September 1, 1994, and to its current
name on April 18, 1996.
Shares of each class of the California Fund represent proportionate interests
in the assets of the fund and have the same voting and other rights and
preferences as any other class of the fund for matters that affect the fund
as a whole. For matters that only affect one class, however, only
shareholders of that class may vote. Each class will vote separately on
matters affecting only that class, or expressly required to be voted on
separately by state or federal law. Shares of each class of a series have the
same voting and other rights and preferences as the other classes and series
of the Trust for matters that affect the Trust as a whole.
The Trust has noncumulative voting rights. This gives holders of more than
50% of the shares voting the ability to elect all of the members of the
Board. If this happens, holders of the remaining shares voting will not be
able to elect anyone to the Board.
The Trust does not intend to hold annual shareholder meetings. The Trust or a
series of the Trust may hold special meetings, however, for matters requiring
shareholder approval. A meeting may be called by the Board to consider the
removal of a Board member if requested in writing by shareholders holding at
least 10% of the outstanding shares. In certain circumstances, we are
required to help you communicate with other shareholders about the removal of
a Board member. A special meeting may also be called by the Board in its
discretion.
As of November 25, 1998, Resources owned of record and beneficially more than
25% of the outstanding shares of the MidCap Fund.
ABOUT YOUR ACCOUNT
HOW DO I BUY SHARES?
OPENING YOUR ACCOUNT
To open your account, please follow the steps below. This will help avoid any
delays in processing your request. PLEASE KEEP IN MIND THAT THE CALIFORNIA
FUND DOES NOT CURRENTLY ALLOW INVESTMENTS BY MARKET TIMERS.
1. Read this prospectus carefully.
2. Determine how much you would like to invest. The funds' minimum
investments are:
o To open a regular, non-retirement account $1,000
o To open an IRA, IRA Rollover, Roth IRA,
or Education IRA $ 250*
o To open a custodial account for a minor
(an UGMA/UTMA account) $ 100
o To open an account with an automatic
investment plan $ 50**
o To add to an account $ 50***
*For all other retirement accounts, there is no minimum investment
requirement.
**$25 for an Education IRA.
***For all retirement accounts except IRAs, IRA Rollovers, Roth IRAs, or
Education IRAs, there is no minimum to add to an account.
We reserve the right to change the amount of these minimums from time to time
or to waive or lower these minimums for certain purchases. We also reserve
the right to refuse any order to buy shares.
3. Carefully complete and sign the enclosed account application, including
the optional shareholder privileges section. By applying for privileges now,
you can avoid the delay and inconvenience of having to send an additional
application to add privileges later. PLEASE ALSO INDICATE WHICH CLASS OF
SHARES YOU WANT TO BUY. IF YOU DO NOT SPECIFY A CLASS, WE WILL INVEST YOUR
PURCHASE IN CLASS A SHARES. It is important that we receive a signed
application since we will not be able to process any redemptions from your
account until we receive your signed application.
4. Make your investment using the table below.
METHOD STEPS TO FOLLOW
- ------------------------------------------------------------------------------
BY MAIL For an initial investment:
Return the application to the fund
with your check made payable to the
fund.
For additional investments:
Send a check made payable to the
fund. Please include your account
number on the check.
- ------------------------------------------------------------------------------
BY WIRE 1. Call Shareholder Services or, if that
number is busy, call 1-650/312-2000
collect, to receive a wire control
number and wire instructions. You
need a new wire control number every
time you wire money into your
account. If you do not have a
currently effective wire control
number, we will return the money to
the bank, and we will not credit the
purchase to your account.
2. For an initial investment you must
also return your signed account
application to the fund.
IMPORTANT DEADLINES: If we receive your
call before 1:00 p.m. Pacific time and
the bank receives the wired funds and
reports the receipt of wired funds to the
fund by 3:00 p.m. Pacific time, we will
credit the purchase to your account that
day. If we receive your call after 1:00
p.m. or the bank receives the wire after
3:00 p.m., we will credit the purchase to
your account the following business day.
- ------------------------------------------------------------------------------
THROUGH YOUR DEALER Call your investment representative
- ------------------------------------------------------------------------------
CHOOSING A SHARE CLASS (CALIFORNIA FUND ONLY)
Each class has its own sales charge and expense structure, allowing you to
choose the class that best meets your situation. Your financial
representative can help you decide.
CLASS A* CLASS B* CLASS C*
- ------------------------------------------------------------------------------
o Front-end sales o No front-end sales o Front-end sales
charge of 5.75% or charge charge
less of 1%
o Contingent Deferred o Contingent Deferred o Contingent Deferred
Sales Charge of 1% on Sales Charge of 4% or Sales Charge of 1%
purchases of $1 less on shares you on shares you sell
million or more sold sell within six years within 18 months
within one year
o Lower annual expenses o Higher annual o Higher annual
than Class B or C due expenses than Class A expenses than Class A
to lower Rule 12b-1 (same as Class C) due (same as Class B) due
fees to higher Rule 12b-1 to higher Rule 12b-1
fees. Automatic fees. No conversion
conversion to Class A to Class A shares, so
sharesafter eight annual expenses do
years, reducing future not decrease.
annual expenses.
o No maximum purchase o Maximum purchase o Maximum purchase
amount amount of $249,999. We amount of $999,999.
invest any investment We invest any
of $250,000 or more in investment of $1
Class A shares, since million or more in
a reduced front-end Class A shares,
sales charge is since there is no
available and Class front-end sales
A's annual expenses charge and Class A's
are lower. annual expenses are
lower.
*Before January 1, 1999, Class A shares were designated Class I and Class C
shares were designated Class II. The California Fund began offering Class B
shares on January 1, 1999. Class B shares are not available to all retirement
plans. Class B shares are only available to IRAs (of any type), Franklin
Templeton Trust Company 403(b) plans, and Franklin Templeton Trust Company
qualified plans with participant or earmarked accounts.
PURCHASE PRICE OF FUND SHARES
For Class A shares, the sales charge you pay depends on the dollar amount you
invest, as shown in the table below. The sales charge for Class C shares is 1%
and, unlike Class A, does not vary based on the size of your purchase. There is
no front-end sales charge for Class B shares.
TOTAL SALES CHARGE AMOUNT PAID TO
AS A PERCENTAGE OF DEALER AS A
AMOUNT OF PURCHASE OFFERING NET AMOUNT PERCENTAGE OF
AT OFFERING PRICE PRICE INVESTED OFFERING PRICE
- -------------------------------------------------------------------------------
CLASS A
Under $50,000 5.75% 6.10% 5.00%
$50,000 but less than $100,000 4.50% 4.71% 3.75%
$100,000 but less than $250,000 3.50% 3.63% 2.80%
$250,000 but less than $500,000 2.50% 2.56% 2.00%
$500,000 but less than $1,000,000 2.00% 2.04% 1.60%
$1,000,000 or more* None None None
CLASS B* (California Fund Only) None None None
CLASS C (California Fund Only)
Under $1,000,000* 1.00% 1.01% 1.00%
*A Contingent Deferred Sales Charge of 1% may apply to Class A purchases of
$1 million or more and any Class C purchase. A Contingent Deferred Sales
Charge of up to 4% may apply to any Class B purchase. Please see "How Do I
Sell Shares? - Contingent Deferred Sales Charge." Please also see "Other
Payments to Securities Dealers" below for a discussion of payments
Distributors may make out of its own resources to Securities Dealers for
certain purchases.
SALES CHARGE REDUCTIONS AND WAIVERS
- - IF YOU QUALIFY TO BUY SHARES UNDER ONE OF THE SALES CHARGE REDUCTION OR
WAIVER CATEGORIES DESCRIBED BELOW, PLEASE INCLUDE A WRITTEN STATEMENT WITH
EACH PURCHASE ORDER EXPLAINING WHICH PRIVILEGE APPLIES. If you don't
include this statement, we cannot guarantee that you will receive the
sales charge reduction or waiver.
CUMULATIVE QUANTITY DISCOUNTS - CLASS A ONLY. To determine if you may pay a
reduced sales charge, the amount of your current Class A purchase is added to
the cost or current value, whichever is higher, of your existing shares in
the Franklin Templeton Funds, as well as those of your spouse, children under
the age of 21 and grandchildren under the age of 21. If you are the sole
owner of a company, you may also add any company accounts, including
retirement plan accounts. Companies with one or more retirement plans may add
together the total plan assets invested in the Franklin Templeton Funds to
determine the sales charge that applies.
LETTER OF INTENT - CLASS A ONLY. You may buy Class A shares at a reduced
sales charge by completing the Letter of Intent section of the account
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 on Class A shares.
BY COMPLETING THE LETTER OF INTENT SECTION OF THE ACCOUNT APPLICATION, YOU
ACKNOWLEDGE AND AGREE TO THE FOLLOWING:
o You authorize Distributors to reserve 5% of your total intended purchase
in Class A shares registered in your name until you fulfill your Letter.
o You give Distributors a security interest in the reserved shares and
appoint Distributors as attorney-in-fact.
o Distributors may sell any or all of the reserved shares to cover any
additional sales charge if you do not fulfill the terms of the Letter.
o Although you may exchange your shares, you may not sell reserved shares
until you complete the Letter or pay the higher sales charge.
Your periodic statements will include the reserved shares in the total shares
you own. We will pay or reinvest dividend and capital gain distributions on
the reserved shares as you direct. Our policy of reserving shares does not
apply to certain retirement plans.
If you would like more information about the Letter of Intent privilege, please
see "How Do I Buy, Sell and Exchange Shares? - Letter of Intent" in the SAI or
call Shareholder Services.
GROUP PURCHASES - Class A Only. If you are a member of a qualified group, you
may buy Class A shares at a reduced sales charge that applies 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.
A qualified group is one that:
o Was formed at least six months ago,
o Has a purpose other than buying fund shares at a discount,
o Has more than 10 members,
o Can arrange for meetings between our representatives and group members,
o Agrees to include Franklin Templeton Fund sales and other materials in
publications and mailings to its members at reduced or no cost to
Distributors,
o Agrees to arrange for payroll deduction or other bulk transmission of
investments
to the fund, and
o Meets other uniform criteria that allow Distributors to achieve cost
savings in distributing shares.
A qualified group does not include a 403(b) plan that only allows salary
deferral contributions. 403(b) plans that only allow salary deferral
contributions and that purchased Class A shares of a fund at a reduced sales
charge under the group purchase privilege before February 1, 1998, however,
may continue to do so.
SALES CHARGE WAIVERS. If one of the following sales charge waivers applies to
you or your purchase of fund shares, you may buy shares of the funds without
a front-end sales charge or a Contingent Deferred Sales Charge. All of the
sales charge waivers listed below apply to purchases of Class A shares only,
except for items 1 and 2 which also apply to Class B and C purchases.
Certain distributions, payments or redemption proceeds that you receive may
be used to buy shares of the funds without a sales charge if you reinvest
them within 365 days of their payment or redemption date. They include:
1. Dividend and capital gain distributions from any Franklin Templeton Fund.
The distributions generally must be reinvested in the same class of
shares. Certain exceptions apply, however, to Class C shareholders who
chose to reinvest their distributions in Class A shares of a fund before
November 17, 1997, and to Advisor Class or Class Z shareholders of a
Franklin Templeton Fund who may reinvest their distributions in Class A
shares of the funds.
2. Redemption proceeds from the sale of shares of any Franklin Templeton
Fund. The proceeds must be reinvested in the same class of shares,
except proceeds from the sale of Class B shares will be reinvested in
Class A shares.
If you paid a Contingent Deferred Sales Charge when you sold your Class
A or C shares, we will credit your account with the amount of the
Contingent Deferred Sales Charge paid but a new Contingent Deferred
Sales Charge will apply. For Class B shares reinvested in Class A, a new
Contingent Deferred Sales Charge will not apply, although your account
will not be credited with the amount of any Contingent Deferred Sales
Charge paid when you sold your Class B shares. If you own both Class A
and B shares and you later sell your shares, we will sell your Class A
shares first, unless otherwise instructed.
Proceeds immediately placed in a Franklin Bank CD also may be reinvested
without an initial sales charge if you reinvest them within 365 days
from the date the CD matures, including any rollover.
This waiver does not apply to shares you buy and sell under our exchange
program. Shares purchased with the proceeds from a money fund may be
subject to a sales charge.
3. Dividend or capital gain distributions from a real estate investment
trust (REIT) sponsored or advised by Franklin Properties, Inc.
4. Annuity payments received under either an annuity option or from death
benefit proceeds, only if the annuity contract offers as an investment
option the Franklin Valuemark Funds or the Templeton Variable Products
Series Fund. You should contact your tax advisor for information on any
tax consequences that may apply.
5. Redemption proceeds from a repurchase of shares of Franklin Floating Rate
Trust, if the shares were continuously held for at least 12 months.
If you immediately placed your redemption proceeds in a Franklin Bank
CD or a Franklin Templeton money fund, you may reinvest them as
described above. The proceeds must be reinvested within 365 days from
the date the CD matures, including any rollover, or the date you redeem
your money fund shares.
6. Redemption proceeds from the sale of Class A shares of any of the
Templeton Global Strategy Funds if you are a qualified investor.
If you paid a contingent deferred sales charge when you sold your Class
A shares from a Templeton Global Strategy Fund, we will credit your
account with the amount of the contingent deferred sales charge paid
but a new Contingent Deferred Sales Charge will apply.
If you immediately placed your redemption proceeds in a Franklin
Templeton money fund, you may reinvest them as described above. The
proceeds must be reinvested within 365 days from the date they are
redeemed from the money fund.
7. Distributions from an existing retirement plan invested in the Franklin
Templeton Funds
Various individuals and institutions also may buy Class A shares without a
front-end sales charge or Contingent Deferred Sales Charge, including:
1. Trust companies and bank trust departments agreeing to invest in
Franklin Templeton Funds over a 13 month period at least $1 million of
assets held in a fiduciary, agency, advisory, custodial or similar
capacity and over which the trust companies and bank trust departments
or other plan fiduciaries or participants, in the case of certain
retirement plans, have full or shared investment discretion. We will
accept orders for these 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 the order.
2. An Eligible Governmental Authority. Please consult your legal and
investment advisors to determine if an investment in a fund is
permissible and suitable for you and the effect, if any, of payments by
the fund on arbitrage rebate calculations.
3. Broker-dealers, registered investment advisors or certified financial
planners who have entered into an agreement with Distributors for
clients participating in comprehensive fee programs. The minimum initial
investment is $250.
4. Qualified registered investment advisors who buy through a broker-dealer
or service agent who has entered into an agreement with Distributors
5. Registered Securities Dealers and their affiliates, for their investment
accounts only
6. Current employees of Securities Dealers and their affiliates and their
family members, as allowed by the internal policies of their employer
7. Officers, trustees, directors and full-time employees of the Franklin
Templeton Funds or the Franklin Templeton Group, and their family
members, consistent with our then-current policies. The minimum initial
investment is $100.
8. Investment companies exchanging shares or selling assets pursuant to a
merger, acquisition or exchange offer
9. Accounts managed by the Franklin Templeton Group
10. Certain unit investment trusts and their holders reinvesting
distributions from the trusts
11. Group annuity separate accounts offered to retirement plans
12. Chilean retirement plans that meet the requirements described under
"Retirement Plans" below
RETIREMENT PLANS. Retirement plans sponsored by an employer (i) with at least
100 employees, or (ii) with retirement plan assets of $1 million or more, or
(iii) that agrees to invest at least $500,000 in the Franklin Templeton Funds
over a 13 month period may buy Class A shares without a front-end sales
charge. Retirement plans that are not Qualified Retirement Plans, SIMPLEs or
SEPs must also meet the requirements described under "Group Purchases - Class
A Only" above to be able to buy Class A shares without a front-end sales
charge. We may enter into a special arrangement with a Securities Dealer,
based on criteria established by the funds, to add together certain small
Qualified Retirement Plan accounts for the purpose of meeting these
requirements.
For retirement plan accounts opened on or after May 1, 1997, a Contingent
Deferred Sales Charge may apply if the retirement plan is transferred out of the
Franklin Templeton Funds or terminated within 365 days of the retirement plan
account's initial purchase in the Franklin Templeton Funds. Please see "How Do I
Sell Shares? - Contingent Deferred Sales Charge" for details.
HOW DO I BUY SHARES IN CONNECTION WITH RETIREMENT PLANS?
Your individual or employer-sponsored retirement plan may invest in the
funds. Plan documents are required for all retirement plans. Franklin
Templeton Trust Company, an affiliate of Distributors and a wholly owned
subsidiary of Resources, can provide the plan documents for you and serve as
custodian or trustee.
Franklin Templeton Trust Company can provide you with brochures containing
important information about its plans. These plans require separate
applications and their policies and procedures may be different than those
described in this prospectus. For more information, including a free
retirement plan brochure or application, please call Retirement Plan Services.
Please consult your legal, tax or retirement plan specialist before choosing
a retirement plan. Your investment representative or advisor can help you
make investment decisions within your plan.
OTHER PAYMENTS TO SECURITIES DEALERS
The payments described below may be made to Securities Dealers who initiate
and are responsible for Class B and C purchases and certain Class A purchases
made without a sales charge. The payments are subject to the sole discretion
of Distributors, and are paid by Distributors or one of its affiliates and
not by the funds or their shareholders.
1. Class A purchases of $1 million or more - up to 1% of the amount
invested.
2. Class B purchases - up to 4% of the amount invested.
3. Class C purchases - up to 1% of the purchase price.
4. Class A purchases made without a front-end sales charge by certain
retirement plans described under "Sales Charge Reductions and Waivers -
Retirement Plans" above - up to 1% of the amount invested.
5. Class A purchases by trust companies and bank trust departments,
Eligible Governmental Authorities, and broker-dealers or others on
behalf of clients participating in comprehensive fee programs - up to
0.25% of the amount invested.
6. Class A purchases by Chilean retirement plans - up to 1% of the amount
invested.
A Securities Dealer may receive only one of these payments for each
qualifying purchase. Securities Dealers who receive payments in connection
with investments described in paragraphs 1, 3 or 6 above or a payment of up
to 1% for investments described in paragraph 4 will be eligible to receive
the Rule 12b-1 fee associated with the purchase starting in the thirteenth
calendar month after the purchase.
FOR BREAKPOINTS THAT MAY APPLY AND INFORMATION ON ADDITIONAL COMPENSATION
PAYABLE TO SECURITIES DEALERS IN CONNECTION WITH THE SALE OF FUND SHARES,
PLEASE SEE "HOW DO I BUY, SELL AND EXCHANGE SHARES? - OTHER PAYMENTS TO
SECURITIES DEALERS" IN THE SAI.
FOR INVESTORS OUTSIDE THE U.S.
The distribution of this prospectus and the offering of fund shares may be
limited in many jurisdictions. An investor who wishes to buy shares of a fund
should determine, or have a broker-dealer determine, the applicable laws and
regulations of the relevant jurisdiction. Investors are responsible for
compliance with tax, currency exchange or other regulations applicable to
redemption and purchase transactions in any jurisdiction to which they may be
subject. Investors should consult appropriate tax and legal advisors to obtain
information on the rules applicable to these transactions.
MAY I EXCHANGE SHARES FOR SHARES OF ANOTHER FUND?
We offer a wide variety of funds. If you would like, you can move your
investment from your fund account to an existing or new account in another
Franklin Templeton Fund (an "exchange"). Because it is technically a sale and
a purchase of shares, an exchange is a taxable transaction.
If you own Class A shares, you may exchange into any of our money funds
except Franklin Templeton Money Fund. Franklin Templeton Money Fund is the
only money fund exchange option available to Class B and C shareholders.
Unlike our other money funds, shares of Franklin Templeton Money Fund may not
be purchased directly and no drafts (checks) may be written on Franklin
Templeton Money Fund accounts.
Before making an exchange, please read the prospectus of the fund you are
interested in. This will help you learn about the fund, its investment goal
and policies, and its rules and requirements for exchanges. For example, some
Franklin Templeton Funds do not accept exchanges and others may have
different investment minimums. Some Franklin Templeton Funds (including the
Blue Chip Fund and the MidCap Fund) do not offer Class B or C shares.
METHOD STEPS TO FOLLOW
- ------------------------------------------------------------------------------
BY MAIL 1. Send us signed written instructions
2. Include any outstanding share certificates
for the shares you want to exchange
- ------------------------------------------------------------------------------
BY PHONE Call Shareholder Services or TeleFACTS(R)
- If you do not want the ability to exchange by
phone to apply to your account, please let
us know.
- ------------------------------------------------------------------------------
THROUGH YOUR DEALER Call your investment representative
- ------------------------------------------------------------------------------
Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to exchange shares.
WILL SALES CHARGES APPLY TO MY EXCHANGE?
You can exchange shares between most Franklin Templeton Funds, generally
without paying any additional sales charges. If you exchange shares held for
less than six months, however, you may be charged the difference between the
front-end sales charge of the two funds if the difference is more than 0.25%.
If you exchange shares from a money fund, a sales charge may apply no matter
how long you have held the shares.
CONTINGENT DEFERRED SALES CHARGE. We will not impose a Contingent Deferred
Sales Charge when you exchange shares. Any shares subject to a Contingent
Deferred Sales Charge at the time of exchange, however, will remain so in the
new fund. The purchase price for determining a Contingent Deferred Sales
Charge on exchanged shares will be the price you paid for the original shares.
For accounts with shares subject to a Contingent Deferred Sales Charge, we
will first exchange any shares in your account that are not subject to the
charge. If there are not enough of these to meet your exchange request, we
will exchange shares subject to the charge in the order they were purchased.
If you exchange Class A shares into one of our money funds, the time your
shares are held in that fund will not count towards the completion of any
Contingency Period. If you exchange your Class B or C shares for the same
class of shares of Franklin Templeton Money Fund, however, the time your
shares are held in that fund will count towards the completion of any
Contingency Period.
For more information about the Contingent Deferred Sales Charge, please see
"How Do I Sell Shares?"
EXCHANGE RESTRICTIONS
Please be aware that the following restrictions apply to exchanges:
o You must meet the applicable minimum investment amount of the fund you
are exchanging into, or exchange 100% of your fund shares.
o You may only exchange shares within the same class, except as noted
below. If you exchange your Class B shares for the same class of shares of
another Franklin Templeton Fund, the time your shares are held in that
fund will count towards the eight year period for automatic conversion to
Class A shares.
o Generally exchanges may only be made between identically registered
accounts, unless you send written instructions with a signature guarantee.
You may, however, exchange shares from a fund account requiring two or
more signatures into an identically registered money fund account
requiring only one signature for all transactions. Please notify us in
writing if you do not want this option to be available on your account.
Additional procedures may apply. Please see "Transaction Procedures and
Special Requirements."
o Franklin Templeton Trust Company IRA or 403(b) retirement plan accounts
may exchange shares as described above. Restrictions may apply to other
types of retirement plans. Please contact Retirement Plan Services for
information on exchanges within these plans.
o The fund you are exchanging into must be eligible for sale in your state.
o We may modify or discontinue our exchange policy if we give you 60 days'
written notice.
o Your exchange may be restricted or refused if you have: (i) requested an
exchange out of the fund within two weeks of an earlier exchange request,
(ii) exchanged shares out of the fund more than twice in a calendar
quarter, or (iii) exchanged shares equal to at least $5 million, or more
than 1% of the fund's net assets. Shares under common ownership or control
are combined for these limits. If you have exchanged shares as described
in this paragraph, you will be considered a Market Timer. Each exchange by
a Market Timer, if accepted, will be charged $5. Some of our funds do not
allow investments by Market Timers. Currently, the California Fund does
not allow investments by Market Timers.
Because excessive trading can hurt fund performance, operations and
shareholders, we may refuse any exchange purchase if (i) we believe the fund
would be harmed or unable to invest effectively, or (ii) the fund receives or
anticipates simultaneous orders that may significantly affect the fund.
LIMITED EXCHANGES BETWEEN DIFFERENT CLASSES OF SHARES
Certain funds in the Franklin Templeton Funds offer classes of shares not
offered by the funds, such as "Advisor Class" or "Class Z" shares. Because
the funds do not currently offer an Advisor Class, you may exchange Advisor
Class shares of any Franklin Templeton Fund for Class A shares of a fund at
Net Asset Value. If you do so and you later decide you would like to exchange
into a fund that offers an Advisor Class, you may exchange your Class A
shares for Advisor Class shares of that fund. Certain shareholders of Class Z
shares of Franklin Mutual Series Fund Inc. may also exchange their Class Z
shares for Class A shares of a fund at Net Asset Value.
HOW DO I SELL SHARES?
You may sell (redeem) your shares at any time.
METHOD STEPS TO FOLLOW
- ------------------------------------------------------------------------------
BY MAIL 1. Send us signed written instructions. If you would
like your redemption proceeds wired to a bank
account, your instructions should include:
o The name, address and telephone number of the
bank where you want the proceeds sent
o Your bank account number
o The Federal Reserve ABA routing number
o If you are using a savings and loan or credit
union, the name of the corresponding bank and
the account number
2. Include any outstanding share certificates for the
shares you are selling
3. Provide a signature guarantee if required
4. Corporate, partnership and trust accounts may need
to send additional documents. Accounts under
court jurisdiction may have other requirements.
- ------------------------------------------------------------------------------
BY PHONE Call Shareholder Services. If you would like your
redemption proceeds wired to a bank account, other
than an escrow account, you must first sign up for
the wire feature. To sign up, send us written
instructions, with a signature guarantee. To avoid
any delay in processing, the instructions should
include the items listed in "By Mail" above.
Telephone requests will be accepted:
o If the request is $100,000 or less.
Institutional accounts may exceed $100,000 by
completing a separate agreement. Call
Institutional Services to receive a copy.
o If there are no share certificates issued for
the shares you want to sell or you have already
returned them to the fund
o Unless the address on your account was changed
by phone within the last 15 days
- If you do not want the ability to redeem by phone
to apply to your account, please let us know.
- ------------------------------------------------------------------------------
THROUGH YOUR DEALER Call your investment representative
- ------------------------------------------------------------------------------
We will send your redemption check within seven days after we receive your
request in proper form. If you would like the check sent to an address other
than the address of record or made payable to someone other than the
registered owners on the account, send us written instructions signed by all
account owners, with a signature guarantee. We are not able to receive or pay
out cash in the form of currency.
The wiring of redemption proceeds is a special service that we make available
whenever possible for redemption requests of $1,000 or more. If we receive
your request in proper form before 1:00 p.m. Pacific time, your wire payment
will be sent the next business day. For requests received in proper form
after 1:00 p.m. Pacific time, the payment will be sent the second business
day. By offering this service to you, the funds are not bound to meet any
redemption request in less than the seven day period prescribed by law.
Neither the funds nor their agents shall be liable to you or any other person
if, for any reason, a redemption request by wire is not processed as
described in this section.
If you sell shares you recently purchased with a check or draft, we may delay
sending you the proceeds until your check or draft has cleared, which may
take seven business days or more. A certified or cashier's check may clear in
less time.
Under unusual circumstances, we may suspend redemptions or postpone payment
for more than seven days as permitted by federal securities law.
Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to sell shares.
FRANKLIN TEMPLETON TRUST COMPANY RETIREMENT PLAN ACCOUNTS
Before you can sell shares in a Franklin Templeton Trust Company retirement
plan, you may need to complete additional forms. For participants under age
591/2, tax penalties may apply. Call Retirement Plan Services at
1-800/527-2020 for details.
CONTINGENT DEFERRED SALES CHARGE
For Class A purchases, if you did not pay a front-end sales charge because
you invested $1 million or more or agreed to invest $1 million or more under
a Letter of Intent, a Contingent Deferred Sales Charge may apply if you sell
all or a part of your investment within the Contingency Period. Once you have
invested $1 million or more, any additional Class A investments you make
without a sales charge may also be subject to a Contingent Deferred Sales
Charge if they are sold within the Contingency Period. For any Class C
purchase, a Contingent Deferred Sales Charge may apply if you sell the shares
within the Contingency Period. The charge is 1% of the value of the shares
sold or the Net Asset Value at the time of purchase, whichever is less.
Certain retirement plan accounts opened on or after May 1, 1997, and that
qualify to buy Class A shares without a front-end sales charge may also be
subject to a Contingent Deferred Sales Charge if the retirement plan is
transferred out of the Franklin Templeton Funds or terminated within 365 days
of the account's initial purchase in the Franklin Templeton Funds.
For Class B shares, there is a Contingent Deferred Sales Charge if you sell
your shares within six years, as described in the table below. The charge is
based on the value of the shares sold or the Net Asset Value at the time of
purchase, whichever is less.
THIS % IS DEDUCTED
IF YOU SELL YOUR CLASS B FROM YOUR PROCEEDS AS A
SHARES WITHIN THIS MANY CONTINGENT DEFERRED
YEARS AFTER BUYING THEM SALES CHARGE
- ------------------------------------------------------------------------------
1 Year 4
2 Years 4
3 Years 3
4 Years 3
5 Years 2
6 Years 1
7 Years 0
For each class, we will first redeem any shares in your account that are not
subject to a Contingent Deferred Sales Charge. If there are not enough of
these to meet your request, we will redeem shares subject to the charge in
the order they were purchased.
Unless otherwise specified, when you request to sell a stated DOLLAR AMOUNT,
we will redeem additional shares to cover any Contingent Deferred Sales
Charge. For requests to sell a stated NUMBER OF SHARES, we will deduct the
amount of the Contingent Deferred Sales Charge, if any, from the sale
proceeds.
WAIVERS. We waive the Contingent Deferred Sales Charge for:
o Account fees
o Sales of Class A shares purchased without a front-end sales charge by
certain retirement plan accounts if (i) the account was opened before May
1, 1997, or (ii) the Securities Dealer of record received a payment from
Distributors of 0.25% or less, or (iii) Distributors did not make any payment
in connection with the purchase, or (iv) the Securities Dealer of record has
entered into a supplemental agreement with Distributors
o Redemptions by the fund when an account falls below the minimum required
account size
o Redemptions following the death of the shareholder or beneficial owner
o Redemptions through a systematic withdrawal plan set up before February
1, 1995
o Redemptions through a systematic withdrawal plan set up on or after
February 1, 1995, up to 1% monthly, 3% quarterly, 6% semiannually or 12%
annually of your account's Net Asset Value depending on the frequency of
your plan
o Redemptions by Franklin Templeton Trust Company employee benefit plans or
employee benefit plans serviced by ValuSelect(R) (not applicable to Class B)
o Distributions from IRAs due to death or disability or upon periodic
distributions based on life expectancy (for Class B, this applies to all
retirement plan accounts, not only IRAs)
o Returns of excess contributions (and earnings, if applicable) from
retirement plan accounts
o Participant initiated distributions from employee benefit plans or
participant initiated exchanges among investment choices in employee
benefit plans (not applicable to Class B)
WHAT DISTRIBUTIONS MIGHT I RECEIVE FROM THE FUNDS?
The California Fund and MidCap Fund intend to pay a dividend at least
semiannually representing their net investment income. Capital gains, if any,
may be distributed annually. The Blue Chip Fund intends to pay a dividend at
least annually representing substantially all of its net investment income
and any net realized capital gains. The amount of these distributions will
vary and there is no guarantee the funds will pay dividends. The funds do not
pay "interest" or guarantee any fixed rate of return on an investment
in their shares.
To receive a distribution, you must be a shareholder on the record date. The
record dates for the funds' distributions will vary. Please keep in mind that
if you invest in a fund shortly before the record date of a distribution, any
distribution will lower the value of the fund's shares by the amount of the
distribution and you will receive some of your investment back in the form of
a taxable distribution. If you would like information on upcoming record
dates for the funds' distributions, please call 1-800/DIAL BEN.
Dividends and capital gains are calculated and distributed the same way for
each class. The amount of any income dividends per share will differ,
however, generally due to the difference in the Rule 12b-1 fees of each class.
DISTRIBUTION OPTIONS
You may receive your distributions from a fund in any of these ways:
1. BUY ADDITIONAL SHARES OF THE FUND - You may reinvest distributions you
receive from the fund in additional shares of the fund (without a sales
charge or imposition of a Contingent Deferred Sales Charge). This is a
convenient way to accumulate additional shares and maintain or increase your
earnings base.
2. BUY SHARES OF OTHER FRANKLIN TEMPLETON FUNDS - You may direct your
distributions to buy 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.
Please note that distributions may only be directed to an existing account.
3. RECEIVE DISTRIBUTIONS IN CASH - You may receive your distributions from
the fund in cash. If you have the money sent to another person or to a
checking or savings account, you may need a signature guarantee. If you send
the money to a checking or savings account, please see "Electronic Fund
Transfers" under "Services to Help You Manage Your Account."
Distributions may be reinvested only in the same class of shares, except as
follows: (i) Class C shareholders who chose to reinvest their distributions
in Class A shares of the fund or another Franklin Templeton Fund before
November 17, 1997, may continue to do so; and (ii) Class B and C shareholders
may reinvest their distributions in shares of any Franklin Templeton money
fund.
PLEASE INDICATE ON YOUR APPLICATION THE DISTRIBUTION OPTION YOU HAVE CHOSEN,
OTHERWISE WE WILL REINVEST YOUR DISTRIBUTIONS IN THE SAME SHARE CLASS OF THE
FUND. You may change your distribution option at any time by notifying us by
mail or phone. Please allow at least seven days before the record date for us
to process the new option. For Franklin Templeton Trust Company retirement
plans, special forms are required to receive distributions in cash.
TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
SHARE PRICE
When you buy shares, you pay the Offering Price. This is the Net Asset Value
per share of the class you wish to purchase, plus any applicable sales
charges. When you sell shares, you receive the Net Asset Value per share
minus any applicable Contingent Deferred Sales Charges.
The Net Asset Value we use when you buy or sell shares is the one next
calculated after we receive your transaction request in proper form. If you
buy or sell shares through your Securities Dealer, however, we will use the
Net Asset Value next calculated after your Securities Dealer receives your
request, which is promptly transmitted to the fund. Your redemption proceeds
will not earn interest between the time we receive the order from your dealer
and the time we receive any required documents.
HOW AND WHEN SHARES ARE PRICED
The funds are open for business each day the NYSE is open. We determine the
Net Asset Value per share of each class as of the close of the NYSE, normally
1:00 p.m. Pacific time. You can find the prior day's closing Net Asset Value
and Offering Price for each class in many newspapers.
The Net Asset Value of all outstanding shares of each class is calculated on
a pro rata basis. It is based on each class' proportionate participation in
the fund, determined by the value of the shares of each class. Each class,
however, bears the Rule 12b-1 fees payable under its Rule 12b-1 plan. To
calculate Net Asset Value per share of each class, the assets of each class
are valued and totaled, liabilities are subtracted, and the balance, called
net assets, is divided by the number of shares of the class outstanding. The
funds' assets are valued as described under "How Are Fund Shares Valued?" in
the SAI.
WRITTEN INSTRUCTIONS
Written instructions must be signed by all registered owners. To avoid any
delay in processing your transaction, they should include:
o Your name,
o The fund's name,
o The class of shares,
o A description of the request,
o For exchanges, the name of the fund you are exchanging into,
o Your account number,
o The dollar amount or number of shares, and
o A telephone number where we may reach you during the day, or in the
evening if preferred.
JOINT ACCOUNTS. For accounts with more than one registered owner, the fund
accepts written instructions signed by only one owner for transactions and
account changes that could otherwise be made by phone. For all other
transactions and changes, all registered owners must sign the instructions.
Please keep in mind that if you have previously told us that you do not want
telephone exchange or redemption privileges on your account, then we can only
accept written instructions to exchange or redeem shares if they are signed
by all registered owners on the account.
SIGNATURE GUARANTEES
For our mutual protection, we require a signature guarantee in the following
situations:
1) You wish to sell over $100,000 worth of shares,
2) You want the proceeds to be paid to someone other than the registered
owners,
3) The proceeds are not being sent to the address of record, preauthorized
bank account, or preauthorized brokerage firm account,
4) We receive instructions from an agent, not the registered owners,
5) We believe a signature guarantee would protect us against potential claims
based on the instructions received.
A signature guarantee verifies the authenticity of your signature. You should
be able to obtain a signature guarantee from a bank, broker, credit union,
savings association, clearing agency, or securities exchange or association.
A NOTARIZED SIGNATURE IS NOT SUFFICIENT.
SHARE CERTIFICATES
We will credit your shares to your fund account. We do not issue share
certificates unless you specifically request them. This eliminates the costly
problem of replacing lost, stolen or destroyed certificates. If a certificate
is lost, stolen or destroyed, you may have to pay an insurance premium of up
to 2% of the value of the certificate to replace it.
Any outstanding share certificates must be returned to the fund if you want
to sell or exchange those shares or if you would like to start a systematic
withdrawal plan. The certificates should be properly endorsed. You can do
this either by signing the back of the certificate or by completing a share
assignment form. For your protection, you may prefer to complete a share
assignment form and to send the certificate and assignment form in separate
envelopes.
TELEPHONE TRANSACTIONS
You may initiate many transactions and changes to your account by phone.
Please refer to the sections of this prospectus that discuss the transaction
you would like to make or call Shareholder Services.
When you call, we will request personal or other identifying information to
confirm that instructions are genuine. We may also record calls. If our lines
are busy or you are otherwise unable to reach us by phone, you may wish to
ask your investment representative for assistance or send us written
instructions, as described elsewhere in this prospectus.
For your protection, we may delay a transaction or not implement one if we
are not reasonably satisfied that the instructions are genuine. If this
occurs, we will not be liable for any loss. We also will not be liable for
any loss if we follow instructions by phone that we reasonably believe are
genuine or if you are unable to execute a transaction by phone.
ACCOUNT REGISTRATIONS AND REQUIRED DOCUMENTS
When you open an account, we need you to tell us how you want your shares
registered. How you register your account will affect your ownership rights
and ability to make certain transactions. If you have questions about how to
register your account, you should consult your investment representative or
legal advisor. Please keep the following information in mind when registering
your account.
JOINT OWNERSHIP. If you open an account with two or more owners, we register
the account as "joint tenants with rights of survivorship" unless you tell us
otherwise. An account registered as "joint tenants with rights of
survivorship" is shown as "Jt Ten" on your account statement. For any account
with two or more owners, we cannot accept instructions to change owners on
the account unless all owners agree in writing, even if the law in your state
says otherwise. If you would like another person or owner to sign for you,
please send us a current power of attorney.
GIFTS AND TRANSFERS TO MINORS. You may set up a custodial account for a minor
under your state's Uniform Gifts/Transfers to Minors Act. Other than this
form of registration, a minor may not be named as an account owner.
TRUSTS. You should register your account as a trust only if you have a valid
written trust document. This avoids future disputes or possible court action
over who owns the account.
REQUIRED DOCUMENTS. For corporate, partnership and trust accounts, please
send us the following documents when you open your account. This will help
avoid delays in processing your transactions while we verify who may sign on
the account.
TYPE OF ACCOUNT DOCUMENTS REQUIRED
- ------------------------------------------------------------------------------
CORPORATION Corporate Resolution
- ------------------------------------------------------------------------------
PARTNERSHIP 1. The pages from the partnership agreement
that identify the general partners, or
2. A certification for a partnership agreement
- ------------------------------------------------------------------------------
TRUST 1. The pages from the trust document that
identify the trustees, or
2. A certification for trust
- ------------------------------------------------------------------------------
STREET OR NOMINEE ACCOUNTS. If you have fund shares held in a "street" or
"nominee" name account with your Securities Dealer, you may transfer the
shares to the street or nominee name account of another Securities Dealer.
Both dealers must have an agreement with Distributors or we cannot process
the transfer. Contact your Securities Dealer to initiate the transfer. We
will process the transfer after we receive authorization in proper form from
your delivering Securities Dealer. Accounts may be transferred electronically
through the NSCC. For accounts registered in street or nominee name, we may
take instructions directly from the Securities Dealer or your nominee.
IMPORTANT INFORMATION IF YOU HAVE AN INVESTMENT REPRESENTATIVE
If there is a Securities Dealer or other representative of record on your
account, we are authorized: (1) to provide confirmations, account statements
and other information about your account directly to your dealer and/or
representative; and (2) to accept telephone and electronic instructions
directly from your dealer or representative, including instructions to
exchange or redeem your shares. Electronic instructions may be processed
through established electronic trading systems and programs used by the
funds. Telephone instructions directly from your representative will be
accepted unless you have told us that you do not want telephone privileges to
apply to your account.
KEEPING YOUR ACCOUNT OPEN
Due to the relatively high cost of maintaining a small account, we may close
your account if the value of your shares is less than $250, or less than $50
for employee accounts and custodial accounts for minors. We will only do this
if the value of your account fell below this amount because you voluntarily
sold your shares and your account has been inactive (except for the
reinvestment of distributions) for at least six months. Before we close your
account, we will notify you and give you 30 days to increase the value of
your account to $1,000, or $100 for employee accounts and custodial accounts
for minors. These minimums do not apply to IRAs and other retirement plan
accounts or to accounts managed by the Franklin Templeton Group.
SERVICES TO HELP YOU MANAGE YOUR ACCOUNT
AUTOMATIC INVESTMENT PLAN
Our automatic investment plan offers a convenient way to invest in the funds.
Under the plan, you can have money transferred automatically from your
checking or savings account to a fund each month to buy additional shares. If
you are interested in this program, please refer to the account application
included with this prospectus or contact your investment representative. The
market value of the funds' shares may fluctuate and a systematic investment
plan such as this will not assure a profit or protect against a loss. You may
discontinue the program at any time by calling Shareholder Services.
AUTOMATIC PAYROLL DEDUCTION - CLASS A ONLY
You may have money transferred from your paycheck to a fund to buy additional
Class A shares. Your investments will continue automatically until you
instruct the fund and your employer to discontinue the plan. To process your
investment, we must receive both the check and payroll deduction information
in required form. Due to different procedures used by employers to handle
payroll deductions, there may be a delay between the time of the payroll
deduction and the time we receive the money.
SYSTEMATIC WITHDRAWAL PLAN
Our systematic withdrawal plan allows you to sell your shares and receive
regular payments from your account on a monthly, quarterly, semiannual or
annual basis. The value of your account must be at least $5,000 and the
minimum payment amount for each withdrawal must be at least $50. For
retirement plans subject to mandatory distribution requirements, the $50
minimum will not apply.
If you would like to establish a systematic withdrawal plan, please complete
the systematic withdrawal plan section of the account application included
with this prospectus and indicate how you would like to receive your
payments. You may choose to direct your payments to buy the same class of
shares of another Franklin Templeton Fund or have the money sent directly to
you, to another person, or to a checking or savings account. If you choose to
have the money sent to a checking or savings account, please see "Electronic
Fund Transfers" below. Once your plan is established, any distributions paid
by the fund will be automatically reinvested in your account.
You will generally receive your payment by the end of the month in which a
payment is scheduled. When you sell your shares under a systematic withdrawal
plan, it is a taxable transaction.
To avoid paying sales charges on money you plan to withdraw within a short
period of time, you may not want to set up a systematic withdrawal plan if
you plan to buy shares on a regular basis. Shares sold 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 discontinue a systematic withdrawal plan, change the amount and
schedule of withdrawal payments, or suspend one payment by notifying us by
mail or by phone at least seven business days before the end of the month
preceding a scheduled payment. Please see "How Do I Buy, Sell and Exchange
Shares? - Systematic Withdrawal Plan" in the SAI for more information.
ELECTRONIC FUND TRANSFERS
You may choose to have dividend and capital gain distributions or payments
under a systematic withdrawal plan sent directly to a checking or savings
account. If the account is with 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. We will send any payments made during that time to the
address of record on your account.
TELEFACTS(R)
From a touch-tone phone, you may call our TeleFACTS system (day or night) at
1-800/247-1753 to:
o obtain information about your account;
o obtain price and performance information about any Franklin Templeton
Fund;
o exchange shares (within the same class) between identically registered
Franklin Templeton Class A, B or C accounts; and
o request duplicate statements and deposit slips for Franklin Templeton
accounts.
You will need the code number for each class to use TeleFACTS. The code
numbers are as follows:
CODE
NUMBER
- -------------------------------------------
California Fund - Class A 180
California Fund - Class B 380
California Fund - Class C 280
MidCap Fund 196
Blue Chip Fund 483
STATEMENTS AND REPORTS TO SHAREHOLDERS
We will send you the following statements and reports on a regular basis:
o Confirmation and account statements reflecting transactions in your
account, including additional purchases and dividend reinvestments. PLEASE
VERIFY THE ACCURACY OF YOUR STATEMENTS WHEN YOU RECEIVE THEM.
o Financial reports of the funds will be sent every six months. To reduce
fund expenses, we attempt to identify related shareholders within a
household and send only one copy of a report. Call Fund Information if you
would like an additional free copy of the funds' financial reports.
INSTITUTIONAL ACCOUNTS
Additional methods of buying, selling or exchanging shares of the funds may
be available to institutional accounts. Institutional investors may also be
required to complete an institutional account application. For more
information, call Institutional Services.
AVAILABILITY OF THESE SERVICES
The services above are available to most shareholders. If, however, your
shares are held by a financial institution, in a street name account, or
networked through the NSCC, the funds may not be able to offer these services
directly to you. Please contact your investment representative.
WHAT IF I HAVE QUESTIONS ABOUT MY ACCOUNT?
If you have any questions about your account, you may write to Investor
Services at 777 Mariners Island Blvd., P.O. Box 7777, San Mateo, California
94403-7777. The funds, Distributors and the manager are also located at this
address. You may also contact us by phone at one of the numbers listed below.
HOURS OF OPERATION (PACIFIC TIME)
DEPARTMENT NAME TELEPHONE NO. (MONDAY THROUGH FRIDAY)
- ------------------------------------------------------------------------------
Shareholder Services 1-800/632-2301 5:30 a.m. to 5:00 p.m.
Dealer Services 1-800/524-4040 5:30 a.m. to 5:00 p.m.
Fund Information 1-800/DIAL BEN 5:30 a.m. to 8:00 p.m.
(1-800/342-5236) 6:30 a.m. to 2:30 p.m.
(Saturday)
Retirement Plan Services 1-800/527-2020 5:30 a.m. to 5:00 p.m.
Institutional Services 1-800/321-8563 6:00 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 5:30 a.m. to 5:00 p.m.
Your phone call may be monitored or recorded to ensure we provide you with
high quality service. You will hear a regular beeping tone if your call is
being recorded.
GLOSSARY
USEFUL TERMS AND DEFINITIONS
BOARD - The Board of Trustees of the Trust
CD - Certificate of deposit
CLASS A, CLASS B AND CLASS C - The California Fund offers three classes of
shares, designated "Class A", "Class B" and "Class C." The three classes have
proportionate interests in the fund's portfolio. They differ, however,
primarily in their sales charge structures and Rule 12b-1 plans. Because the
MidCap Fund's and Blue Chip Fund's sales charge structures and Rule 12b-1
plans are similar to those of Class A shares, shares of these funds are
considered Class A shares for redemption, exchange and other purposes.
CODE - Internal Revenue Code of 1986, as amended
CONTINGENCY PERIOD - For Class A shares, the 12 month period during which a
Contingent Deferred Sales Charge may apply. The contingency period is six years
for Class B shares and 18 months for Class C shares. The holding period begins
on the day you buy your shares. For example, if you buy shares on the 18th of
the month, they will age one month on the 18th day of the next month and each
following month.
CONTINGENT DEFERRED SALES CHARGE (CDSC) - A sales charge of 1% that may apply
if you sell your Class A or C shares within the Contingency Period. For Class
B, the maximum CDSC is 4% and declines to 0% after six years.
DEPOSITARY RECEIPTS - Certificates that give their holders the right to
receive securities (a) of a foreign issuer deposited in a U.S. bank or trust
company (American Depositary Receipts, "ADRs"); or (b) of a foreign or U.S.
issuer deposited in a foreign bank or trust company (Global Depositary
Receipts, "GDRs" or European Depositary Receipts, "EDRs")
DISTRIBUTORS - Franklin/Templeton Distributors, Inc., the funds' principal
underwriter. The SAI lists the officers and Board members who are affiliated
with Distributors. See "Officers and Trustees."
ELIGIBLE GOVERNMENTAL AUTHORITY - Any state or local government or any
instrumentality, department, authority or agency thereof that has determined
a fund is a legally permissible investment and that can only buy shares of a
fund without paying sales charges.
FRANKLIN TEMPLETON FUNDS - The U.S. registered mutual funds in the Franklin
Group of Funds(R) and the Templeton Group of Funds except Franklin Valuemark
Funds, Templeton Capital Accumulator Fund, Inc., and Templeton Variable
Products Series Fund
FRANKLIN TEMPLETON GROUP - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries
FRANKLIN TEMPLETON GROUP OF FUNDS - All U.S. registered investment companies
in the Franklin Group of Funds(R) and the Templeton Group of Funds
FT SERVICES - Franklin Templeton Services, Inc., the funds' administrator
INVESTOR SERVICES - Franklin/Templeton Investor Services, Inc., the funds'
shareholder servicing and transfer agent
IRA - Individual retirement account or annuity qualified under section 408 of
the Code
IRS - Internal Revenue Service
LETTER - Letter of Intent
MARKET TIMERS - Market Timers generally include market timing or asset
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 or whose transactions include
frequent or large exchanges.
MOODY'S - Moody's Investors Service, Inc.
NET ASSET VALUE (NAV) - The value of a mutual fund is determined by deducting
the fund's liabilities from the total assets of the portfolio. The net asset
value per share is determined by dividing the net asset value of the fund by
the number of shares outstanding.
NSCC - National Securities Clearing Corporation
NYSE - New York Stock Exchange
OFFERING PRICE - The public offering price is based on the Net Asset Value
per share of the class and includes the front-end sales charge. The maximum
front-end sales charge is 5.75% for Class A and 1% for Class C. There is no
front-end sales charge for Class B. We calculate the offering price to two
decimal places using standard rounding criteria.
QUALIFIED RETIREMENT PLANS - An employer sponsored pension or profit-sharing
plan that qualifies under section 401 of the Code. Examples include 401(k),
money purchase pension, profit sharing and defined benefit plans.
RESOURCES - Franklin Resources, Inc.
SAI - Statement of Additional Information
S&P - Standard & Poor's Corporation
SEC - U.S. Securities and Exchange Commission
SECURITIES DEALER - A financial institution that, either directly or through
affiliates, has an agreement with Distributors to handle customer orders and
accounts with the funds. This reference is for convenience only and does not
indicate a legal conclusion of capacity.
SEP - An employer sponsored simplified employee pension plan established
under section 408(k) of the Code
SIMPLE (Savings Incentive Match Plan for Employees) - An employer sponsored
salary deferral plan established under section 408(p) of the Code
TELEFACTS(R) - Franklin Templeton's automated customer servicing system
WE/OUR/US - Unless the context indicates a different meaning, these terms
refer to the funds and/or Investor Services, Distributors, or other wholly
owned subsidiaries of Resources.
PROSPECTUS
FRANKLIN
STRATEGIC SERIES
SEPTEMBER 1, 1998 AS AMENDED JANUARY 1, 1999
INVESTMENT STRATEGY Franklin Biotechnology Discovery Fund - Class A
GROWTH
INVESTMENT STRATEGY Franklin Global Health Care Fund - Class A, B & C
GLOBAL GROWTH
INVESTMENT STRATEGY Franklin Global Utilities Fund - Class A, B & C
GLOBAL GROWTH
& INCOME
INVESTMENT STRATEGY Franklin Natural Resources Fund - Class A
GROWTH & INCOME
Please read this prospectus before investing, and keep it for future
reference. It contains important information, including how the funds invest
and the services available to shareholders.
This prospectus describes each fund's Class A shares and Class B and C shares
of the Health Care Fund and the Utilities Fund. The Natural Resources Fund
currently offers another share class with a different sales charge and
expense structure, which affects performance.
To learn more about each fund and its policies, you may request a copy of the
funds' Statement of Additional Information ("SAI"), dated September 1, 1998,
which we may amend from time to time. We have filed the SAI with the SEC and
have incorporated it by reference into this prospectus.
For a free copy of the SAI or a larger print version of this prospectus, or
to receive a free copy of the prospectus for the Natural Resources Fund's
other share class, contact your investment representative or call 1-800/DIAL
BEN.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE
U.S. GOVERNMENT. MUTUAL FUND SHARES INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
LIKE ALL MUTUAL FUND SHARES, THE SEC HAS NOT APPROVED OR DISAP-
PROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PRO-
SPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
FRANKLIN STRATEGIC SERIES
THIS PROSPECTUS IS NOT AN OFFERING OF THE SECURITIES HEREIN DESCRIBED IN ANY
STATE, JURISDICTION OR COUNTRY IN WHICH THE OFFERING IS NOT AUTHORIZED. NO
SALES REPRESENTATIVE, DEALER, OR OTHER PERSON IS AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS. FURTHER INFORMATION MAY BE OBTAINED FROM DISTRIBUTORS.
FRANKLIN STRATEGIC SERIES
TABLE OF CONTENTS
ABOUT THE FUND
Expense Summary ..................................................... 2
Financial Highlights ................................................ 4
How Do the Funds Invest Their Assets? ............................... 9
What Are the Risks of Investing in the Funds? ....................... 15
Who Manages the Funds? .............................................. 21
How Taxation Affects the Funds and Their Shareholders ............... 26
How Is the Trust Organized? ......................................... 29
ABOUT YOUR ACCOUNT
How Do I Buy Shares? ................................................ 30
May I Exchange Shares for Shares of Another Fund? ................... 39
How Do I Sell Shares? ............................................... 42
What Distributions Might I Receive From the Funds? .................. 45
Transaction Procedures and Special Requirements ..................... 46
Services to Help You Manage Your Account ............................ 50
What If I Have Questions About My Account? .......................... 53
GLOSSARY
Useful Terms and Definitions ........................................ 54
FRANKLIN
STRATEGIC
SERIES
September 1, 1998
as amended January 1, 1999
When reading this prospectus, you will see certain terms beginning with capital
letters. This means the term is explained in our glossary section.
777 Mariners Island Blvd.
P.O. Box 7777
San Mateo
CA 94403-7777
1-800/DIAL BEN(R)
Franklin Strategic Series
ABOUT THE FUND
EXPENSE SUMMARY
This table is designed to help you understand the costs of investing in a
fund. It is based on each fund's historical expenses for the fiscal year
ended April 30, 1998. Each fund's actual expenses may vary.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
HEALTH HEALTH HEALTH NATURAL UTILITIES UTILITIES UTILITIES
BIOTECHNOLOGY CARE FUND - CARE FUND - CARE FUND - RESOURCES FUND - FUND - FUND -
FUND CLASS A1 CLASS B2 CLASS C1 FUND - CLASS A1 CLASS A1 CLASS B2 CLASS C1
- -------------------------------------------------------------------------------------------------------------------------
A. SHAREHOLDER TRANSACTION EXPENSES3
Maximum Sales Charge
(as a percentage of
Offering Price) 5.75% 5.75% 4.00% 1.99% 5.75% 5.75% 4.00% 1.99%
Paid at time of purchase4 5.75% 5.75% None 1.00% 5.75% 5.75% None 1.00%
Paid at redemption5 None None 4.00% 0.99% None None 4.00% 0.99%
Exchange Fee
(per transaction) None None None None None6 None None None
B. ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.63%7 0.56% 0.56% 0.56% 0.62%7 0.56% 0.56% 0.56%
Rule 12b-1 Fees8 0.34% 0.25% 1.00% 1.00% 0.32% 0.25% 1.00% 1.00%
Other Expenses 0.64% 0.34% 0.34% 0.34% 0.37% 0.22% 0.22% 0.22%
----------------------------------------------------------------------------------------------
Total Fund
Operating Expenses 1.61%7 1.15% 1.90% 1.90% 1.31%7 1.03% 1.78% 1.78%
==============================================================================================
</TABLE>
C. EXAMPLE
Assume the annual return for each class is 5%, operating expenses are
as described above, and you sell your shares after the number of years
shown. These are the projected expenses for each $10,000 that you
invest in a fund.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------------------------------------------
BIOTECHNOLOGY FUND $729 9 $1,054 $1,401 $2,376
HEALTH CARE FUND -
CLASS A $685 9 $ 919 $1,172 $1,892
HEALTH CARE FUND - CLASS B
Assuming you sold your
shares at the end of
the period $593 $897 $1,226 $2,027 10
Assuming you stayed in
the fund $193 $597 $1,026 $2,027 10
HEALTH CARE FUND -
CLASS C $389 11 $691 $1,116 $2,300
NATURAL RESOURCES FUND -
CLASS A $701 9 $966 $1,252 $2,063
UTILITIES FUND -
CLASS A $674 9 $884 $1,111 $1,762
UTILITIES FUND -
CLASS B
Assuming you sold your
shares at the end of
the period $581 $860 $1,164 $1,897 10
Assuming you stayed
in the fund $181 $560 $964 $1,897 10
UTILITIES FUND -
CLASS C $377 11 $655 $1,055 $2,174
THIS IS JUST AN EXAMPLE. IT DOES NOT REPRESENT PAST OR FUTURE EXPENSES OR
RETURNS. ACTUAL EXPENSES AND RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN.
Each fund pays its operating expenses. The effects of these expenses are
reflected in the Net Asset Value or dividends of each class and are not
directly charged to your account.
1. Before January 1, 1999, Class A shares were designated Class I and Class C
shares were designated Class II. The Biotechnology Fund began offering shares
on September 15, 1997. Annual fund operating expenses for the Biotechnology
Fund are annualized.
2. The fund began offering Class B shares on January 1, 1999. Annual fund
operating expenses are based on the expenses for Class A and C for the fiscal
year ended April 30, 1998. The Rule 12b-1 fees are based on the maximum fees
allowed under Class B's Rule 12b-1 plan.
3. If your transaction is processed through your Securities Dealer, you may
be charged a fee by your Securities Dealer for this service.
4. There is no front-end sales charge if you invest $1 million or more in
Class A shares. Although Class B and C have a lower front-end sales charge
than Class A, their Rule 12b-1 fees are higher. Over time you may pay more
for Class B and C shares. Please see "How Do I Buy Shares? - Choosing a Share
Class."
5. A Contingent Deferred Sales Charge of 1% may apply to Class A purchases of
$1 million or more if you sell the shares within one year and to any Class C
purchase if you sell the shares within 18 months. A Contingent Deferred Sales
Charge of up to 4% may apply to any Class B purchase if you sell the shares
within six years. A Contingent Deferred Sales Charge may also apply to
purchases by certain retirement plans that qualify to buy Class A shares
without a front-end sales charge. The charge is based on the value of the
shares sold or the Net Asset Value at the time of purchase, whichever is
less. The number in the table shows the charge as a percentage of Offering
Price. While the percentage for Class C is different depending on whether the
charge is shown based on the Net Asset Value or the Offering Price, the
dollar amount you would pay is the same. See "How Do I Sell Shares? -
Contingent Deferred Sales Charge" for details.
6. There is a $5 fee for exchanges by Market Timers.
7. For the period shown, the manager had agreed in advance to limit its
management fees. With this reduction, management fees were 0.52% for the
Biotechnology Fund and 0.27% for the Natural Resources Fund and total fund
operating expenses were 1.50% for the Biotechnology Fund and 0.96% for the
Natural Resources Fund.
8. The Rule 12b-1 fees for the Biotechnology Fund have been annualized. These
fees may not exceed 0.35% for the Biotechnology Fund and the Natural
Resources Fund, 0.25% for the Health Care Fund - Class A and the Utilities
Fund - Class A, and 1.00% for the Health Care Fund - Class B and C and the
Utilities Fund - Class B and C. The actual 12b-1 fees for the period
September 15, 1997 through April 30, 1998, were 0.21%. 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 charge permitted under the rules of the National Association
of Securities Dealers, Inc.
9. Assumes a Contingent Deferred Sales Charge will not apply.
10. Assumes conversion of Class B shares to Class A shares after eight years,
lowering your annual expenses from that time on.
11. For the same Class C investment, you would pay projected expenses of $291
for the Health Care Fund and $279 for the Utilities Fund if you did not sell
your shares at the end of the first year. Your projected expenses for the
remaining periods would be the same.
FINANCIAL HIGHLIGHTS
This table summarizes each fund's financial history. The information has been
audited by PricewaterhouseCoopers LLP, the funds' independent auditor. The
audit report covering each of the most recent five years appears in the
Trust's Annual Report to Shareholders for the fiscal year ended April 30,
1998. The Annual Report to Shareholders also includes more information about
each fund's performance. For a free copy, please call Fund Information.
BIOTECHNOLOGY FUND
YEAR ENDED APRIL 30,
19981
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year $25.00
-------
Income from investment operations:
Net investment loss (.05)
Net realized and unrealized gains 1.99
-------
Total from investment operations 1.94
-------
Less distributions from:
Net realized gains (.05)
-------
Net asset value, end of year $26.89
=======
Total return* 7.78%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $73,546
Ratios to average net assets:
Expenses 1.50%***
Expenses excluding waiver and payments
by affiliate 1.61%***
Net investment loss (.44%)***
Portfolio turnover rate 75.50%
Average commission rate paid** $.0339
HEALTH CARE FUND
CLASS A
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
1998 1997 1996 1995 1994 1993 19922
-----------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the year)
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $16.11 $19.34 $11.45 $10.43 $8.88 $8.84 $10.00
------------------------------------------------------
Income from investment operations:
Net investment income (loss) (.14) (.06) .11 .08 .07 .09 .02
Net realized and unrealized gains
(losses) 4.58 (2.75) 8.96 1.56 1.86 .04 (1.18)
-----------------------------------------------------
Total from investment operations 4.44 (2.81) 9.07 1.64 1.93 .13 (1.16)
-----------------------------------------------------
Less distributions from:
Net investment income (.09) (.04) (.13) (.06) (.08) (.09) -
Net realized gains (1.18) (.38) (1.05) (.56) (.30) - -
------------------------------------------------------
Total distributions (1.27) (.42) (1.18) (.62) (.38) (.09) -
------------------------------------------------------
Net asset value, end of year $19.28 $16.11 $19.34 $11.45 $10.43 $8.88 $8.84
======================================================
Total return* 28.22%(14.71%) 82.78% 16.33% 21.93% 1.41% (55.14%)***
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $176,545 $150,653 $108,914 $12,906 $5,795 $3,422 $1,368
Ratios to average net assets:
Expenses 1.15% 1.14% .73% .25% .10% - -
Expenses excluding waiver and payments
by affiliate 1.15% 1.14% 1.16% 1.37% 1.74% 2.16% 1.62%
Net investment income (loss) (.67%) (.39%) .50% .80% .68% 1.13% 1.68%***
Portfolio turnover rate 66.84% 73.17% 54.78% 93.79% 110.82% 62.74% 41.01%
Average commission rate paid** $.0358 $.0368 $.0709 - - - -
</TABLE>
CLASS C
YEAR ENDED APRIL 30,
1998 19973
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the year)
Net asset value, beginning of year $16.07 $17.37
------------------
Income from investment operations:
Net investment loss (.20) (.07)
Net realized and unrealized gains
(losses) 4.48 (.85)
-----------------
Total from investment operations 4.28 (.92)
-----------------
Less distributions from:
Net realized gains (1.18) (.38)
-----------------
Net asset value, end of year $19.17 $16.07
==================
Total return* 27.22% (5.47%)
Ratios/supplemental data
Net assets, end of year (000's) $25,321 $10,099
Ratios to average net assets:
Expenses 1.90% 1.92%***
Net investment loss (1.44%) (1.29%)***
Portfolio turnover rate 66.84% 73.17%
Average commission rate paid** $.0358 $.0368
Natural Resources Fund
YEAR ENDED APRIL 30,
1998 1997 19964
-----------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the year)
Net asset value, beginning of year $14.07 $13.14 10.00
---------------------------
Income from investment operations:
Net investment income
.10 .09 .08
Net realized and unrealized gains 2.26 1.25 3.22
-------------------------
Total from investment operations 2.36 1.34 3.30
-------------------------
Less distributions from:
Net investment income (.09) (.09) (.06)
Net realized gains (.88) (.32) (.10)
--------------------------
Total distributions (.97) (.41) (.16)
--------------------------
Net asset value, end of year $15.46 $14.07 $13.14
===========================
Total return* 17.57% 10.23% 33.36%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $62,274 $45,386 $9,909
Ratios to average net assets:
Expenses .96% .98% .99%***
Expenses excluding waiver and
payments by affiliate 1.31% 1.31% 1.77%***
Net investment income .67% .72% 1.16%***
Portfolio turnover rate 72.93% 46.31% 59.04%
Average commission rate paid** $.0305 $.0331 $.0517
UTILITIES FUND
<TABLE>
<CAPTION>
CLASS A
YEAR ENDED APRIL 30,
1998 1997 1996 1995 1994 19935
---------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the year)
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $14.46 $14.28 $12.23 $12.60 $11.36 $10.00
---------------------------------------------------
Income from investment operations:
Net investment income .33 .42 .37 .42 .30 .22
Net realized and unrealized gains
(losses) 4.69 1.35 2.39 (.07) 1.28 1.27
---------------------------------------------------
Total from investment operations 5.02 1.77 2.76 .35 1.58 1.49
---------------------------------------------------
Less distributions from:
Net investment income (.37) (.38) (.39) (.36) (.30) (.13)
Net realized gains (1.75) (1.21) (.32) (.36) (.04) -
----------------------------------------------------
Total distributions (2.12) (1.59) (.71) (.72) (.34) (.13)
----------------------------------------------------
Net asset value, end of year $17.36 $14.46 $14.28 $12.23 $12.60 $11.36
=====================================================
Total return* 37.02% 12.94% 23.27% 3.17% 14.04% 18.08%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $226,594 $174,023 $167,225 $119,250 $124,188 $14,227
Ratios to average net assets:
Expenses 1.03% 1.00% 1.04% 1.12% .84% -
Expenses excluding waiver and
payments by affiliate 1.03% 1.00% 1.04% 1.12% 1.28% 1.51%***
Net investment income 2.02% 2.82% 2.85 3.47% 2.95% 3.89%***
Portfolio turnover rate 45.51 47.55% 50.51 16.65% 16.28% -
Average commission rate paid** $.0277 $.0150 $.0313 - - -
UTILITIES FUND
</TABLE>
CLASS C
YEAR ENDED APRIL 30,
1998 1997 1996
--------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year $14.37 $14.24 $12.23
------------------------
Income from investment operations:
Net investment income .24 .32 .37
Net realized and unrealized gains 4.66 1.33 2.32
-------------------------
Total from investment operations 4.90 1.65 2.69
-------------------------
Less distributions from:
Net investment income (.27) (.31) (.36)
Net realized gains (1.75) (1.21) (.32)
--------------------------
Total distributions (2.02) (1.52) (.68)
Net asset value, end of year $17.25 $14.37 $14.24
===========================
Total return* 36.21% 12.04% 22.63%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $16,324 $8,467 $2,727
Ratios to average net assets:
Expenses 1.78% 1.77% 1.81%
Net investment income 1.29% 1.98% 2.10%
Portfolio turnover rate 45.51% 47.55% 50.51%
Average commission rate paid** $.0277 $.0150 $.0313
1FOR THE PERIOD SEPTEMBER 15, 1997 (EFFECTIVE DATE) TO APRIL 30, 1998.
2FOR THE PERIOD FEBRUARY 14, 1992 (EFFECTIVE DATE) TO APRIL 30, 1992.
3FOR THE PERIOD SEPTEMBER 3, 1996 (EFFECTIVE DATE) TO APRIL 30, 1997.
4FOR THE PERIOD JUNE 5, 1995 (EFFECTIVE DATE) TO APRIL 30, 1996.
5FOR THE PERIOD JULY 2, 1992 (EFFECTIVE DATE) TO APRIL 30, 1993.
*TOTAL RETURN DOES NOT REFLECT SALES COMMISSIONS OR THE CONTINGENT DEFERRED
SALES CHARGE, AND IS NOT ANNUALIZED EXCEPT WHERE INDICATED. PRIOR TO MAY 1,
1994, DIVIDENDS FROM NET INVESTMENT INCOME FOR THE HEALTH CARE AND UTILITIES
FUNDS WERE REINVESTED AT THE OFFERING PRICE.
**RELATES TO PURCHASES AND SALES OF EQUITY SECURITIES. PRIOR TO FISCAL YEAR
END 1996 DISCLOSURE OF AVERAGE COMMISSION RATE WAS NOT REQUIRED.
***ANNUALIZED.
HOW DO THE FUNDS INVEST THEIR ASSETS?
WHAT ARE THE FUNDS' GOALS?
The investment goal of the BIOTECHNOLOGY FUND is to seek capital appreciation
by investing primarily in securities of biotechnology companies and discovery
research firms located in the U.S. and other countries.
The investment goal of the HEALTH CARE FUND is to seek capital appreciation
by investing primarily in the equity securities of health care companies
located throughout the world. The Health Care Fund will seek to invest in
companies that have, in the opinion of the manager, the potential for above
average growth in revenues and/or earnings.
The investment goal of the NATURAL RESOURCES FUNd is to seek to provide high
total return. The Natural Resources Fund's total return consists of both
capital appreciation and current dividend and interest income.
The investment goal of the UTILITIES FUND is to seek to provide total return,
without incurring undue risk, by investing at least 65% of its total assets
in securities issued by companies that are, in the opinion of the manager,
primarily engaged in the ownership or operation of facilities used to
generate, transmit or distribute electricity, telephone communications, cable
and other pay television services, wireless telecommunications, gas or water.
Total return consists of both capital appreciation and current dividend and
interest income.
These goals are fundamental, which means that they may not be changed without
shareholder approval.
WHAT KINDS OF SECURITIES DO THE FUNDS BUY?
The BIOTECHNOLOGY FUND invests at least 65% of its assets in equity
securities of biotechnology companies. The Biotechnology Fund may also invest
up to 35% of its assets in debt securities of any type of foreign or U.S.
issuer.
When the Biotechnology Fund's assets total $150 million, no new accounts,
other than retirement plan accounts, will be accepted. If you are a
shareholder of record at that time, you will be able to continue to add to
your existing account through new purchases, including purchases through
reinvestment of dividends or capital gains distributions. The Biotechnology
Fund reserves the right to modify this policy at any time.
The HEALTH CARE FUND invests at least 70% of its total assets in the equity
securities of U.S. and foreign health care companies. The Health Care Fund
may invest a substantial portion of its assets in smaller capitalization
companies, which are generally companies with a market capitalization of less
than $1 billion at the time of the fund's investment. The Health Care Fund
may also invest up to 30% of its assets in domestic and foreign debt
securities.
The NATURAL RESOURCES FUND tries to achieve its goal by investing at least
65% of its assets in the equity and debt securities of U.S. and foreign
companies in the natural resources sector. The Natural Resources Fund may
also invest up to 35% of its assets outside the natural resources sector,
including in U.S. and foreign equity and debt securities and real estate
investment trusts ("REITs").
The UTILITIES FUND tries to achieve its goal by investing at least 65% of its
total assets in the equity and debt securities of U.S. and foreign companies
in the utilities industries. The Utilities Fund may invest up to 35% of its
assets in securities of U.S. and foreign issuers outside the utilities
industries.
EQUITY SECURITIES generally entitle the holder to participate in a company's
general operating results. These include common stock, preferred stock,
convertible securities, warrants, and rights.
Each fund may invest in common stock, preferred stock, and convertible
securities. The Biotechnology Fund and the Health Care Fund may also invest
in warrants and rights.
DEBT SECURITIES represent an obligation of the issuer to repay a loan of
money to it, and generally, provide for the payment of interest. These
include bonds, notes, debentures, and commercial paper.
The funds may buy both rated and unrated debt securities. Independent rating
organizations rate debt securities based upon their assessment of the
financial soundness of the issuer. Generally, a lower rating indicates higher
risk. Securities rated BBB by S&P or Baa by Moody's or better are considered
to be investment grade.
The Biotechnology Fund generally buys debt securities that are rated
investment grade or unrated securities that it determines to be of comparable
quality. The Biotechnology Fund intends to invest less than 5% in debt
securities rated below investment grade.
The Health Care Fund may buy debt securities that are rated B by Moody's or
S&P or better, or unrated debt that it determines to be of comparable
quality. At present, the Health Care Fund intends to invest less than 5% in
debt securities considered to be below investment grade.
The Natural Resources Fund may buy debt securities that are rated B by
Moody's or S&P or better, or unrated debt that it determines to be of
comparable quality. The Natural Resources Fund will not invest more than 15%
of its total assets in lower-rated securities (rated lower than BB by S&P or
Ba by Moody's) and unrated securities of comparable quality.
The Utilities Fund may buy debt securities that are rated Caa by Moody's or
CCC by S&P or better, or unrated debt that it determines to be of comparable
quality. The Utilities Fund will not invest more than 5% of its total assets
in non-investment grade securities.
The Natural Resources Fund and the Utilities Fund will only buy commercial
paper rated A-1 or A-2 by S&P or Prime-1 or Prime-2 by Moody's, or unrated
commercial paper that it determines to be of comparable quality.
BIOTECHNOLOGY COMPANIES. A biotechnology company has at least 50% of its
earnings derived from biotechnology activities, or at least 50% of its assets
devoted to such activities, based on the company's most recent fiscal year.
Biotechnology activities are research, development, manufacture, and
distribution of various biotechnological or biomedical products, services,
and processes. This may include companies involved with genomics, genetic
engineering, and gene therapy. It also includes companies involved in the
application and development of biotechnology in areas such as healthcare,
pharmaceuticals, and agriculture.
HEALTH CARE COMPANIES. A health care company is one that derives at least 50%
of its earnings or revenues from health care activities, or has devoted at
least 50% of its assets to such activities, based on the company's most
recent fiscal year. Health care activities include research, development,
production, or distribution of products and services in industries such as
pharmaceutical, biotechnology, health care facilities, medical supplies,
medical technology, managed care companies, health care related information
systems, and personal health care products. The manager believes that a
portfolio of global securities may provide a greater potential for investment
participation in present and future opportunities that may present themselves
in the health care related industries.
THE NATURAL RESOURCES SECTOR includes companies that own, produce, refine,
process, and market natural resources and companies that provide related
services. The sector includes the following industries: integrated oil, oil
and gas exploration and production, gold and precious metals, steel and iron
ore production, aluminum production, forest products, farming products, paper
products, chemicals, building materials, energy services and technology, and
environmental services.
THE UTILITIES INDUSTRIES include companies primarily engaged in the
ownership, operation, or manufacture of facilities used to provide
electricity, telephone communications, cable and other pay television
services, wireless telecommunications, gas, or water.
GOVERNMENT SECURITIES. The Natural Resources Fund and the Utilities Fund may
invest in Treasury bills, notes and bonds, which are direct obligations of
the U.S. government, backed by the full faith and credit of the U.S.
Treasury, and in securities issued or guaranteed by federal agencies. These
funds may also invest in securities issued or guaranteed by foreign
governments and their agencies.
DEPOSITARY RECEIPTS. Each fund may invest in American Depositary Receipts,
and the Biotechnology Fund, the Health Care Fund, and the Utilities Fund may
also invest in European and Global Depositary Receipts. Depositary Receipts
are certificates typically issued by a bank or trust company that give their
holders the right to receive securities issued by a foreign or domestic
corporation.
CONVERTIBLE SECURITIES. Each fund may invest in convertible securities, and
the Utilities Fund may invest in enhanced convertible securities. A
convertible security generally is a preferred stock or debt security that
pays dividends or interest and may be converted into common stock.
GENERAL. The Biotechnology Fund anticipates that under normal conditions, it
will invest more of its assets in U.S. securities than in securities of any
other single country, although the fund may have more than 50% of its total
assets in foreign securities. The fund may buy securities of issuers in
developing nations, but it has no present intention of doing so. The
Biotechnology Fund will not invest in securities of foreign issuers that are
issued without stock certificates or other evidences of ownership. The
Biotechnology Fund may invest in securities that are traded on U.S. or
foreign securities exchanges, the National Association of Securities Dealers
Automated Quotation System ("NASDAQ") national market system, or in the U.S.
or foreign over-the-counter markets.
The Health Care Fund invests 70% of its assets in securities of issuers in at
least three different countries. The Health Care Fund will not invest more
than 40% of its net assets in any one country other than the U.S. The Health
Care Fund expects that from time to time a significant portion of its
investments will be in securities of domestic issuers. When the manager
believes that no attractive investment opportunities exist, the Health Care
Fund may maintain a significant portion of its assets in cash. The Health
Care Fund will not invest in securities of foreign issuers without stock
certificates or comparable evidence of ownership.
The Natural Resources Fund may invest up to 10% of its assets in REITs. The
Natural Resources Fund expects to invest more of its assets in U.S.
securities than in securities of any other single country, but the fund may
invest more than 50% of its total assets in foreign securities.
The Utilities Fund normally invests at least 65% of its total assets in
issuers in at least three different countries. The Utilities Fund expects to
invest more of its assets in U.S. securities than in securities of any other
single country, but the fund may invest more than 65% of its total assets in
foreign securities. The Utilities Fund will limit its investments in Russian
securities to 5% of its total assets.
Please see the SAI for more details on the types of securities in which the
funds invest.
WHAT ARE SOME OF THE FUNDS' OTHER INVESTMENT STRATEGIES AND PRACTICES?
TEMPORARY INVESTMENTS. Each fund may invest its cash temporarily in
short-term debt instruments, including U.S. government securities, CDs,
high-grade commercial paper, repurchase agreements, and other money market
equivalents, and the shares of money market funds managed by the manager that
invest primarily in short-term debt securities. The funds will make these
temporary investments with cash they hold to maintain liquidity or pending
investment. In the event of a general decline in the market prices of stocks
in which a fund invests, or when the manager anticipates such a decline, the
fund may invest its portfolio in a temporary defensive manner. Under such
circumstances, a fund may invest up to 100% of its assets in short-term debt
instruments.
REPURCHASE AGREEMENTS. Each fund will generally have a portion of its assets
in cash or cash equivalents for a variety of reasons including waiting for a
special investment opportunity or taking a defensive position. To earn income
on this portion of its assets, each fund may enter into repurchase agreements
with certain banks and broker-dealers. Under a repurchase agreement, a fund
agrees to buy a U.S. government security from one of these issuers and then
to sell the security back to the issuer after a short period of time
(generally, less than seven days) at a higher price. The bank or
broker-dealer must transfer to the fund's custodian securities with an
initial value of at least 102% of the dollar amount invested by the fund in
each repurchase agreement.
The Biotechnology Fund may also invest in tri-party repurchase agreements. In
a tri-party repurchase agreement, the security is maintained at the bank or
broker-dealer's custodian bank, as opposed to being transferred to and
maintained at the fund's custodian.
The funds may also enter into reverse repurchase agreements. Under a reverse
repurchase agreement, a fund agrees to sell a security in its portfolio and
then to repurchase the security at an agreed-upon price, date, and interest
payment. The fund will maintain cash or high-grade liquid debt securities
with a value equal to the value of the fund's obligation under the agreement,
including accrued interest, in a segregated account with the fund's custodian
bank. The securities subject to the reverse repurchase agreement will be
marked-to-market daily.
HEDGING TRANSACTIONS. Hedging is a technique designed to reduce a potential
loss to the fund as a result of certain economic or market risks, including
risks related to fluctuations in interest rates, currency exchange rates
between U.S. and foreign currencies or between different foreign currencies,
and broad or specific market movements. The funds may use various hedging
strategies, which are discussed in the SAI. Many mutual funds and other
institutional investors also use these strategies. When pursuing these
hedging strategies, the funds may engage in the following types of
transactions:
o options on securities, securities indices, and other financial instruments
(all funds except the Natural Resources Fund)
o futures contracts and options on futures contracts (all funds except the
Natural Resources Fund)
o currency transactions, including currency forward contracts, currency
futures contracts, options on currencies, and options on currency futures
(all funds)
The Biotechnology Fund may also use these hedging transactions to produce
income to the fund or to bet on the fluctuation of certain indices,
currencies, or economic or market changes such as a reduction in interest
rates. The Biotechnology Fund will not expose more than 5% of its assets to
the risks of these instruments when it uses them for non-hedging purposes.
SECURITIES LENDING. To generate additional income, each fund may lend its
portfolio securities to qualified securities dealers or other institutional
investors. Such loans may not exceed one third of the value of the
Biotechnology Fund's total assets, 20% of the Health Care Fund's total
assets, 33% of the value of the Natural Resources Fund's total assets, or one
third of the Utilities Fund's total assets, measured at the time of the most
recent loan. For each loan, the borrower must maintain collateral with a
value at least equal to 100% of the current market value of the loaned
securities.
BORROWING. The funds do not borrow money or mortgage or pledge any of their
assets, except that each fund may enter into reverse repurchase agreements or
borrow for temporary or emergency purposes up to a specified limit. This
limit is 331/3% of total assets for the Biotechnology Fund, 10% of total
assets for the Health Care Fund, and 33% of total assets for the Natural
Resources Fund and the Utilities Fund. A fund will not make any additional
investments while its borrowings exceed 5% of its total assets.
SHORT SALES. The Biotechnology Fund may engage in two types of short sale
transactions, "naked short sales" and "short sales against the box." In a
naked short sale transaction, the fund sells a security that it does not own
to a purchaser at a specified price. In order to complete the short sale
transaction, the fund must (1) borrow the security to deliver the security to
the purchaser, and (2) buy the same security in the market in order to return
it to the borrower. In buying the security to replace the borrowed security,
the fund expects to buy the security in the market for less than the amount
it earned on the short sale, thereby yielding a profit. No securities will be
sold short if, after the sale, the total market value of all the
Biotechnology Fund's open naked short positions would exceed 50% of its
assets.
The Biotechnology Fund may also sell securities "short against the box"
without limit. In a short sale against the box, the fund actually holds in
its portfolio the securities which it has sold short. In replacing the
borrowed securities in the transaction, the fund may either buy securities in
the open market or use those in its portfolio. See "Short-Selling" in the SAI
for more discussion of these practices.
PRIVATE INVESTMENTS. Consistent with their respective investment goals and
policies, the Health Care Fund and the Biotechnology Fund may from time to
time make private investments in companies whose securities are not publicly
traded. These investments typically will take the form of letter stock or
convertible preferred stock. Because these securities are not publicly
traded, there is no secondary market for the securities. The Health Care Fund
and the Biotechnology Fund will treat these securities as illiquid.
ILLIQUID INVESTMENTS. Each fund's policy is not to invest more than 15% of
its net assets (10% in the case of the Health Care Fund) in illiquid
securities. Illiquid securities are generally securities that cannot be sold
within seven days in the normal course of business at approximately the
amount at which the fund has valued them.
OTHER POLICIES AND RESTRICTIONS. Each fund has a number of additional
investment policies and restrictions that govern its activities. Those that
are identified as "fundamental" may only be changed with shareholder
approval. The others may be changed by the Board alone. For a list of these
restrictions and more information about the funds' investment policies,
including those described above, please see "How Do the Funds Invest Their
Assets?" and "Investment Restrictions" in the SAI.
Generally, the policies and restrictions discussed in this prospectus and in
the SAI apply when a fund makes an investment. In most cases, a fund is not
required to sell a security because circumstances change and the security no
longer meets one or more of the fund's policies or restrictions.
TAX CONSIDERATIONS. Each fund's investments in options, futures, foreign
securities and other complex securities are subject to special tax rules that
may affect the amount, timing or character of the income earned by the fund
and distributed to you. Each fund may also be subject to withholding taxes on
earnings from certain of its foreign securities. These special tax rules are
discussed in the "Additional Information on Distributions and Taxes" section
of the SAI.
WHAT ARE THE RISKS OF INVESTING IN THE FUNDS?
There is no assurance that the funds will meet their investment goals.
The value of your shares will increase as the value of the securities owned
by the fund increases and will decrease as the value of the fund's
investments decrease. In this way, you participate in any change in the value
of the securities owned by the fund. In addition to the factors that affect
the value of any particular security that a fund owns, the value of fund
shares may also change with movements in the stock and bond markets as a
whole.
BIOTECHNOLOGY INDUSTRY RISK. The biotechnology industry is subject to
extensive government regulation. The industry will be affected by government
regulatory requirements, regulatory approval for new drugs and medical
products, patent considerations, product liability, and similar matters. For
example, in the past several years, the U.S. Congress has considered
legislation concerning healthcare reform and changes to the U.S. Food and
Drug Administration's ("FDA") approval process. If such legislation is passed
it may affect the biotechnology industry. As these factors impact the
biotechnology industry, the value of your shares may fluctuate significantly
over relatively short periods of time.
Because the biotechnology industry is relatively new, investors may be quick
to react to developments that affect the industry. In the past, biotechnology
securities have exhibited considerable volatility in reaction to research and
other developments. In comparison to more developed industries, there may be
a thin trading market in biotechnology securities, and adverse developments
in the biotechnology industry may be more likely to result in decreases in
the value of biotechnology stocks.
Biotechnology companies are often small, start-up ventures whose products are
only in the research stage. Only a limited number of biotechnology companies
have reached the point of approval of products by the FDA and subsequent
commercial production and distribution of such products. Therefore, the
success of investments in the biotechnology industry is often based upon
speculation and expectations about future products, research progress, and
new product filings with regulatory authorities. Such investments are
speculative and may drop sharply in value in response to regulatory or
research setbacks.
HEALTH CARE INDUSTRY RISK. The activities of health care companies may be
funded or subsidized by federal and state governments. If government
subsidies are discontinued, the profitability of these companies could be
adversely affected. Stocks held by the Health Care Fund will be affected by
government policies on health care reimbursements, regulatory approval for
new drugs and medical instruments, and similar matters. Health care companies
are also subject to legislative risk, which is the risk of a reform of the
health care system through legislation. Health care companies may face
lawsuits related to product liability issues. Also, many products and
services provided by health care companies are subject to rapid obsolescence.
The value of an investment in the Health Care Fund may fluctuate
significantly over relatively short periods of time.
NATURAL RESOURCES SECTOR RISK. The securities of companies in the natural
resources sector may experience more price volatility than securities of
companies in other industries. Some of the commodities in these industries
are subject to limited pricing flexibility because of similar supply and
demand factors. Others are subject to more broad price fluctuations as a
result of the volatility of the prices for certain raw materials and the
instability of supplies of other materials. These factors can affect the
profitability of companies in the natural resources sector and, as a result,
the value of their securities.
UTILITIES INDUSTRY RISK. Utility companies are generally subject to
substantial regulations. While regulations may cause certain companies to
develop more profitable opportunities, others may be forced to defend their
core businesses and may be less profitable.
Electric utilities have historically been subject to the risks associated
with increases in fuel and other operating costs, high interest costs on
borrowings, costs associated with compliance with environmental, nuclear
facility, and other safety regulations, and changes in the regulatory
climate. Increased scrutiny of electric utilities may result in higher costs
and higher capital expenditures, with the risk that regulators may not allow
these costs to be included in rate authorizations.
Increasing competition due to past regulatory changes in the telephone
communications industry continues and, whereas certain companies have
benefited, many companies may be adversely affected in the future.
The cable television industry is regulated in most countries and, although
such companies typically have a local monopoly, emerging technologies and
pro-competitive legislation are combining to threaten these monopolies and
could change the future outlook.
The wireless telecommunications industry is in its early developmental
stages, and is predominantly characterized by emerging, rapidly growing
companies. Gas transmission and distribution companies continue to undergo
significant changes as well. Many companies have diversified into oil and gas
exploration and development, making returns more sensitive to energy prices.
The water supply industry is highly fragmented due to local ownership.
Generally, these companies are more mature and expect little or no per capita
volume growth.
There is no assurance that favorable developments will occur in the utility
industries generally or that investment opportunities will continue to
undergo significant changes or growth. Please see "What Are the Risks of
Investing in the Funds?" in the SAI for more information.
FOREIGN SECURITIES RISK. The value of foreign (and U.S.) securities is
affected by general economic conditions and individual company and industry
earnings prospects. While foreign securities may offer significant
opportunities for gain, they also involve additional risks that can increase
the potential for losses in the fund. These risks can be significantly
greater for investments in emerging markets. Investments in Depositary
Receipts also involve some or all of the risks described below.
The political, economic, and social structures of some countries in which the
funds invest may be less stable and more volatile than those in the U.S. 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.
There may be less publicly available information about a foreign company or
government than about a U.S. company or public entity. Certain countries'
financial markets and services are less developed than those in the U.S. or
other major economies. As a result, they 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. Transaction costs
on foreign securities markets are generally higher than in the U.S. The
settlement practices may be cumbersome and result in delays that may affect
portfolio liquidity. The funds may have greater difficulty voting proxies,
exercising shareholder rights, pursuing legal remedies, and obtaining
judgments with respect to foreign investments in foreign courts than with
respect to domestic issuers in U.S. courts.
Some of the countries in which the funds may invest such as Russia and
certain Asian and Eastern European countries are considered developing or
emerging markets. Investments in these markets are subject to all of the
risks of foreign investing generally, and have additional and heightened
risks due to a lack of legal, business, and social frameworks to support
securities markets.
Emerging markets involve additional significant risks, including political
and social uncertainty (for example, regional conflicts and risk of war),
currency exchange rate volatility, pervasiveness of corruption and crime,
delays in settling portfolio transactions, and risk of loss arising out of
the system of share registration and custody. For more information on the
risks associated with emerging markets securities, please see the SAI.
On July 1, 1997, Hong Kong reverted to the sovereignty of China. As with any
major political transfer of power, this could result in political, social,
economic, market, or other developments in Hong Kong, China, or other
countries that could affect the value of the funds' investments.
SMALLER COMPANIES RISK. Historically, smaller companies have been more
volatile in price than larger company securities, especially over the short
term. Among the reasons for the greater price volatility are the less certain
growth prospects of smaller companies, the lower degree of liquidity in the
markets for such securities, and the greater sensitivity of smaller companies
to changing economic conditions.
In addition, smaller companies may lack depth of management, they may be
unable to generate funds necessary for growth or development, or they may be
developing or marketing new products or services for which markets are not
yet established and may never become established.
Therefore, while smaller companies may offer greater opportunities for
capital growth than larger, more established companies, they also involve
greater risks and should be considered speculative.
NON-DIVERSIFICATION AND INDUSTRY RISK. The funds are non-diversified, which
means that there is no limit on the amount of each fund's assets that it can
invest in any one issuer. In addition, each fund concentrates its investments
in a particular industry. Economic, business, political, or other changes can
affect securities of a similar type or industry. The funds may be more
sensitive to these changes than a diversified fund.
CREDIT RISK is the possibility that an issuer will be unable to make interest
payments or repay principal. Changes in an issuer's financial strength or in
a security's credit rating may affect its value.
Securities rated below investment grade, sometimes called "junk bonds,"
generally have more credit risk than higher-rated securities. The risk of
default or price changes due to changes in the issuer's credit quality is
greater. Issuers of lower-rated securities are typically in weaker financial
health than issuers of higher-rated securities, and their ability to make
interest payments or repay principal is less certain. These issuers are also
more likely to encounter financial difficulties and to be materially affected
by these difficulties when they do encounter them. The market price of
lower-rated securities may fluctuate more than higher-rated securities and
may decline significantly in periods of economic difficulty. Lower-rated
securities may also be less liquid than higher-rated securities.
Please see the SAI for more details on the risks associated with lower-rated
securities.
REITS RISK. REITs are subject to risks related to the skill of their
management, changes in value of the properties the REITs own, the quality of
any credit extended by the REITs, and general economic and other factors.
HEDGING TRANSACTIONS RISK. Hedging transactions, whether entered into as a
hedge or for gain, have risks associated with them. The three most
significant risks associated with hedging transactions are (i) possible
default by the other party to the transaction, (ii) illiquidity, and (iii) to
the extent Adviser's view as to certain market movements is incorrect, the
risk that the use of hedging transactions could result in losses greater than
if they had not been used. Use of put and call options may (i) result in
losses to a fund, (ii) force the purchase or sale of portfolio securities at
inopportune times or for prices higher than or lower than current market
values, (iii) limit the amount of appreciation a fund can realize on its
investments, (iv) increase the cost of holding a security and reduce the
returns on securities, or (v) cause a fund to hold a security it might
otherwise sell.
The use of currency transactions can result in a fund incurring losses as a
result of a number of factors including the imposition of controls by a
foreign or the U.S. government on the exchange of foreign currencies, the
inability of foreign securities transactions to be completed with the
security being delivered to the fund, or the inability to deliver or receive
a specified currency.
SHORT SALES. Short sales carry risks of loss if the price of the security
sold short increases after the sale. In this situation, when the
Biotechnology Fund replaces the borrowed security by buying the security in
the securities markets, the fund may pay more for the security than it has
received from the purchaser in the short sale. The fund may, however, profit
from a change in the value of the security sold short, if the price decreases.
144A SECURITIES. Subject to its liquidity limitation, each fund may invest in
certain unregistered securities which may be sold under Rule 144A of the
Securities Act of 1933 ("144A securities"). Due to changing market or other
factors, 144A securities may be subject to a greater possibility of becoming
illiquid than securities that have been registered with the SEC for sale. In
addition, a fund's purchase of 144A securities may increase the level of the
security's illiquidity, as some institutional buyers may become disinterested
in purchasing such securities after the fund has purchased them.
INTEREST RATE, CURRENCY AND MARKET RISK. To the extent a fund invests in debt
securities, changes in interest rates in any country where the fund is
invested will affect the value of the fund's portfolio and its share price.
Rising interest rates, which often occur during times of inflation or a
growing economy, are likely to have a negative effect on the value of the
fund's shares. To the extent a fund invests in common stocks, a general
market decline in any country where the fund is invested may cause the value
of what the fund owns, and thus the fund's share price, to decline. Changes
in currency valuations may also affect the price of fund shares. The value of
stock markets, currency valuations and interest rates throughout the world
have increased and decreased in the past. These changes are unpredictable.
EURO RISK. On January 1, 1999, the European Monetary Union (EMU) plans to
introduce a new single currency, the euro, which will replace the national
currency for participating member countries. If a fund holds investments in
countries with currencies replaced by the euro, the investment process,
including trading, foreign exchange, payments, settlements, cash accounts,
custody and accounting will be impacted.
Because this change to a single currency is new and untested, the
establishment of the euro may result in market volatility. For the same
reason, it is not possible to predict the impact of the euro on the business
or financial condition of European issuers which a fund may hold in its
portfolio, and their impact on the value of fund shares. To the extent a fund
holds non-U.S. dollar (euro or other) denominated securities, it will still
be exposed to currency risk due to fluctuations in those currencies versus
the U.S. dollar.
YEAR 2000. When evaluating current and potential portfolio positions, Year
2000 is one of the factors the funds' manager considers.
The manager will rely upon public filings and other statements made by
companies about their Year 2000 readiness. Issuers in countries outside the
U.S., particularly in emerging markets, may not be required to make the same
level of disclosure about Year 2000 readiness as is required in the U.S. The
manager, of course, cannot audit each company and its major suppliers to
verify their Year 2000 readiness.
If a company in which the funds are invested is adversely affected by Year
2000 problems, it is likely that the price of its security will also be
adversely affected. A decrease in the value of one or more of the funds'
portfolio holdings will have a similar impact on the price of the funds'
shares. Please see "Year 2000 Problem" under "Who Manages the Funds?" for
more information.
WHO MANAGES THE FUNDS?
THE BOARD. The Board oversees the management of the funds and elects their
officers. The officers are responsible for the funds' day-to-day operations.
The Board also monitors the Health Care Fund, the Natural Resources Fund, and
the Utilities Fund to ensure no material conflicts exist among a fund's
classes of shares. While none is expected, the Board will act appropriately
to resolve any material conflict that may arise.
INVESTMENT MANAGER. Franklin Advisers, Inc. manages each fund's assets and
makes its investment decisions. The manager also performs similar services
for other funds. It is wholly owned by Resources, a publicly owned company
engaged in the financial services industry through its subsidiaries. Charles
B. Johnson and Rupert H. Johnson, Jr. are the principal shareholders of
Resources. Together, the manager and its affiliates manage over $208 billion
in assets. Please see "Investment Management and Other Services" and
"Miscellaneous Information" in the SAI for information on securities
transactions and a summary of the funds' Code of Ethics.
MANAGEMENT TEAMS. The teams responsible for the day-to-day management of the
funds' portfolios are:
BIOTECHNOLOGY FUND: Kurt von Emster, Evan McCulloch and Rupert H. Johnson,
Jr. since the fund's inception.
HEALTH CARE FUND: Kurt von Emster and Rupert H. Johnson, Jr. since the fund's
inception and Evan McCulloch since 1994.
Kurt von Emster
Vice President of Franklin Advisers, Inc.
Mr. von Emster is a Chartered Financial Analyst and holds a Bachelor of Arts
degree in Business and Economics from the University of California at Santa
Barbara. He has been with the Franklin Templeton Group since 1989.
Evan McCulloch
Vice President of Franklin Advisers, Inc.
Mr. McCulloch is a Chartered Financial Analyst and holds a Bachelor of
Science degree in Economics from the University of California at Berkeley. He
has been with the Franklin Templeton Group since 1992. He is a member of
several securities industry-related associations.
Rupert H. Johnson, Jr.
President of Franklin Advisers, Inc.
Mr. Johnson is a graduate of Washington and Lee University. He has been with
the Franklin Templeton Group since 1965 and prior thereto was an officer in
the U.S. Marine Corps. Mr. Johnson is a member of several securities
industry-related associations.
Utilities Fund: Sally Edwards Haff since the fund's inception and Ian Link
since 1995.
Sally Edwards Haff
Senior Vice President of Franklin Advisers, Inc.
Ms. Haff is a Chartered Financial Analyst and holds a Bachelor of Arts degree
in Economics from the University of California at Santa Barbara. She has been
with the Franklin Templeton Group since 1986. Ms. Haff is a member of several
securities industry-related associations.
Ian Link
Vice President of Franklin Advisers, Inc.
Mr. Link is a Chartered Financial Analyst and holds a Master of Business
Administration degree from the Haas School at the University of California,
Berkeley and a Bachelor of Arts degree in Economics from the University of
California at Davis. He has been with the Franklin Templeton Group since
1989. He is a member of several securities industry-related associations.
Natural Resources Fund: Suzanne Willoughby Killea since the fund's inception
and Edward D. Perks since 1996.
Suzanne Willoughby Killea
Vice President of Franklin Advisers, Inc.
Ms. Killea is a Chartered Financial Analyst and holds a Master of Business
Administration degree from Stanford University and a Bachelor of Arts degree
from Princeton University. She has been with the Franklin Templeton Group
since 1991. She is a member of several securities industry-related
associations.
Edward D. Perks
Vice President of Franklin Advisers, Inc.
Mr. Perks is a Certified Financial Analyst and holds a Bachelor of Arts
degree in Economics and Political Science from Yale University. Mr. Perks
joined the Franklin Templeton Group in October 1992.
MANAGEMENT FEES. During the fiscal year ended April 30, 1998, management fees
paid to the manager and total operating expenses, as a percentage of average
daily net assets, were as follows:
TOTAL
MANAGEMENT OPERATING
FEES EXPENSES
- ------------------------------------------------------------------------------
CLASS A
Biotechnology Fund1,2 0.52% 1.50%
Health Care Fund 0.56% 1.15%
Natural Resources Fund3 0.27% 0.96%
Utilities Fund 0.56% 1.03%
CLASS C
Health Care Fund 0.56% 1.90%
Utilities Fund 0.56% 1.78%
1. Annualized.
2. Management fees, before any advance waiver, totaled 0.63% and total
operating expenses were 1.61%. Under an agreement by the manager to limit its
fees, the Biotechnology Fund paid the management fees and total operating
expenses shown. The manager may end this arrangement at any time upon notice
to the Board.
3. Management fees, before any advance waiver, totaled 0.62% and total
operating expenses were 1.31%. Under an agreement by the manager to limit its
fees, the Natural Resources Fund paid the management fees and total operating
expenses shown. The manager may end this arrangement at any time upon notice
to the Board.
PORTFOLIO TRANSACTIONS. The manager tries to obtain the best execution on all
transactions. If the manager believes more than one broker or dealer can
provide the best execution, it may consider research and related services and
the sale of fund shares, as well as shares of other funds in the Franklin
Templeton Group of Funds, when selecting a broker or dealer. Please see "How
Do the Funds Buy Securities for Their Portfolios?" in the SAI for more
information.
ADMINISTRATIVE SERVICES. Under an agreement with the manager (or, in the case
of the Biotechnology Fund, under an agreement with the fund), FT Services
provides certain administrative services and facilities for the funds. During
the fiscal year ended April 30, 1998, administration fees paid to FT
Services, as a percentage of average daily net assets, were as follows:
ADMINISTRATION
FEES
- -----------------------------------------
Biotechnology Fund 0.15%*
Health Care Fund 0.15%
Natural Resources Fund 0.15%
Utilities Fund 0.15%
*For the period September 15, 1997 through April 30, 1998. Annualized.
For the Health Care Fund, the Natural Resources Fund, and the Utilities Fund,
these fees are paid by the manager and are not a separate expense of the
fund. For the Biotechnology Fund, these fees are included in the amount of
total expenses shown above. Please see "Investment Management and Other
Services" in the SAI for more information.
YEAR 2000 PROBLEM. The funds' business operations depend on a worldwide
network of computer systems that contain date fields, including securities
trading systems, securities transfer agent operations and stock market links.
Many of the systems currently use a two digit date field to represent the
date, and unless these systems are changed or modified, they may not be able
to distinguish the Year 1900 from the Year 2000 (commonly referred to as the
Year 2000 problem). In addition, the fact that the Year 2000 is a
non-standard leap year may create difficulties for some systems.
When the Year 2000 arrives, the funds' operations could be adversely affected
if the computer systems used by the manager, its service providers and other
third parties it does business with are not Year 2000 ready. For example, the
funds' portfolio and operational areas could be impacted, including
securities trade processing, interest and dividend payments, securities
pricing, shareholder account services, reporting, custody functions and
others. A fund could experience difficulties in effecting transactions if any
of its foreign subcustodians, or if foreign broker-dealers or foreign markets
are not ready for Year 2000.
The funds' manager and its affiliated service providers are making a
concerted effort to take steps they believe are reasonably designed to
address their Year 2000 problems. Of course, the funds' ability to reduce the
effects of the Year 2000 problem is also very much dependent upon the efforts
of third parties over which the funds and their manager may have no control.
THE RULE 12B-1 PLANS
Each class has a separate distribution or "Rule 12b-1" plan under which the
fund shall pay or may reimburse Distributors or others for the expenses of
activities that are primarily intended to sell shares of the class. These
expenses may include, among others, distribution or service fees paid to
Securities Dealers or others who have executed a servicing agreement with the
funds, Distributors or its affiliates; a prorated portion of Distributors'
overhead expenses; and the expenses of printing prospectuses and reports used
for sales purposes, and preparing and distributing sales literature and
advertisements.
Payments by the Biotechnology Fund and the Natural Resources Fund under the
Class A plans may not exceed 0.35% per year of Class A's the average daily
net assets. Of this amount, each fund may reimburse up to 0.35% to
Distributors or others, out of which 0.10% will generally be retained by
Distributors for distribution expenses. The Biotechnology Fund will not
reimburse Distributors the additional 0.10% during periods when the fund is
closed to new investors. Payments by the Health Care Fund and the Utilities
Fund under the Class A plans may not exceed 0.25% per year of Class A's
average daily net assets. All distribution expenses over this amount will be
borne by those who have incurred them. During the first year after certain
Class A purchases made without a sales charge, Securities Dealers may not be
eligible to receive the Rule 12b-1 fees associated with the purchase.
Under the Class B plans, the Health Care Fund and the Utilities Fund pay
Distributors up to 0.75% per year of Class B's average daily net assets to
pay Distributors for providing distribution and related services and bearing
certain Class B expenses. All distribution expenses over this amount will be
borne by those who have incurred them. Securities Dealers are not eligible to
receive this portion of the Rule 12b-1 fees associated with the purchase.
The Health Care Fund and the Utilities Fund may also pay a servicing fee of up
to 0.25% per year of Class B's average daily net assets under the Class B
plans. This fee may be used to pay Securities Dealers or others for, among
other things, helping to establish and maintain customer accounts and
records, helping with requests to buy and sell shares, receiving and
answering correspondence, monitoring dividend payments from the fund on
behalf of customers, and similar servicing and account maintenance
activities. Securities Dealers may be eligible to receive this portion of the
Rule 12b-1 fees from the date of purchase. After 8 years, Class B shares
convert to Class A shares and Securities Dealers may then receive the Rule
12b-1 fees applicable to Class A.
The expenses relating to the Class B plans are also used to pay Distributors
for advancing the commission costs to Securities Dealers with respect to the
initial sale of Class B shares. Further, the expenses relating to the Class B
plans may be used by Distributors to pay third party financing entities that
have provided financing to Distributors in connection with advancing
commission costs to Securities Dealers.
Under the Class C plans, the Health Care Fund and the Utilities Fund may pay
Distributors up to 0.75% per year of Class C's average daily net assets to
pay Distributors or others for providing distribution and related services
and bearing certain Class C expenses. All distribution expenses over this
amount will be borne by those who have incurred them. During the first year
after a purchase of Class C shares, Securities Dealers may not be eligible to
receive this portion of the Rule 12b-1 fees associated with the purchase.
The Health Care Fund and the Utilities Fund may also pay a servicing fee of
up to 0.25% per year of Class C's average daily net assets under the Class C
plans. This fee may be used to pay Securities Dealers or others for, among
other things, helping to establish and maintain customer accounts and
records, helping with requests to buy and sell shares, receiving and
answering correspondence, monitoring dividend payments from the fund on
behalf of customers, and similar servicing and account maintenance activities.
The Rule 12b-1 fees charged to each class are based only on the fees
attributable to that particular class. For more information, please see "The
Funds' Underwriter" in the SAI.
HOW TAXATION AFFECTS THE FUNDS AND THEIR SHAREHOLDERS
<TABLE>
<CAPTION>
TAXATION OF THE FUNDS' INVESTMENTS.
<S> <C>
Each fund invests your money in the -------------------------------------------
stocks, bonds and other securities that
are described in the section "How Do the HOW DO THE FUNDS EARN INCOME AND GAINS?
Funds Invest Their Assets?" Special tax
rules may apply in determining the income Each fund earns dividends and interest
and gains that each fund earns on its (the fund's "income") on its investments.
investments. These rules may, in turn, When a fund sells a security for a price
affect the amount of distributions that a that is higher than it paid, it has a
fund pays to you. These special tax rules gain. When a fund sells a security for a
are discussed in the SAI. price that is lower than it paid, it has
a loss. If a fund has held the security
TAXATION OF THE FUNDS. As a regulated for more than one year, the gain or loss
investment company, each fund generally will be a long-term capital gain or loss.
pays no federal income tax on the income If a fund has held the security for one
and gains that it distributes to you. year or less, the gain or loss will be a
short-term capital gain or loss. A fund's
FOREIGN TAXES. Foreign governments may gains and losses are netted together,
impose taxes on the income and gains from and, if the fund has a net gain (the
a fund's investments in foreign stocks and fund's "gains"), that gain will generally
bonds. These taxes will reduce the amount be distributed to you.
of the fund's distributions to you.
-------------------------------------------
TAXATION OF SHAREHOLDERS.
-------------------------------------------
DISTRIBUTIONS. Distributions from a fund, WHAT IS A DISTRIBUTION?
whether you receive them in cash or in
additional shares, are generally subject As a shareholder, you will receive your
to income tax. The fund will send you a share of a fund's income and gains on its
statement in January of the current year investments in stocks, bonds and other
that reflects the amount of ordinary securities. A fund's income and short-
dividends, capital gain distributions and term capital gains are paid to you as
non-taxable distributions you received ordinary dividends. A fund's long-term
from the fund in the prior year. This capital gains are paid to you as capital
statement will include distributions gain distributions. If a fund pays you an
declared in December and paid to you in amount in excess of its income and gains,
January of the current year, but which are this excess will generally be treated as
taxable as if paid on December 31 of the a non-taxable distribution. These
prior year. The IRS requires you to report amounts, taken together, are what we call
these amounts on your income tax return a fund's distributions to you.
for the prior year.
-------------------------------------------
DISTRIBUTIONS TO RETIREMENT PLANS.
Fund distributions received by your qualified retirement plan, such as a 401(k) plan
or IRA, are generally tax-deferred; this means that you are not required to report
fund distributions on your income tax return when paid to your plan, but, rather,
when your plan makes payments to you. Special rules apply to payouts from Roth and
Education IRAs.
DIVIDENDS-RECEIVED DEDUCTION. Corporate investors may be entitled to a
dividends-received deduction on a portion of the ordinary dividends they receive from
a fund.
REDEMPTIONS AND EXCHANGES. If you redeem -------------------------------------------
your shares or if you exchange your shares WHAT IS A REDEMPTION?
in a fund for shares in another Franklin
Templeton Fund, you will generally have a A redemption is a sale by you to a fund
gain or loss that the IRS requires you to of some or all of your shares in the
report on your income tax return. If you fund. The price per share you receive
exchange fund shares held for 90 days or when you redeem fund shares may be more
less and pay no sales charge, or a reduced or less than the price at which you
sales charge, for the new shares, all or a purchased those shares. An exchange of
portion of the sales charge you paid on shares in a fund for shares of another
the purchase of the shares you exchanged Franklin Templeton Fund is treated as a
is not included in their cost for purposes redemption of fund shares and then a
of computing gain or loss on the exchange. purchase of shares of the other fund.
If you hold your shares for six months or When you redeem or exchange your shares,
less, any loss you have will be treated as you will generally have a gain or loss,
a long-term capital loss to the extent of depending upon whether the amount you
any capital gain distributions received by receive for your shares is more or less
you from the fund. All or a portion of than your cost or other basis in the
any loss on the redemption or shares.
exchange of your shares will be disallowed --------------------------------------------
by the IRS if you purchase other shares in the fund within 30 days before or
after your redemption or exchange.
U.S. GOVERNMENT INTEREST. Many states grant tax-free status to dividends paid from
interest earned on direct obligations of the U.S. government, subject to certain
restrictions. Each fund in which you are a shareholder will provide you with
information at the end of each calendar year on the amount of such dividends that may
qualify for exemption from reporting on your individual income tax returns.
NON-U.S. INVESTORS. Ordinary dividends generally will be subject to U.S. income tax
withholding. Your home country may also tax ordinary dividends, capital gain
distributions and gains arising from redemptions or exchanges of your fund shares.
Fund shares held by the estate of a non-U.S. investor may be subject to U.S. estate
tax. You may wish to contact your tax advisor to determine the U.S. and non-U.S. tax
consequences of your investment in a fund.
STATE TAXES. Ordinary dividends and capital gain distributions that you receive from
a fund, and gains arising from redemptions or exchanges of your fund shares will
generally be subject to state and local income tax. The holding of fund shares may
also be subject to state and local intangibles taxes. You may wish to contact your
tax advisor to determine the state and local tax consequences of your investment in a
fund.
-------------------------------------------
BACKUP WITHHOLDING. When you open an WHAT IS A BACKUP WITHHOLDING?
account, IRS regulations require that you
provide your taxpayer identification Backup withholding occurs when a fund is
number ("TIN"), certify that it is required to withhold and pay over to the
correct, and certify that you are not IRS 31% of your distributions and
subject to backup withholding under IRS redemption proceeds. You can avoid backup
rules. If you fail to provide a correct withholding by providing the fund with
TIN or the proper tax certifications, the your TIN, and by completing the tax
fund is required to withhold 31% of all certifications on your shareholder
the distributions (including ordinary application that you were asked to sign
dividends and capital gain distributions), when you opened your account. However, if
and redemption proceeds paid to you. The the IRS instructs a fund to begin backup
fund is also required to begin backup withholding, it is required to do so even
withholding on your account if the IRS if you provided the fund with your TIN
instructs the fund to do so. The funds and these tax certifications, and backup
reserve the right not to open your withholding will remain in place until
account, or, alternatively, to redeem your the fund is instructed by the IRS that it
shares at the current Net Asset Value, is no longer required.
less any taxes withheld, if you fail to
provide a correct TIN, fail to provide the -------------------------------------------
proper tax certifications, or the IRS
instructs the funds to begin backup
withholding on your account.
THIS TAX DISCUSSION IS FOR GENERAL INFORMATION ONLY. PROSPECTIVE INVESTORS SHOULD
CONSULT THEIR OWN TAX ADVISORS CONCERNING THE FEDERAL, STATE, LOCAL OR FOREIGN TAX
CONSEQUENCES OF AN INVESTMENT IN A FUND. A MORE COMPLETE DISCUSSION OF THESE RULES
AND RELATED MATTERS IS CONTAINED IN THE SECTION ENTITLED "ADDITIONAL INFORMATION ON
DISTRIBUTIONS AND TAXES" IN THE SAI.
</TABLE>
HOW IS THE TRUST ORGANIZED?
1
Each fund is a series of Franklin Strategic Series (the "Trust"), an open-end
management investment company, commonly called a mutual fund. It was organized
as a Delaware business trust on January 25, 1991, and is registered with the
SEC. The Natural Resources Fund offers two classes of shares: Franklin Natural
Resources Fund - Class A and Franklin Natural Resources Fund - Advisor Class.
The Health Care Fund and the Utilities Fund offer three classes of shares:
Franklin Global Health Care Fund - Class A, Franklin Global Health Care Fund -
Class B, Franklin Global Health Care Fund - Class C, Franklin Global Utilities
Fund - Class A, Franklin Global Utilities Fund - Class B, and Franklin Global
Utilities Fund - Class C. Shares of the Biotechnology Fund are considered Class
A shares for redemption, exchange and other purposes. Additional series and
classes of shares may be offered in the future.
Shares of each class represent proportionate interests in the assets of the fund
and have the same voting and other rights and preferences as any other class of
the fund for matters that affect the fund as a whole. For matters that only
affect one class, however, only shareholders of that class may vote. Each class
will vote separately on matters affecting only that class, or expressly required
to be voted on separately by state or federal law. Shares of each class of a
series have the same voting and other rights and preferences as the other
classes and series of the Trust for matters that affect the Trust as a whole.
The Trust has noncumulative voting rights. This gives holders of more than 50%
of the shares voting the ability to elect all of the members of the Board. If
this happens, holders of the remaining shares voting will not be able to elect
anyone to the Board.
The Trust does not intend to hold annual shareholder meetings. The Trust or a
series of the Trust may hold special meetings, however, for matters requiring
shareholder approval. A meeting may be called by the Board to consider the
removal of a Board member if requested in writing by shareholders holding at
least 10% of the outstanding shares. In certain circumstances, we are required
to help you communicate with other shareholders about the removal of a Board
member. A special meeting may also be called by the Board in its discretion.
ABOUT YOUR ACCOUNT
HOW DO I BUY SHARES?
OPENING YOUR ACCOUNT
To open your account, please follow the steps below. This will help avoid any
delays in processing your request.
PLEASE KEEP IN MIND THAT THE BIOTECHNOLOGY FUND, THE HEALTH CARE FUND AND THE
UTILITIES FUND DO NOT CURRENTLY ALLOW INVESTMENTS BY MARKET TIMERS.
1. Read this prospectus carefully.
2. Determine how much you would like to invest. The funds' minimum
investments are:
o To open a regular, non-retirement account $1,000
o To open an IRA, IRA Rollover, Roth IRA,
or Education IRA $ 250*
o To open a custodial account for a minor
(an UGMA/UTMA account) $ 100
o To open an account with an automatic
investment plan $ 50**
o To add to an account $ 50***
*For all other retirement accounts, there is no minimum investment
requirement.
**$25 for an Education IRA.
***For all retirement accounts except IRAs, IRA Rollovers, Roth IRAs,
or Education IRAs, there is no minimum to add to an account.
We reserve the right to change the amount of these minimums from time
to time or to waive or lower these minimums for certain purchases. We
also reserve the right to refuse any order to buy shares.
3. Carefully complete and sign the enclosed account application, including
the optional shareholder privileges section. By applying for privileges
now, you can avoid the delay and inconvenience of having to send an
additional application to add privileges later. PLEASE ALSO INDICATE
WHICH CLASS OF SHARES YOU WANT TO BUY. IF YOU DO NOT SPECIFY A CLASS,
WE WILL INVEST YOUR PURCHASE IN CLASS A SHARES. It is important that we
receive a signed application since we will not be able to process any
redemptions from your account until we receive your signed application.
4. Make your investment using the table below.
METHOD STEPS TO FOLLOW
- ------------------------------------------------------------------------------
BY MAIL For an initial investment:
Return the application to the fund with your check
made payable to the fund.
For additional investments:
Send a check made payable to the fund. Please include
your account number on the check.
- ------------------------------------------------------------------------------
BY WIRE 1. Call Shareholder Services or, if that number is busy,
call 1-650/312-2000 collect, to receive a wire
control number and wire instructions. You need a new
wire control number every time you wire money into
your account. If you do not have a currently
effective wire control number, we will return the
money to the bank, and we will not credit the
purchase to your account.
2. For an initial investment you must also return your
signed account application to the fund.
IMPORTANT DEADLINES: If we receive your call before
1:00 p.m. Pacific time and the bank receives the
wired funds and reports the receipt of wired funds to
the fund by 3:00 p.m. Pacific time, we will credit
the purchase to your account that day. If we receive
your call after 1:00 p.m. or the bank receives the
wire after 3:00 p.m., we will credit the purchase to
your account the following business day.
- ------------------------------------------------------------------------------
THROUGH YOUR DEALER Call your investment representative
- ------------------------------------------------------------------------------
CHOOSING A SHARE CLASS (HEALTH CARE FUND AND UTILITIES FUND ONLY)
Each class has its own sales charge and expense structure, allowing you to
choose the class that best meets your situation. Your financial
representative can help you decide.
Class A* Class B* Class C*
- --------------------------------------------------------------------------------
o Front-end sales o No front-end sales o Front-end sales
charge of 5.75% or less charge charge of 1%
o Contingent Deferred o Contingent Deferred o Contingent Deferred
Sales Charge of 1% on Sales Charge of 4% or Sales Charge of 1% on
purchases of $1 less on shares you shares you sell
million or more sold sell within six years within 18 months
within one year
o Lower annual expenses o Higher annual o Higher annual
than Class B or C due expenses than Class A expenses than Class A
to lower Rule 12b-1 (same as Class C) due (same as Class B) due
fees to higher Rule 12b-1 to higher Rule 12b-1
fees. Automatic fees. No conversion
conversion to Class A to Class A shares, so
shares after eight annual expenses do
years, reducing future not decrease.
annual expenses.
o No maximum purchase o Maximum purchase o Maximum purchase
amount amount of $249,999. We amount of $999,999.
invest any investment We invest any
of $250,000 or more in investment of $1
Class A shares, since million or more in
a reduced front-end Class A shares, since
sales charge is there is no front-end
available and Class sales charge and
A's annual expenses Class A's annual
are lower. expenses are lower.
*Before January 1, 1999, Class A shares were designated Class I and Class C
shares were designated Class II. The Health Care Fund and the Utilities Fund
began offering Class B shares on January 1, 1999. Class B shares are not
available to all retirement plans. Class B shares are only available to IRAs
(of any type), Franklin Templeton Trust Company 403(b) plans, and Franklin
Templeton Trust Company qualified plans with participant or earmarked
accounts.
PURCHASE PRICE OF FUND SHARES
For Class A shares, the sales charge you pay depends on the dollar amount you
invest, as shown in the table below. The sales charge for Class C shares is
1% and, unlike Class A, does not vary based on the size of your purchase.
There is no front-end sales charge for Class B shares.
TOTAL SALES CHARGE AMOUNT PAID
AS A PERCENTAGE OF TO DEALER AS A
AMOUNT OF PURCHASE OFFERING NET AMOUNT PERCENTAGE OF
AT OFFERING PRICE PRICE INVESTED OFFERING PRICE
- -----------------------------------------------------------------------------
CLASS A
Under $50,000 5.75% 6.10% 5.00%
$50,000 but less than $100,000 4.50% 4.71% 3.75%
$100,000 but less than $250,000 3.50% 3.63% 2.80%
$250,000 but less than $500,000 2.50% 2.56% 2.00%
$500,000 but less than $1,000,000 2.00% 2.04% 1.60%
$1,000,000 or more* None None None
CLASS B* (HEALTH CARE FUND AND
UTILITIES FUND ONLY) None None None
CLASS C (HEALTH CARE FUND AND
UTILITIES FUND ONLY)
Under $1,000,000* 1.00% 1.01% 1.00%
*A Contingent Deferred Sales Charge of 1% may apply to Class A purchases of
$1 million or more and any Class C purchase. A Contingent Deferred Sales
Charge of up to 4% may apply to any Class B purchase. Please see "How Do I
Sell Shares? - Contingent Deferred Sales Charge." Please also see "Other
Payments to Securities Dealers" below for a discussion of payments
Distributors may make out of its own resources to Securities Dealers for
certain purchases.
SALES CHARGE REDUCTIONS AND WAIVERS
- - IF YOU QUALIFY TO BUY SHARES UNDER ONE OF THE SALES CHARGE REDUCTION OR
WAIVER CATEGORIES DESCRIBED BELOW, PLEASE INCLUDE A WRITTEN STATEMENT WITH
EACH PURCHASE ORDER EXPLAINING WHICH PRIVILEGE APPLIES. If you do not
include this statement, we cannot guarantee that you will receive the
sales charge reduction or waiver.
CUMULATIVE QUANTITY DISCOUNTS - CLASS A ONLY. To determine if you may pay a
reduced sales charge, the amount of your current Class A purchase is added to
the cost or current value, whichever is higher, of your existing shares in
the Franklin Templeton Funds, as well as those of your spouse, children under
the age of 21 and grandchildren under the age of 21. If you are the sole
owner of a company, you may also add any company accounts, including
retirement plan accounts. Companies with one or more retirement plans may add
together the total plan assets invested in the Franklin Templeton Funds to
determine the sales charge that applies.
LETTER OF INTENT - CLASS A ONLY. You may buy Class A shares at a reduced
sales charge by completing the Letter of Intent section of the account
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 on Class A shares.
BY COMPLETING THE LETTER OF INTENT SECTION OF THE ACCOUNT APPLICATION, YOU
ACKNOWLEDGE AND AGREE TO THE FOLLOWING:
o You authorize Distributors to reserve 5% of your total intended purchase
in Class A shares registered in your name until you fulfill your Letter.
o You give Distributors a security interest in the reserved shares and
appoint Distributors as attorney-in-fact.
o Distributors may sell any or all of the reserved shares to cover any
additional sales charge if you do not fulfill the terms of the Letter.
o Although you may exchange your shares, you may not sell reserved shares
until you complete the Letter or pay the higher sales charge.
Your periodic statements will include the reserved shares in the total shares
you own. We will pay or reinvest dividend and capital gain distributions on
the reserved shares as you direct. Our policy of reserving shares does not
apply to certain retirement plans.
If you would like more information about the Letter of Intent privilege,
please see "How Do I Buy, Sell and Exchange Shares? - Letter of Intent" in
the SAI or call Shareholder Services.
GROUP PURCHASES - Class A Only. If you are a member of a qualified group, you
may buy Class A shares at a reduced sales charge that applies 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.
A qualified group is one that:
o Was formed at least six months ago,
o Has a purpose other than buying fund shares at a discount,
o Has more than 10 members,
o Can arrange for meetings between our representatives and group members,
o Agrees to include Franklin Templeton Fund sales and other materials in
publications and mailings to its members at reduced or no cost to
Distributors,
o Agrees to arrange for payroll deduction or other bulk transmission of
investments to the fund, and
o Meets other uniform criteria that allow Distributors to achieve cost
savings in distributing shares.
A qualified group does not include a 403(b) plan that only allows salary
deferral contributions. 403(b) plans that only allow salary deferral
contributions and that purchased Class A shares of a fund at a reduced sales
charge under the group purchase privilege before February 1, 1998, however,
may continue to do so.
Sales Charge Waivers. If one of the following sales charge waivers applies to
you or your purchase of fund shares, you may buy shares of the funds without
a front-end sales charge or a Contingent Deferred Sales Charge. All of the
sales charge waivers listed below apply to purchases of Class A shares only,
except for items 1 and 2 which also apply to Class B and C purchases.
Certain distributions, payments or redemption proceeds that you receive may
be used to buy shares of the funds without a sales charge if you reinvest
them within 365 days of their payment or redemption date. They include:
1. Dividend and capital gain distributions from any Franklin Templeton
Fund. The distributions generally must be reinvested in the same class
of shares. Certain exceptions apply, however, to Class C shareholders
who chose to reinvest their distributions in Class A shares of a fund
before November 17, 1997, and to Advisor Class or Class Z shareholders
of a Franklin Templeton Fund who may reinvest their distributions in
Class A shares of the funds.
2. Redemption proceeds from the sale of shares of any Franklin Templeton
Fund. The proceeds must be reinvested in the same class of shares,
except proceeds from the sale of Class B shares will be reinvested in
Class A shares.
If you paid a Contingent Deferred Sales Charge when you sold your Class
A or C shares, we will credit your account with the amount of the
Contingent Deferred Sales Charge paid but a new Contingent Deferred
Sales Charge will apply. For Class B shares reinvested in Class A, a
new Contingent Deferred Sales Charge will not apply, although your
account will not be credited with the amount of any Contingent Deferred
Sales Charge paid when you sold your Class B shares. If you own both
Class A and B shares and you later sell your shares, we will sell your
Class A shares first, unless otherwise instructed.
Proceeds immediately placed in a Franklin Bank CD also may be
reinvested without a front-end sales charge if you reinvest them within
365 days from the date the CD matures, including any rollover.
This waiver does not apply to shares you buy and sell under our
exchange program. Shares purchased with the proceeds from a money fund
may be subject to a sales charge.
3. Dividend or capital gain distributions from a real estate investment
trust (REIT) sponsored or advised by Franklin Properties, Inc.
4. Annuity payments received under either an annuity option or from death
benefit proceeds, only if the annuity contract offers as an investment
option the Franklin Valuemark Funds or the Templeton Variable Products
Series Fund. You should contact your tax advisor for information on any
tax consequences that may apply.
5. Redemption proceeds from a repurchase of shares of Franklin Floating
Rate Trust, if the shares were continuously held for at least 12 months.
If you immediately placed your redemption proceeds in a Franklin Bank
CD or a Franklin Templeton money fund, you may reinvest them as
described above. The proceeds must be reinvested within 365 days from
the date the CD matures, including any rollover, or the date you redeem
your money fund shares.
6. Redemption proceeds from the sale of Class A shares of any of the
Templeton Global Strategy Funds if you are a qualified investor.
If you paid a contingent deferred sales charge when you sold your Class
A shares from a Templeton Global Strategy Fund, we will credit your
account with the amount of the contingent deferred sales charge paid
but a new Contingent Deferred Sales Charge will apply.
If you immediately placed your redemption proceeds in a Franklin
Templeton money fund, you may reinvest them as described above. The
proceeds must be reinvested within 365 days from the date they are
redeemed from the money fund.
7. Distributions from an existing retirement plan invested in the Franklin
Templeton Funds
Various individuals and institutions also may buy Class A shares without a
front-end sales charge or Contingent Deferred Sales Charge, including:
1. Trust companies and bank trust departments agreeing to invest in
Franklin Templeton Funds over a 13 month period at least $1 million of
assets held in a fiduciary, agency, advisory, custodial or similar
capacity and over which the trust companies and bank trust departments
or other plan fiduciaries or participants, in the case of certain
retirement plans, have full or shared investment discretion. We will
accept orders for these 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 the order.
2. An Eligible Governmental Authority. Please consult your legal and
investment advisors to determine if an investment in a fund is
permissible and suitable for you and the effect, if any, of payments by
the fund on arbitrage rebate calculations.
3. Broker-dealers, registered investment advisors or certified financial
planners who have entered into an agreement with Distributors for
clients participating in comprehensive fee programs. The minimum
initial investment is $250.
4. Qualified registered investment advisors who buy through a
broker-dealer or service agent who has entered into an agreement with
Distributors
5. Registered Securities Dealers and their affiliates, for their
investment accounts only
6. Current employees of Securities Dealers and their affiliates and their
family members, as allowed by the internal policies of their employer
7. Officers, trustees, directors and full-time employees of the Franklin
Templeton Funds or the Franklin Templeton Group, and their family
members, consistent with our then-current policies. The minimum initial
investment is $100.
8. Investment companies exchanging shares or selling assets pursuant to a
merger, acquisition or exchange offer
9. Accounts managed by the Franklin Templeton Group
10. Certain unit investment trusts and their holders reinvesting
distributions from the trusts
11. Group annuity separate accounts offered to retirement plans
12. Chilean retirement plans that meet the requirements described under
"Retirement Plans" below
RETIREMENT PLANS. Retirement plans sponsored by an employer (i) with at least
100 employees, or (ii) with retirement plan assets of $1 million or more, or
(iii) that agrees to invest at least $500,000 in the Franklin Templeton Funds
over a 13 month period may buy Class A shares without a front-end sales
charge. Retirement plans that are not Qualified Retirement Plans, SIMPLEs or
SEPs must also meet the requirements described under "Group Purchases - Class
A Only" above to be able to buy Class A shares without a front-end sales
charge. We may enter into a special arrangement with a Securities Dealer,
based on criteria established by the funds, to add together certain small
Qualified Retirement Plan accounts for the purpose of meeting these
requirements.
For retirement plan accounts opened on or after May 1, 1997, a Contingent
Deferred Sales Charge may apply if the retirement plan is transferred out of
the Franklin Templeton Funds or terminated within 365 days of the retirement
plan account's initial purchase in the Franklin Templeton Funds. Please see
"How Do I Sell Shares? - Contingent Deferred Sales Charge" for details.
HOW DO I BUY SHARES IN CONNECTION WITH RETIREMENT PLANS?
Your individual or employer-sponsored retirement plan may invest in the fund.
Plan documents are required for all retirement plans. Franklin Templeton
Trust Company, an affiliate of Distributors and a wholly owned subsidiary of
Resources, can provide the plan documents for you and serve as custodian or
trustee.
Franklin Templeton Trust Company can provide you with brochures containing
important information about its plans. These plans require separate
applications and their policies and procedures may be different than those
described in this prospectus. For more information, including a free
retirement plan brochure or application, please call Retirement Plan Services.
Please consult your legal, tax or retirement plan specialist before choosing
a retirement plan. Your investment representative or advisor can help you
make investment decisions within your plan.
OTHER PAYMENTS TO SECURITIES DEALERS
The payments described below may be made to Securities Dealers who initiate
and are responsible for Class B and C purchases and certain Class A purchases
made without a sales charge. The payments are subject to the sole discretion
of Distributors, and are paid by Distributors or one of its affiliates and
not by the funds or their shareholders.
1. Class A purchases of $1 million or more - up to 1% of the amount
invested.
2. Class B purchases - up to 4% of the amount invested.
3. Class C purchases - up to 1% of the purchase price.
4. Class A purchases made without a front-end sales charge by certain
retirement plans described under "Sales Charge Reductions and Waivers -
Retirement Plans" above - up to 1% of the amount invested.
5. Class A purchases by trust companies and bank trust departments,
Eligible Governmental Authorities, and broker-dealers or others on
behalf of clients participating in comprehensive fee programs - up to
0.25% of the amount invested.
6. Class A purchases by Chilean retirement plans - up to 1% of the amount
invested.
A Securities Dealer may receive only one of these payments for each
qualifying purchase. Securities Dealers who receive payments in connection
with investments described in paragraphs 1, 3 or 6 above or a payment of up
to 1% for investments described in paragraph 4 will be eligible to receive
the Rule 12b-1 fee associated with the purchase starting in the thirteenth
calendar month after the purchase.
FOR BREAKPOINTS THAT MAY APPLY AND INFORMATION ON ADDITIONAL COMPENSATION
PAYABLE TO SECURITIES DEALERS IN CONNECTION WITH THE SALE OF FUND SHARES,
PLEASE SEE "HOW DO I BUY, SELL AND EXCHANGE SHARES? - OTHER PAYMENTS TO
SECURITIES DEALERS" IN THE SAI.
FOR INVESTORS OUTSIDE THE U.S.
The distribution of this prospectus and the offering of fund shares may be
limited in many jurisdictions. An investor who wishes to buy shares of a fund
should determine, or have a broker-dealer determine, the applicable laws and
regulations of the relevant jurisdiction. Investors are responsible for
compliance with tax, currency exchange or other regulations applicable to
redemption and purchase transactions in any jurisdiction to which they may be
subject. Investors should consult appropriate tax and legal advisors to
obtain information on the rules applicable to these transactions.
MAY I EXCHANGE SHARES FOR SHARES OF ANOTHER FUND?
We offer a wide variety of funds. If you would like, you can move your
investment from your fund account to an existing or new account in another
Franklin Templeton Fund (an "exchange"). Because it is technically a sale and
a purchase of shares, an exchange is a taxable transaction.
If you own Class A shares, you may exchange into any of our money funds
except Franklin Templeton Money Fund. Franklin Templeton Money Fund is the
only money fund exchange option available to Class B and C shareholders.
Unlike our other money funds, shares of Franklin Templeton Money Fund may not
be purchased directly and no drafts (checks) may be written on Franklin
Templeton Money Fund accounts.
Before making an exchange, please read the prospectus of the fund you are
interested in. This will help you learn about the fund, its investment goal
and policies, and its rules and requirements for exchanges. For example, some
Franklin Templeton Funds do not accept exchanges and others may have
different investment minimums. Some Franklin Templeton Funds (including the
Biotechnology Fund and the Natural Resources Fund) do not offer Class B or C
shares.
METHOD STEPS TO FOLLOW
- ------------------------------------------------------------------------------
BY MAIL 1. Send us signed written instructions
2. Include any outstanding share certificates for the
shares you want to exchange
- ------------------------------------------------------------------------------
BY PHONE Call Shareholder Services or TeleFACTS(R)
- If you do not want the ability to exchange by phone
to apply to your account, please let us know.
- ------------------------------------------------------------------------------
THROUGH YOUR DEALER Call your investment representative
- ------------------------------------------------------------------------------
Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to exchange shares.
WILL SALES CHARGES APPLY TO MY EXCHANGE?
You can exchange shares between most Franklin Templeton Funds, generally
without paying any additional sales charges. If you exchange shares held for
less than six months, however, you may be charged the difference between the
front-end sales charge of the two funds if the difference is more than 0.25%.
If you exchange shares from a money fund, a sales charge may apply no matter
how long you have held the shares.
CONTINGENT DEFERRED SALES CHARGE. We will not impose a Contingent Deferred
Sales Charge when you exchange shares. Any shares subject to a Contingent
Deferred Sales Charge at the time of exchange, however, will remain so in the
new fund. The purchase price for determining a Contingent Deferred Sales
Charge on exchanged shares will be the price you paid for the original shares.
For accounts with shares subject to a Contingent Deferred Sales Charge, we
will first exchange any shares in your account that are not subject to the
charge. If there are not enough of these to meet your exchange request, we
will exchange shares subject to the charge in the order they were purchased.
If you exchange Class A shares into one of our money funds, the time your
shares are held in that fund will not count towards the completion of any
Contingency Period. If you exchange your Class B or C shares for the same
class of shares of Franklin Templeton Money Fund, however, the time your
shares are held in that fund will count towards the completion of any
Contingency Period.
For more information about the Contingent Deferred Sales Charge, please see
"How Do I Sell Shares?"
EXCHANGE RESTRICTIONS
Please be aware that the following restrictions apply to exchanges:
o You must meet the applicable minimum investment amount of the fund you
are exchanging into, or exchange 100% of your fund shares.
o You may only exchange shares within the same class, except as noted
below. If you exchange your Class B shares for the same class of shares of
another Franklin Templeton Fund, the time your shares are held in that
fund will count towards the eight year period for automatic conversion to
Class A shares.
o Generally exchanges may only be made between identically registered
accounts, unless you send written instructions with a signature guarantee.
You may, however, exchange shares from a fund account requiring two or
more signatures into an identically registered money fund account
requiring only one signature for all transactions. Please notify us in
writing if you do not want this option to be available on your account.
Additional procedures may apply. Please see "Transaction Procedures and
Special Requirements."
o Franklin Templeton Trust Company IRA or 403(b) retirement plan accounts
may exchange shares as described above. Restrictions may apply to other
types of retirement plans. Please contact Retirement Plan Services for
information on exchanges within these plans.
o The fund you are exchanging into must be eligible for sale in your state.
o We may modify or discontinue our exchange policy if we give you 60 days'
written notice.
o Your exchange may be restricted or refused if you have: (i) requested an
exchange out of the fund within two weeks of an earlier exchange request,
(ii) exchanged shares out of the fund more than twice in a calendar
quarter, or (iii) exchanged shares equal to at least $5 million, or more
than 1% of the fund's net assets. Shares under common ownership or control
are combined for these limits. If you have exchanged shares as described
in this paragraph, you will be considered a Market Timer. Each exchange by
a Market Timer, if accepted, will be charged $5. Some of our funds do not
allow investments by Market Timers. Currently, the Biotechnology Fund, the
Health Care Fund and the Utilities Fund do not allow investments by Market
Timers.
Because excessive trading can hurt fund performance, operations and
shareholders, we may refuse any exchange purchase if (i) we believe the fund
would be harmed or unable to invest effectively, or (ii) the fund receives or
anticipates simultaneous orders that may significantly affect the fund.
LIMITED EXCHANGES BETWEEN DIFFERENT CLASSES OF SHARES
Certain funds in the Franklin Templeton Funds offer classes of shares not
offered by the funds, such as "Class Z" shares. Because the Biotechnology
Fund, the Health Care Fund and the Utilities Fund do not currently offer an
Advisor Class, you may exchange Advisor Class shares of any Franklin
Templeton Fund for Class A shares of these funds at Net Asset Value. If you
do so and you later decide you would like to exchange into a fund that offers
an Advisor Class, you may exchange your Class A shares for Advisor Class
shares of that fund. Certain shareholders of Class Z shares of Franklin
Mutual Series Fund Inc. may also exchange their Class Z shares for Class A
shares of the funds at Net Asset Value.
HOW DO I SELL SHARES?
You may sell (redeem) your shares at any time.
METHOD STEPS TO FOLLOW
- ------------------------------------------------------------------------------
BY MAIL 1. Send us signed written instructions. If you would
like your redemption proceeds wired to a bank
account, your instructions should include:
o The name, address and telephone number of the
bank where you want the proceeds sent
o Your bank account number
o The Federal Reserve ABA routing number
o If you are using a savings and loan or credit
union, the name of the corresponding bank and the
account number
2. Include any outstanding share certificates for the
shares you are selling
3. Provide a signature guarantee if required
4. Corporate, partnership and trust accounts may need
to send additional documents. Accounts under
court jurisdiction may have other requirements.
- ------------------------------------------------------------------------------
BY PHONE Call Shareholder Services. If you would like your
redemption proceeds wired to a bank account, other
than an escrow account, you must first sign up for
the wire feature. To sign up, send us written
instructions, with a signature guarantee. To avoid
any delay in processing, the instructions should
include the items listed in "By Mail" above.
Telephone requests will be accepted:
o If the request is $100,000 or less. Institutional
accounts may exceed $100,000 by completing a
separate agreement. Call Institutional Services to
receive a copy.
o If there are no share certificates issued for the
shares you want to sell or you have already
returned them to the fund
o Unless the address on your account was changed by
phone within the last 15 days
- If you do not want the ability to redeem by phone
to apply to your account, please let us know.
- ------------------------------------------------------------------------------
THROUGH
YOUR DEALER Call your investment representative
- ------------------------------------------------------------------------------
We will send your redemption check within seven days after we receive your
request in proper form. If you would like the check sent to an address other
than the address of record or made payable to someone other than the
registered owners on the account, send us written instructions signed by all
account owners, with a signature guarantee. We are not able to receive or pay
out cash in the form of currency.
The wiring of redemption proceeds is a special service that we make available
whenever possible for redemption requests of $1,000 or more. If we receive
your request in proper form before 1:00 p.m. Pacific time, your wire payment
will be sent the next business day. For requests received in proper form
after 1:00 p.m. Pacific time, the payment will be sent the second business
day. By offering this service to you, the funds are not bound to meet any
redemption request in less than the seven day period prescribed by law.
Neither the funds nor their agents shall be liable to you or any other person
if, for any reason, a redemption request by wire is not processed as
described in this section.
If you sell shares you recently purchased with a check or draft, we may delay
sending you the proceeds until your check or draft has cleared, which may
take seven business days or more. A certified or cashier's check may clear in
less time.
Under unusual circumstances, we may suspend redemptions or postpone payment
for more than seven days as permitted by federal securities law.
Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to sell shares.
FRANKLIN TEMPLETON TRUST COMPANY RETIREMENT PLAN ACCOUNTS
Before you can sell shares in a Franklin Templeton Trust Company retirement
plan, you may need to complete additional forms. For participants under age
591/2, tax penalties may apply. Call Retirement Plan Services at
1-800/527-2020 for details.
CONTINGENT DEFERRED SALES CHARGE
For Class A purchases, if you did not pay a front-end sales charge because
you invested $1 million or more or agreed to invest $1 million or more under
a Letter of Intent, a Contingent Deferred Sales Charge may apply if you sell
all or a part of your investment within the Contingency Period. Once you have
invested $1 million or more, any additional Class A investments you make
without a sales charge may also be subject to a Contingent Deferred Sales
Charge if they are sold within the Contingency Period. For any Class C
purchase, a Contingent Deferred Sales Charge may apply if you sell the shares
within the Contingency Period. The charge is 1% of the value of the shares
sold or the Net Asset Value at the time of purchase, whichever is less.
Certain retirement plan accounts opened on or after May 1, 1997, and that
qualify to buy Class A shares without a front-end sales charge may also be
subject to a Contingent Deferred Sales Charge if the retirement plan is
transferred out of the Franklin Templeton Funds or terminated within 365 days
of the account's initial purchase in the Franklin Templeton Funds.
For Class B shares, there is a Contingent Deferred Sales Charge if you sell
your shares within six years, as described in the table below. The charge is
based on the value of the shares sold or the Net Asset Value at the time of
purchase, whichever is less.
THIS % IS DEDUCTED
IF YOU SELL YOUR CLASS B FROM YOUR PROCEEDS AS A
SHARES WITHIN THIS MANY CONTINGENT DEFERRED
YEARS AFTER BUYING THEM SALES CHARGE
1 Year 4
2 Years 4
3 Years 3
4 Years 3
5 Years 2
6 Years 1
7 Years 0
For each class, we will first redeem any shares in your account that are not
subject to a Contingent Deferred Sales Charge. If there are not enough of
these to meet your request, we will redeem shares subject to the charge in
the order they were purchased.
Unless otherwise specified, when you request to sell a stated DOLLAR AMOUNT,
we will redeem additional shares to cover any Contingent Deferred Sales
Charge. For requests to sell a stated NUMBER OF SHARES, we will deduct the
amount of the Contingent Deferred Sales Charge, if any, from the sale
proceeds.
WAIVERS. We waive the Contingent Deferred Sales Charge for:
o Account fees
o Sales of Class A shares purchased without a front-end sales charge by
certain retirement plan accounts if (i) the account was opened before May 1,
1997, or (ii) the Securities Dealer of record received a payment from
Distributors of 0.25% or less, or (iii) Distributors did not make any payment
in connection with the purchase, or (iv) the Securities Dealer of record has
entered into a supplemental agreement with Distributors
o Redemptions by the fund when an account falls below the minimum required
account size
o Redemptions following the death of the shareholder or beneficial owner
o Redemptions through a systematic withdrawal plan set up before February
1, 1995
o Redemptions through a systematic withdrawal plan set up on or after
February 1, 1995, up to 1% monthly, 3% quarterly, 6% semiannually or 12%
annually of your account's Net Asset Value depending on the frequency of
your plan
o Redemptions by Franklin Templeton Trust Company employee benefit plans or
employee benefit plans serviced by ValuSelect(R) (not applicable to Class B)
o Distributions from IRAs due to death or disability or upon periodic
distributions based on life expectancy (for Class B, this applies to all
retirement plan accounts, not only IRAs)
o Returns of excess contributions (and earnings, if applicable) from
retirement plan accounts
o Participant initiated distributions from employee benefit plans or
participant initiated exchanges among investment choices in employee
benefit plans (not applicable to Class B)
WHAT DISTRIBUTIONS MIGHT I RECEIVE FROM THE FUNDS?
Each fund (except the Biotechnology Fund) intends to pay a dividend at least
semiannually representing its net investment income. Capital gains, if any,
may be distributed annually. The Biotechnology Fund intends to pay a dividend
at least annually representing substantially all of its net investment income
and any net realized capital gains. The amount of these distributions will
vary and there is no guarantee the funds will pay dividends. The funds do not
pay "interest" or guarantee any fixed rate of return on an investment in
their shares.
To receive a distribution, you must be a shareholder on the record date. The
record dates for each fund's distributions will vary. Please keep in mind
that if you invest in a fund shortly before the record date of a
distribution, any distribution will lower the value of the fund's shares by
the amount of the distribution and you will receive some of your investment
back in the form of a taxable distribution. If you would like information on
upcoming record dates for the funds' distributions, please call 1-800/DIAL
BEN.
Dividends and capital gains are calculated and distributed the same way for
each class. The amount of any income dividends per share will differ,
however, generally due to the difference in the Rule 12b-1 fees of each class.
DISTRIBUTION OPTIONS
You may receive your distributions from a fund in any of these ways:
1. BUY ADDITIONAL SHARES OF THE FUND - You may reinvest distributions you
receive from a fund in additional shares of the fund (without a sales charge
or imposition of a Contingent Deferred Sales Charge). This is a convenient
way to accumulate additional shares and maintain or increase your earnings
base.
2. BUY SHARES OF OTHER FRANKLIN TEMPLETON FUNDS - You may direct your
distributions to buy 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.
Please note that distributions may only be directed to an existing account.
3. RECEIVE DISTRIBUTIONS IN CASH - You may receive your distributions from a
fund in cash. If you have the money sent to another person or to a checking
or savings account, you may need a signature guarantee. If you send the money
to a checking or savings account, please see "Electronic Fund Transfers"
under "Services to Help You Manage Your Account."
Distributions may be reinvested only in the same class of shares, except as
follows: (i) Class C shareholders who chose to reinvest their distributions
in Class A shares of the fund or another Franklin Templeton Fund before
November 17, 1997, may continue to do so; and (ii) Class B and C shareholders
may reinvest their distributions in shares of any Franklin Templeton money
fund.
PLEASE INDICATE ON YOUR APPLICATION THE DISTRIBUTION OPTION YOU HAVE CHOSEN,
OTHERWISE WE WILL REINVEST YOUR DISTRIBUTIONS IN THE SAME SHARE CLASS OF THE
FUND. You may change your distribution option at any time by notifying us by
mail or phone. Please allow at least seven days before the record date for us
to process the new option. For Franklin Templeton Trust Company retirement
plans, special forms are required to receive distributions in cash.
TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
SHARE PRICE
When you buy shares, you pay the Offering Price. This is the Net Asset Value
per share of the class you wish to purchase, plus any applicable sales
charges. When you sell shares, you receive the Net Asset Value per share
minus any applicable Contingent Deferred Sales Charges.
The Net Asset Value we use when you buy or sell shares is the one next
calculated after we receive your transaction request in proper form. If you
buy or sell shares through your Securities Dealer, however, we will use the
Net Asset Value next calculated after your Securities Dealer receives your
request, which is promptly transmitted to the fund. Your redemption proceeds
will not earn interest between the time we receive the order from your dealer
and the time we receive any required documents.
HOW AND WHEN SHARES ARE PRICED
The funds are open for business each day the NYSE is open. We determine the
Net Asset Value per share of each class as of the close of the NYSE, normally
1:00 p.m. Pacific time. You can find the prior day's closing Net Asset Value
and Offering Price for each class in many newspapers.
The Net Asset Value of all outstanding shares of each class is calculated on
a pro rata basis. It is based on each class' proportionate participation in
the fund, determined by the value of the shares of each class. Each class,
however, bears the Rule 12b-1 fees payable under its Rule 12b-1 plan. To
calculate Net Asset Value per share of each class, the assets of each class
are valued and totaled, liabilities are subtracted, and the balance, called
net assets, is divided by the number of shares of the class outstanding. The
funds' assets are valued as described under "How Are Fund Shares Valued?" in
the SAI.
WRITTEN INSTRUCTIONS
Written instructions must be signed by all registered owners. To avoid any
delay in processing your transaction, they should include:
o Your name,
o The fund's name,
o The class of shares,
o A description of the request,
o For exchanges, the name of the fund you are exchanging into,
o Your account number,
o The dollar amount or number of shares, and
o A telephone number where we may reach you during the day, or in the
evening if preferred.
JOINT ACCOUNTS. For accounts with more than one registered owner, the funds
accept written instructions signed by only one owner for transactions and
account changes that could otherwise be made by phone. For all other
transactions and changes, all registered owners must sign the instructions.
Please keep in mind that if you have previously told us that you do not want
telephone exchange or redemption privileges on your account, then we can only
accept written instructions to exchange or redeem shares if they are signed
by all registered owners on the account.
SIGNATURE GUARANTEES
For our mutual protection, we require a signature guarantee in the following
situations:
1) You wish to sell over $100,000 worth of shares,
2) You want the proceeds to be paid to someone other than the registered
owners,
3) The proceeds are not being sent to the address of record, preauthorized
bank account, or preauthorized brokerage firm account,
4) We receive instructions from an agent, not the registered owners,
5) We believe a signature guarantee would protect us against potential claims
based on the instructions received.
A signature guarantee verifies the authenticity of your signature. You should
be able to obtain a signature guarantee from a bank, broker, credit union,
savings association, clearing agency, or securities exchange or association.
A NOTARIZED SIGNATURE IS NOT SUFFICIENT.
SHARE CERTIFICATES
We will credit your shares to your fund account. We do not issue share
certificates unless you specifically request them. This eliminates the costly
problem of replacing lost, stolen or destroyed certificates. If a certificate
is lost, stolen or destroyed, you may have to pay an insurance premium of up
to 2% of the value of the certificate to replace it.
Any outstanding share certificates must be returned to the fund if you want
to sell or exchange those shares or if you would like to start a systematic
withdrawal plan. The certificates should be properly endorsed. You can do
this either by signing the back of the certificate or by completing a share
assignment form. For your protection, you may prefer to complete a share
assignment form and to send the certificate and assignment form in separate
envelopes.
TELEPHONE TRANSACTIONS
You may initiate many transactions and changes to your account by phone.
Please refer to the sections of this prospectus that discuss the transaction
you would like to make or call Shareholder Services.
When you call, we will request personal or other identifying information to
confirm that instructions are genuine. We may also record calls. If our lines
are busy or you are otherwise unable to reach us by phone, you may wish to
ask your investment representative for assistance or send us written
instructions, as described elsewhere in this prospectus.
For your protection, we may delay a transaction or not implement one if we
are not reasonably satisfied that the instructions are genuine. If this
occurs, we will not be liable for any loss. We also will not be liable for
any loss if we follow instructions by phone that we reasonably believe are
genuine or if you are unable to execute a transaction by phone.
ACCOUNT REGISTRATIONS AND REQUIRED DOCUMENTS
When you open an account, we need you to tell us how you want your shares
registered. How you register your account will affect your ownership rights
and ability to make certain transactions. If you have questions about how to
register your account, you should consult your investment representative or
legal advisor. Please keep the following information in mind when registering
your account.
JOINT OWNERSHIP. If you open an account with two or more owners, we register
the account as "joint tenants with rights of survivorship" unless you tell us
otherwise. An account registered as "joint tenants with rights of
survivorship" is shown as "Jt Ten" on your account statement. For any account
with two or more owners, we cannot accept instructions to change owners on
the account unless all owners agree in writing, even if the law in your state
says otherwise. If you would like another person or owner to sign for you,
please send us a current power of attorney.
GIFTS AND TRANSFERS TO MINORS. You may set up a custodial account for a minor
under your state's Uniform Gifts/Transfers to Minors Act. Other than this
form of registration, a minor may not be named as an account owner.
TRUSTS. You should register your account as a trust only if you have a valid
written trust document. This avoids future disputes or possible court action
over who owns the account.
REQUIRED DOCUMENTS. For corporate, partnership and trust accounts, please
send us the following documents when you open your account. This will help
avoid delays in processing your transactions while we verify who may sign on
the account.
TYPE OF ACCOUNT DOCUMENTS REQUIRED
- ------------------------------------------------------------------------------
CORPORATION Corporate Resolution
- ------------------------------------------------------------------------------
PARTNERSHIP 1. The pages from the partnership agreement that
identify the general partners, or
2. A certification for a partnership agreement
- ------------------------------------------------------------------------------
TRUST 1. The pages from the trust document that identify
the trustees, or
2. A certification for trust
- ------------------------------------------------------------------------------
STREET OR NOMINEE ACCOUNTS. If you have fund shares held in a "street" or
"nominee" name account with your Securities Dealer, you may transfer the
shares to the street or nominee name account of another Securities Dealer.
Both dealers must have an agreement with Distributors or we cannot process
the transfer. Contact your Securities Dealer to initiate the transfer. We
will process the transfer after we receive authorization in proper form from
your delivering Securities Dealer. Accounts may be transferred electronically
through the NSCC. For accounts registered in street or nominee name, we may
take instructions directly from the Securities Dealer or your nominee.
IMPORTANT INFORMATION IF YOU HAVE AN INVESTMENT REPRESENTATIVE
If there is a Securities Dealer or other representative of record on your
account, we are authorized: (1) to provide confirmations, account statements
and other information about your account directly to your dealer and/or
representative; and (2) to accept telephone and electronic instructions
directly from your dealer or representative, including instructions to
exchange or redeem your shares. Electronic instructions may be processed
through established electronic trading systems and programs used by the
funds. Telephone instructions directly from your representative will be
accepted unless you have told us that you do not want telephone privileges to
apply to your account.
KEEPING YOUR ACCOUNT OPEN
Due to the relatively high cost of maintaining a small account, we may close
your account if the value of your shares is less than $250, or less than $50
for employee accounts and custodial accounts for minors. We will only do this
if the value of your account fell below this amount because you voluntarily
sold your shares and your account has been inactive (except for the
reinvestment of distributions) for at least six months. Before we close your
account, we will notify you and give you 30 days to increase the value of
your account to $1,000, or $100 for employee accounts and custodial accounts
for minors. These minimums do not apply to IRAs and other retirement plan
accounts or to accounts managed by the Franklin Templeton Group.
SERVICES TO HELP YOU MANAGE YOUR ACCOUNT
AUTOMATIC INVESTMENT PLAN
Our automatic investment plan offers a convenient way to invest in the funds.
Under the plan, you can have money transferred automatically from your
checking or savings account to a fund each month to buy additional shares. If
you are interested in this program, please refer to the account application
included with this prospectus or contact your investment representative. The
market value of the funds' shares may fluctuate and a systematic investment
plan such as this will not assure a profit or protect against a loss. You may
discontinue the program at any time by calling Shareholder Services.
AUTOMATIC PAYROLL DEDUCTION - CLASS A ONLY
You may have money transferred from your paycheck to the Natural Resources
Fund, the Health Care Fund or the Utilities Fund to buy additional Class A
shares. Your investments will continue automatically until you instruct the
fund and your employer to discontinue the plan. To process your investment,
we must receive both the check and payroll deduction information in required
form. Due to different procedures used by employers to handle payroll
deductions, there may be a delay between the time of the payroll deduction
and the time we receive the money.
SYSTEMATIC WITHDRAWAL PLAN
Our systematic withdrawal plan allows you to sell your shares and receive
regular payments from your account on a monthly, quarterly, semiannual or
annual basis. The value of your account must be at least $5,000 and the
minimum payment amount for each withdrawal must be at least $50. For
retirement plans subject to mandatory distribution requirements, the $50
minimum will not apply.
If you would like to establish a systematic withdrawal plan, please complete
the systematic withdrawal plan section of the account application included
with this prospectus and indicate how you would like to receive your
payments. You may choose to direct your payments to buy the same class of
shares of another Franklin Templeton Fund or have the money sent directly to
you, to another person, or to a checking or savings account. If you choose to
have the money sent to a checking or savings account, please see "Electronic
Fund Transfers" below. Once your plan is established, any distributions paid
by the fund will be automatically reinvested in your account.
You will generally receive your payment by the end of the month in which a
payment is scheduled. When you sell your shares under a systematic withdrawal
plan, it is a taxable transaction.
To avoid paying sales charges on money you plan to withdraw within a short
period of time, you may not want to set up a systematic withdrawal plan if
you plan to buy shares on a regular basis. Shares sold 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 discontinue a systematic withdrawal plan, change the amount and
schedule of withdrawal payments, or suspend one payment by notifying us by
mail or by phone at least seven business days before the end of the month
preceding a scheduled payment. Please see "How Do I Buy, Sell and Exchange
Shares? - Systematic Withdrawal Plan" in the SAI for more information.
ELECTRONIC FUND TRANSFERS
You may choose to have dividend and capital gain distributions or payments
under a systematic withdrawal plan sent directly to a checking or savings
account. If the account is with 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. We will send any payments made during that time to the
address of record on your account.
TELEFACTS(R)
From a touch-tone phone, you may call our TeleFACTS system (day or night) at
1-800/247-1753 to:
o obtain information about your account;
o obtain price and performance information about any Franklin Templeton
Fund;
o exchange shares (within the same class) between identically registered
Franklin Templeton Class A, B or C accounts; and
o request duplicate statements and deposit slips for Franklin Templeton
accounts.
You will need the code number for each class to use TeleFACTS. The code
numbers are as follows:
CODE NUMBER
- ------------------------------------------------------------------------------
Biotechnology Fund 402
Health Care Fund - Class A 199
Health Care Fund - Class B 399
Health Care Fund - Class C 299
Natural Resources
Fund - Class A 403
Utilities Fund - Class A 197
Utilities Fund - Class B 397
Utilities Fund - Class C 297
STATEMENTS AND REPORTS TO SHAREHOLDERS
We will send you the following statements and reports on a regular basis:
o Confirmation and account statements reflecting transactions in your
account, including additional purchases and dividend reinvestments. PLEASE
VERIFY THE ACCURACY OF YOUR STATEMENTS WHEN YOU RECEIVE THEM.
o Financial reports of the funds will be sent every six months. To reduce
fund expenses, we attempt to identify related shareholders within a household
and send only one copy of a report. Call Fund Information if you would like
an additional free copy of the funds' financial reports.
INSTITUTIONAL ACCOUNTS
Additional methods of buying, selling or exchanging shares of the funds may
be available to institutional accounts. Institutional investors may also be
required to complete an institutional account application. For more
information, call Institutional Services.
AVAILABILITY OF THESE SERVICES
The services above are available to most shareholders. If, however, your
shares are held by a financial institution, in a street name account, or
networked through the NSCC, the funds may not be able to offer these services
directly to you. Please contact your investment representative.
WHAT IF I HAVE QUESTIONS ABOUT MY ACCOUNT?
If you have any questions about your account, you may write to Investor
Services at 777 Mariners Island Blvd., P.O. Box 7777, San Mateo, California
94403-7777. The funds, Distributors and the manager are also located at this
address. You may also contact us by phone at one of the numbers listed below.
HOURS OF OPERATION (PACIFIC TIME)
DEPARTMENT NAME TELEPHONE NO. (MONDAY THROUGH FRIDAY)
Shareholder Services 1-800/632-2301 5:30 a.m. to 5:00 p.m.
Dealer Services 1-800/524-4040 5:30 a.m. to 5:00 p.m.
Fund Information 1-800/DIAL BEN 5:30 a.m. to 8:00 p.m.
(1-800/342-5236) 6:30 a.m. to 2:30 p.m. (Saturday)
Retirement Plan Services 1-800/527-2020 5:30 a.m. to 5:00 p.m.
Institutional Services 1-800/321-8563 6:00 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 5:30 a.m. to 5:00 p.m.
Your phone call may be monitored or recorded to ensure we provide you with
high quality service. You will hear a regular beeping tone if your call is
being recorded.
GLOSSARY
USEFUL TERMS AND DEFINITIONS
BOARD - The Board of Trustees of the Trust
CD - Certificate of deposit
CLASS A, CLASS B, CLASS C AND ADVISOR CLASS - The Health Care Fund and the
Utilities Fund offer three classes of shares, designated "Class A," "Class B"
and "Class C." The Natural Resources Fund offers two classes of shares,
designated "Class A" and "Advisor Class." The classes of each fund have
proportionate interests in the fund's portfolio. They differ, however,
primarily in their sales charge and expense structures. Because the
Biotechnology Fund's sales charge structure and Rule 12b-1 plan are similar
to those of Class A shares, shares of the fund are considered Class A shares
for redemption, exchange and other purposes.
CODE - Internal Revenue Code of 1986, as amended
CONTINGENCY PERIOD - For Class A shares, the 12 month period during which a
Contingent Deferred Sales Charge may apply. The contingency period is six
years for Class B shares and 18 months for Class C shares. The holding period
begins on the day you buy your shares. For example, if you buy shares on the
18th of the month, they will age one month on the 18th day of the next month
and each following month.
CONTINGENT DEFERRED SALES CHARGE (CDSC) - A sales charge of 1% that may apply
if you sell your Class A or C shares within the Contingency Period. For Class
B, the maximum CDSC is 4% and declines to 0% after six years.
DEPOSITARY RECEIPTS - Certificates that give their holders the right to
receive securities (a) of a foreign issuer deposited in a U.S. bank or trust
company (American Depositary Receipts, "ADRs"); or (b) of a foreign or U.S.
issuer deposited in a foreign bank or trust company (Global Depositary
Receipts, "GDRs" or European Depositary Receipts, "EDRs")
DISTRIBUTORS - Franklin/Templeton Distributors, Inc., the funds' principal
underwriter. The SAI lists the officers and Board members who are affiliated
with Distributors. See "Officers and Trustees."
ELIGIBLE GOVERNMENTAL AUTHORITY - Any state or local government or any
instrumentality, department, authority or agency thereof that has determined
a fund is a legally permissible investment and that can only buy shares of a
fund without paying sales charges.
FRANKLIN TEMPLETON FUNDS - The U.S. registered mutual funds in the Franklin
Group of Funds(R) and the Templeton Group of Funds except Franklin Valuemark
Funds, Templeton Capital Accumulator Fund, Inc., and Templeton Variable
Products Series Fund
FRANKLIN TEMPLETON GROUP - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries
FRANKLIN TEMPLETON GROUP OF FUNDS - All U.S. registered investment companies
in the Franklin Group of Funds(R) and the Templeton Group of Funds
FT SERVICES - Franklin Templeton Services, Inc., the funds' administrator
INVESTOR SERVICES - Franklin/Templeton Investor Services, Inc., the funds'
shareholder servicing and transfer agent
IRA - Individual retirement account or annuity qualified under section 408 of
the Code
IRS - Internal Revenue Service
LETTER - Letter of Intent
MARKET TIMERS - Market Timers generally include market timing or asset
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 or whose transactions include
frequent or large exchanges.
MOODY'S - Moody's Investors Service, Inc.
NET ASSET VALUE (NAV) - The value of a mutual fund is determined by deducting
the fund's liabilities from the total assets of the portfolio. The net asset
value per share is determined by dividing the net asset value of the fund by
the number of shares outstanding.
NSCC - National Securities Clearing Corporation
NYSE - New York Stock Exchange
OFFERING PRICE - The public offering price is based on the Net Asset Value
per share of the class and includes the front-end sales charge. The maximum
front-end sales charge is 5.75% for Class A and 1% for Class C. There is no
front-end sales charge for Class B. We calculate the offering price to two
decimal places using standard rounding criteria.
QUALIFIED RETIREMENT PLANS - An employer sponsored pension or profit-sharing
plan that qualifies under section 401 of the Code. Examples include 401(k),
money purchase pension, profit sharing and defined benefit plans.
RESOURCES - Franklin Resources, Inc.
SAI - Statement of Additional Information
S&P - Standard & Poor's Corporation
SEC - U.S. Securities and Exchange Commission
SECURITIES DEALER - A financial institution that, either directly or through
affiliates, has an agreement with Distributors to handle customer orders and
accounts with the funds. This reference is for convenience only and does not
indicate a legal conclusion of capacity.
SEP - An employer sponsored simplified employee pension plan established
under section 408(k) of the Code
SIMPLE (Savings Incentive Match Plan for Employees) - An employer sponsored
salary deferral plan established under section 408(p) of the Code
TELEFACTS(R) - Franklin Templeton's automated customer servicing system
WE/OUR/US - Unless the context indicates a different meaning, these terms
refer to the funds and/or Investor Services, Distributors, or other wholly
owned subsidiaries of Resources.
PROSPECTUS
FRANKLIN
STRATEGIC
INCOME FUND
INVESTMENT STRATEGY
INCOME
SEPTEMBER 1, 1998 AS AMENDED JANUARY 1, 1999
Franklin Strategic Series
Class A, B & C
Please read this prospectus before investing, and keep it for future
reference. It contains important information, including how the fund invests
and the services available to shareholders.
To learn more about the fund and its policies, you may request a copy of the
fund's Statement of Additional Information ("SAI"), dated September 1, 1998,
which we may amend from time to time. We have filed the SAI with the SEC and
have incorporated it by reference into this prospectus.
For a free copy of the SAI or a larger print version of this prospectus,
contact your investment representative or call 1-800/DIAL BEN.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE
U.S. GOVERNMENT. MUTUAL FUND SHARES INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
LIKE ALL MUTUAL FUND SHARES, THE SEC HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE FUND MAY INVEST UP TO 100% OF ITS NET ASSETS IN NON-INVESTMENT GRADE
BONDS OF BOTH U.S. AND FOREIGN ISSUERS. THESE ARE COMMONLY KNOWN AS "JUNK
BONDS." THEIR DEFAULT AND OTHER RISKS ARE GREATER THAN THOSE OF HIGHER RATED
SECURITIES. YOU SHOULD CAREFULLY CONSIDER THESE RISKS BEFORE INVESTING IN THE
FUND. PLEASE SEE "WHAT ARE THE RISKS OF INVESTING IN THE FUND?"
FRANKLIN STRATEGIC INCOME FUND
THIS PROSPECTUS IS NOT AN OFFERING OF THE SECURITIES HEREIN DESCRIBED IN ANY
STATE, JURISDICTION OR COUNTRY IN WHICH THE OFFERING IS NOT AUTHORIZED. NO
SALES REPRESENTATIVE, DEALER, OR OTHER PERSON IS AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS. FURTHER INFORMATION MAY BE OBTAINED FROM DISTRIBUTORS.
TABLE OF CONTENTS
ABOUT THE FUND
Expense Summary .................................................. 2
Financial Highlights ............................................. 4
How Does the Fund Invest Its Assets? ............................. 5
What Are the Risks of Investing in the Fund? ..................... 10
Who Manages the Fund? ............................................ 14
How Taxation Affects the Fund and Its Shareholders ............... 18
How Is the Trust Organized? ...................................... 20
ABOUT YOUR ACCOUNT
How Do I Buy Shares? ............................................. 21
May I Exchange Shares for Shares of Another Fund?................. 30
How Do I Sell Shares? ............................................ 33
What Distributions Might I Receive From the Fund? ................ 36
Transaction Procedures and Special Requirements .................. 37
Services to Help You Manage Your Account ......................... 41
What If I Have Questions About My Account? ....................... 44
GLOSSARY
Useful Terms and Definitions ..................................... 44
APPENDIX
Description of Ratings ........................................... 47
FRANKLIN
STRATEGIC
INCOME FUND
September 1, 1998
as amended January 1, 1999
When reading this prospectus, you will see certain terms beginning with
capital letters. This means the term is explained in our glossary section.
777 Mariners Island Blvd.
P.O. Box 7777
San Mateo
CA 94403-7777
1-800/DIAL BEN(R)
ABOUT THE FUND
EXPENSE SUMMARY
This table is designed to help you understand the costs of investing in the
fund. It is based on the fund's historical expenses for the fiscal year ended
April 30, 1998. The fund's actual expenses may vary.
Class A1 Class B2 Class C1
- ------------------------------------------------------------------------------
A SHAREHOLDER TRANSACTION EXPENSES3
Maximum Sales Charge
(as a percentage of Offering
Price) 4.25% 4.00% 1.99%
Paid at time of purchase4 4.25% None 1.00%
Paid at redemption5 None 4.00% 0.99%
Exchange Fee
(per transaction)6 None None None
B. ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET
ASSETS)
Management Fees7 0.61% 0.61% 0.61%
Rule 12b-1 Fees8 0.25% 0.65% 0.65%
Other Expenses 0.18% 0.18% 0.18%
------------------------------
Total Fund Operating
Expenses7 1.04% 1.44% 1.44%
==============================
C. EXAMPLE
Assume the annual return for each class is 5%, operating expenses are
as described above, and you sell your shares after the number of years
shown. These are the projected expenses for each $10,000 that you
invest in the fund.
1 Year 3 Years 5 Years 10 Years
- ------------------------------------------------------------------------------
CLASS A $5279 $742 $975 $1,642
CLASS B
Assuming you sold
your shares at the
end of the period $547 $756 $987 $1,61810
Assuming you stayed in
the fund $147 $456 $787 $1,61810
CLASS C $34311 $551 $879 $1,807
THIS IS JUST AN EXAMPLE. IT DOES NOT REPRESENT PAST OR FUTURE EXPENSES OR
RETURNS. ACTUAL EXPENSES AND RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN.
The fund pays its operating expenses. The effects of these expenses are
reflected in the Net Asset Value or dividends of each class and are not
directly charged to your account.
1. Before January 1, 1999, Class A shares were designated Class I and Class C
shares were designated Class II. The fund began offering Class C shares on
May 1, 1998. Annual fund operating expenses for Class C are based on the
expenses for Class A for the fiscal year ended April 30, 1998. The Rule 12b-1
fees are based on the maximum fees allowed under Class C's Rule 12b-1 plan.
2. The fund began offering Class B shares on January 1, 1999. Annual fund
operating expenses are based on the expenses for Class A for the fiscal year
ended April 30, 1998. The Rule 12b-1 fees are based on the maximum fees
allowed under Class B's Rule 12b-1 plan.
3. If your transaction is processed through your Securities Dealer, you may
be charged a fee by your Securities Dealer for this service.
4. There is no front-end sales charge if you invest $1 million or more in
Class A shares. Although Class B and C have
a lower front-end sales charge than Class A, their Rule 12b-1 fees are
higher. Over time you may pay more for Class B and C shares. Please see "How
Do I Buy Shares? - Choosing a Share Class."
5. A Contingent Deferred Sales Charge of 1% may apply to Class A purchases of
$1 million or more if you sell the shares within one year and to any Class C
purchase if you sell the shares within 18 months. A Contingent Deferred Sales
Charge of up to 4% may apply to any Class B purchase if you sell the shares
within six years. A Contingent Deferred Sales Charge may also apply to
purchases by certain retirement plans that qualify to buy Class A shares
without a front-end sales charge. The charge is based on the value of the
shares sold or the Net Asset Value at the time of purchase, whichever is
less. The number in the table shows the charge as a percentage of Offering
Price. While the percentage for Class C is different depending on whether the
charge is shown based on the Net Asset Value or the Offering Price, the
dollar amount you would pay is the same. See "How Do I Sell Shares? -
Contingent Deferred Sales Charge" for details.
6. There is a $5 fee for exchanges by Market Timers.
7. For the period shown, the manager had agreed in advance to waive its
management fees and to assume as its own expense certain expenses otherwise
payable by the fund. With this reduction, the fund paid no management fees
and total fund operating expenses were 0.24% for Class A and would have been
0.64% for Class B and C. Class A total fund operating expenses are different
than the ratio of expenses to average net assets shown under "Financial
Highlights" due to a timing difference between the end of the 12b-1 plan year
and the fund's fiscal year end.
8. 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 charge permitted under the rules of the National
Association of Securities Dealers, Inc.
9. Assumes a Contingent Deferred Sales Charge will not apply.
10. Assumes conversion of Class B shares to Class A shares after eight years,
lowering your annual expenses from that time on.
11. For the same Class C investment, you would pay projected expenses of $245
if you did not sell your shares at the end of the first year. Your projected
expenses for the remaining periods would be the same.
FINANCIAL HIGHLIGHTS
This table summarizes the fund's financial history. The information has been
audited by PricewaterhouseCoopers LLP, the fund's independent auditor. The
audit report covering the periods shown below appears in the Trust's Annual
Report to Shareholders for the fiscal year ended April 30, 1998. The Annual
Report to Shareholders also includes more information about the fund's
performance. For a free copy, please call Fund Information.
YEAR ENDED APRIL 30,
1998 1997 1996 19951
- -----------------------------------------------------------------------------
CLASS I SHARES:
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year $10.86 $10.77 $10.18 $10.00
------------------------------------
Income from investment operations:
Net investment income .87 .93 .85 .70
Net realized and unrealized gains .50 .39 .67 .15
-------------------------------------
Total from investment operations 1.37 1.32 1.52 .85
-------------------------------------
Less distributions from:
Net investment income (.90) (.96) (.82) (.67)
Net realized gains (.09) (.27) (.11) -
-------------------------------------
Total distributions (.99) (1.23) (.93) (.67)
-------------------------------------
Net asset value, end of year $11.24 $10.86 $10.77 $10.18
=====================================
Total return* 13.10% 12.64% 15.59% 8.94%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $166,633 $34,864 $13,022 $6,736
Ratios to average net assets:
Expenses .25% .23% .25% .25%**
Expenses excluding waiver and payments
by affiliate 1.05% 1.05% 1.08% 1.38%**
Net investment income 7.65% 8.60% 8.53% 7.93%**
Portfolio turnover rate 47.47% 114.26% 73.95% 68.43%
*TOTAL RETURN DOES NOT REFLECT SALES COMMISSIONS OR THE CONTINGENT DEFERRED
SALES CHARGE, AND IS NOT ANNUALIZED.
**ANNUALIZED
1FOR THE PERIOD MAY 24, 1994 (EFFECTIVE DATE) TO APRIL 30, 1995.
HOW DOES THE FUND INVEST ITS ASSETS?
WHAT IS THE FUND'S GOAL?
The primary investment goal of the fund is to obtain a high level of current
income, with capital appreciation over the long term as a secondary goal.
These goals are fundamental, which means that they may not be changed without
shareholder approval.
WHAT IS THE FUND'S INVESTMENT STRATEGY?
The fund uses an active asset allocation strategy to try to achieve its goals
of income and capital appreciation. This means the fund allocates its assets
among securities in various market sectors based on Advisers' assessment of
changing economic, market, industry, and issuer conditions. Advisers uses a
"top-down" analysis of macroeconomic trends combined with a "bottom-up"
fundamental analysis of market sectors, industries, and issuers to try to
take advantage of varying sector reactions to economic events. Advisers will
evaluate country risk, business cycles, yield curves, and values between and
within markets.
WHAT KINDS OF SECURITIES DOES THE FUND BUY?
The fund normally invests at least 65% of its assets in U.S. and foreign debt
securities, government securities, mortgage securities, asset-backed
securities, convertible securities, and preferred stock. The fund may invest
up to 35% of its assets in common stocks.
In selecting these securities for the fund's portfolio, Advisers gives
particular consideration to current income, but may also consider the
potential for capital appreciation.
EQUITY SECURITIES generally entitle the holder to participate in a company's
general operating results. These include common stock, preferred stock, and
convertible securities.
DEBT SECURITIES represent an obligation of the issuer to repay a loan of
money to it, and generally, provide for the payment of interest. These
include bonds, notes, and commercial paper.
The fund may buy both rated and unrated securities. Independent rating
organizations rate debt and other fixed-income securities based upon their
assessment of the financial soundness of the issuer. Generally, a lower
rating indicates higher risk. Non-investment grade securities are those rated
lower than BBB by S&P or Baa by Moody's. The fund may invest in securities
rated in any category, including without limit in lower rated debt securities
such as high yield corporate securities. The fund generally invests in
securities that are rated at least Caa by Moody's or CCC by S&P, or unrated
securities that it determines to be of comparable quality. Please see the
appendix and the SAI for a description of these ratings.
MORTGAGE SECURITIES
GENERAL. Mortgage securities represent an ownership interest in mortgage
loans made by banks and other financial institutions to finance purchases of
homes, commercial buildings or other real estate. These mortgage loans may
have either fixed or adjustable interest rates. The individual mortgage loans
are packaged or "pooled" together for sale to investors. As the underlying
mortgage loans are paid off, investors receive principal and interest
payments.
The fund may invest in mortgage-backed securities that are issued by U.S.
government agencies and private institutions. The payment of interest and
principal on securities issued by U.S. government agencies generally is
guaranteed either by the full faith and credit of the U.S. government or by
the credit of the agency. The guarantee applies only to the timely repayment
of principal and interest and not to the market prices and yields of the
securities or to the Net Asset Value or performance of the fund, which will
vary with changes in interest rates and other market conditions. The U.S.
government and its agencies do not guarantee mortgage-backed securities
issued by private institutions.
Most mortgage securities are pass-through securities, which means that they
provide investors with monthly payments of regular interest and principal
payments, as well as unscheduled prepayments, on the underlying mortgages.
Collateralized mortgage obligations ("CMOs") and stripped mortgage securities
are not pass-through securities.
ADJUSTABLE RATE MORTGAGE SECURITIEs ("ARMS") are interests in pools of
mortgages with interest rates that reset periodically. Investing in ARMS
allows the fund to participate in increases in interest rates, resulting in
both higher current yields and lower price fluctuations. During periods of
declining interest rates, the interest rates on the underlying mortgages may
readjust downward, resulting in lower current yields.
STRIPPED MORTGAGE-BACKED SECURITIES typically have two classes, each
receiving different proportions of the interest and principal distributions
on a pool of mortgage loans.
CMOS are fixed-income securities that are collateralized by pools of mortgage
loans created by commercial banks, savings and loan institutions, private
mortgage insurance companies, mortgage bankers, and other U.S. issuers. The
underlying mortgages are backed by residential and various types of
commercial properties. The timely payment
of interest and principal (but not the market value) of some of the
underlying pools is supported by insurance or guarantees issued by private
issuers and, in some cases, U.S. government agencies.
ASSET-BACKED SECURITIES are securities backed by home equity loan
receivables; credit card receivables; automobile, mobile home, and
recreational vehicle loans and leases; and other receivables. The fund may
invest in asset-backed securities rated in any category.
AMERICAN DEPOSITARY RECEIPTS. The fund may also invest in American Depositary
Receipts. American Depositary Receipts are certificates that give their holders
the right to receive securities of a foreign issuer deposited in a U.S. bank or
trust company.
GOVERNMENT SECURITIES. The fund may invest in Treasury bills and bonds, which
are direct obligations of the U.S. government, backed by the full faith and
credit of the U.S. Treasury, and in securities issued or guaranteed by
federal agencies. The fund may also invest in securities issued or guaranteed
by foreign governments and their agencies.
CONVERTIBLE SECURITIES generally are preferred stock or debt securities that
pay dividends or interest and may be converted into common stock.
SHORT-TERM INVESTMENTS. The fund may invest cash being held for liquidity
purposes in short-term debt instruments, including U.S. government
securities, high-grade commercial paper, repurchase agreements and other
money market equivalents.
GENERAL. The fund may buy foreign securities that are traded in the U.S. or
directly in foreign markets, and may buy securities denominated in foreign
currencies. The fund is non-diversified, which means that there is no
restriction under the federal securities laws on the percentage of its assets
that it may invest in the securities of any one issuer. The fund currently
intends not to invest more than 5% of its total assets in companies that have
a record of less than three years' continuous operation, including
predecessors. These investments, together with any illiquid securities, may
not exceed 10% of the fund's net assets. In addition, the fund may not engage
in joint or joint and several trading accounts in securities, except that an
order to purchase or sell may be combined with orders from other persons to
obtain lower brokerage commissions and except that the fund may engage in
joint repurchase agreement arrangements.
Please see the SAI for more details on the types of securities in which the
fund invests.
WHAT ARE SOME OF THE FUND'S OTHER INVESTMENT STRATEGIES AND PRACTICES?
TEMPORARY INVESTMENTS. When Advisers believes that the securities trading
markets or the economy are experiencing excessive volatility or a prolonged
general decline, or other adverse conditions exist, it may invest the fund's
portfolio in a temporary defensive manner. Under such circumstances, the fund
may invest up to 100% of its assets in short-term debt instruments, including
U.S. government securities, high-grade commercial paper, repurchase
agreements and other money market equivalents.
REPURCHASE AGREEMENTS. The fund will generally have a portion of its assets
in cash or cash equivalents for a variety of reasons including waiting for a
special investment opportunity or taking a defensive position. To earn income
on this portion of its assets, the fund may enter into repurchase agreements
with certain banks and broker-dealers. Under a repurchase agreement, the fund
agrees to buy a U.S. government security from one of these issuers and then
to sell the security back to the issuer after a short period of time
(generally, less than seven days) at a higher price. The bank or
broker-dealer must transfer to the fund's custodian securities with an
initial value of at least 102% of the dollar amount invested by the fund in
each repurchase agreement.
SECURITIES LENDING. To generate additional income, the fund may lend its
portfolio securities to qualified securities dealers or other institutional
investors. Such loans may not exceed 331/3% of the value of the fund's total
assets measured at the time of the most recent loan. The fund currently
intends not to exceed 10% of the value of its total assets at the time of the
most recent loan. For each loan the borrower must maintain collateral with
the fund's custodian with a value at least equal to 100% of the current
market value of the loaned securities.
OPTIONS. The fund may buy and sell options on securities, securities indices,
and futures contracts. The fund may buy and sell options on foreign
currencies to protect its portfolio against exchange rate movements. The fund
may only sell covered options. An option on a security or futures contract is
a contract that allows the buyer of the option the right to buy or sell a
specified security or futures contract from or to the seller at a specified
price during the term of the option. An option on a securities index is a
contract that allows the buyer of the option the right to receive from the
seller cash, in an amount equal to the difference between the index's closing
price and the option's exercise price. The fund may only buy options on
securities and securities indices if the total premiums it paid
for such options is 5% or less of its total assets.
FUTURES CONTRACTS. Changes in interest rates, securities prices or foreign
currency valuations may affect the value of the fund's investments. To reduce
its exposure to these factors, the fund may buy and sell financial futures
contracts and foreign currency futures contracts and options on these
contracts. A financial futures contract is an agreement to buy or sell a
specific security or commodity at a specified future date and price. A
futures contract on a foreign currency is an agreement to buy or sell a
specific amount of a currency for a set price on a future date. The fund may
not commit more than 5% of its total assets to initial margin deposits on
futures contracts.
FOREIGN CURRENCY EXCHANGE CONTRACTS. To help protect its portfolio against
adverse changes in foreign currency exchange rates or to earn additional
income, the fund may enter into forward foreign currency contracts, which are
agreements to buy or sell a specific currency at a set price on a future date.
INTEREST RATE AND CURRENCY SWAPS. Swap agreements typically are individually
negotiated agreements that are structured to enable the parties to shift
("swap") investment exposure from one type of investment to another. Interest
rate swaps involve an exchange between the parties of their respective
commitments to pay or receive interest, such as an exchange of fixed rate
payments for floating rate payments. Currency swaps involve the exchange of
the parties' respective rights to make or receive payments in specified
currencies.
INVERSE FLOATERS. The fund may invest up to 5% of its total assets in inverse
floaters. Inverse floaters are instruments with floating or variable interest
rates that move in the opposite direction, usually at an accelerated speed,
to short-term interest rates or interest rate indices.
MORTGAGE DOLLAR ROLLS. The fund may enter into mortgage dollar rolls, in
which the fund sells mortgage-backed securities for delivery in the current
month and simultaneously contracts to repurchase substantially similar
securities on a specified future date.
LOAN PARTICIPATIONS AND DEFAULTED DEBT SECURITIES. Loan participations are
interests in floating or variable rate senior loans to U.S. corporations,
partnerships and other entities. The fund will acquire loan participations
selling at a discount to par value because of the borrower's credit problems.
To the extent the borrower's credit problems are resolved, the loan
participation may appreciate in value. Advisers may acquire loan
participations for the fund when it believes, over the long term,
appreciation will occur. An investment in these securities, however, carries
substantially the same risks associated with an investment in defaulted debt
securities and may result in the loss of the fund's entire investment. The
fund will buy defaulted debt securities if, in the opinion of Advisers, it
appears the issuer may resume interest payments or other advantageous
developments appear likely in the near future.
BORROWING. The fund does not borrow money or mortgage or pledge any of its
assets, except that it may borrow for temporary or emergency purposes in an
amount not to exceed 5% of its total assets.
ILLIQUID INVESTMENTS. The fund's policy is not to invest more than 10% of its
net assets in illiquid securities. Illiquid securities are generally securities
that cannot be sold within seven days in the normal course of business at
approximately the amount at which the fund has valued them.
OTHER POLICIES AND RESTRICTIONS. The fund has a number of additional
investment policies and restrictions that govern its activities. Those that
are identified as "fundamental" may only be changed with shareholder
approval. The others may be changed by the Board alone. For a list of these
restrictions and more information about the fund's investment policies,
including those described above, please see "How Does the Fund Invest Its
Assets?" and "Investment Restrictions" in the SAI.
Generally, the policies and restrictions discussed in this prospectus and in
the SAI apply when the fund makes an investment. In most cases, the fund is
not required to sell a security because circumstances change and the security
no longer meets one or more of the fund's policies or restrictions.
WHAT ARE THE RISKS OF INVESTING IN THE FUND?
There is no assurance that the fund will meet its investment goal.
The value of your shares will increase as the value of the securities owned
by the fund increases and will decrease as the value of the fund's
investments decrease. In this way, you participate in any change in the value
of the securities owned by the fund. In addition to the factors that affect
the value of any particular security that the fund owns, the value of fund
shares may also change with movements in the stock and bond markets as a
whole.
CREDIT RISK. The fund's investments in fixed-income securities involve credit
risk. Credit risk is the possibility that the issuer of a debt security or
the borrower on an underlying mortgage or debt obligation will be unable to
make interest payments or repay principal. Changes in an issuer's or
borrower's financial strength or in a security's credit rating may affect its
value. Even securities supported by credit enhancements have the credit risk
of the entity providing the credit support. Credit support provided by a
foreign entity may be less certain because of the possibility of adverse
foreign economic, political or legal developments that may affect the ability
of that foreign entity to meet its obligations. Changes in the credit quality
of the credit provider could affect the value of the security and the fund's
share price.
Securities rated below investment grade, sometimes called "junk bonds,"
generally have more credit risk than higher-rated securities. The risk of
default or price changes due to changes in the issuer's credit quality is
greater. Issuers of lower-rated securities are typically in weaker financial
health than issuers of higher-rated securities, and their ability to make
interest payments or repay principal is less certain. These issuers are also
more likely to encounter financial difficulties and to be materially affected
by these difficulties when they do encounter them. The market price of
lower-rated securities may fluctuate more than higher-rated securities and
may decline significantly in periods of economic difficulty. Lower-rated
securities may also be less liquid than higher-rated securities.
The fund may invest without limit in securities rated below investment grade.
The following table provides a summary of the credit quality of the fund's
portfolio. These figures are dollar-weighted averages of month-end assets
during the fiscal year ended April 30, 1998.
AVERAGE WEIGHTED
S&P RATING PERCENTAGE OF ASSETS
AAA 31.16%
AA 12.04%
A 1 1.35%
BBB 1.97%
BB 2 20.99%
B 3 30.21%
CCC 2.00%
D 0.06%
Not Rated 0.22%
1 0.46% are unrated by S&P but determined to be comparable to securities rated
A and have been included in the A rating category.
2 3.87% are unrated by S&P but determined to be comparable to securities rated
BB and have been included in the BB rating category.
3 3.78% are unrated by S&P but determined to be comparable to securities rated
B and have been included in the B rating category.
Because the fund may invest in lower-rated U.S. and foreign corporate bonds,
an investment in the fund is subject to a higher degree of risk than an
investment in a more conservative type of income fund.
Please see the SAI for more details on the risks associated with lower-rated
securities.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES RISK. The market value of
fixed-rate mortgage securities, like other fixed-income securities, will
generally vary inversely with changes in market interest rates, declining
when interest rates rise and rising when interest rates fall. Because
interest rates of ARMS move with market interest rates, their values tend to
fluctuate to a lesser degree and are unlikely to rise during periods of
declining interest rates to the same extent as fixed-rate instruments.
Mortgage-backed securities differ from conventional debt securities because
principal is paid back over the life of the security rather than at maturity.
The fund may receive unscheduled prepayments of principal due to voluntary
prepayments, refinancing, or foreclosure on the underlying mortgage loans.
During periods of declining interest rates, the volume of principal
prepayments generally increases as borrowers refinance their mortgages at
lower rates. The fund may be forced to reinvest returned principal at lower
interest rates, reducing the fund's income. For this reason, mortgage-backed
securities may be less effective than other types of securities as a means of
"locking in" long-term interest rates and may have less potential for capital
appreciation during periods of falling interest rates than other investments
with similar maturities.
A reduction in the anticipated rate of principal prepayments, especially
during periods of rising interest rates, may increase the effective maturity
of mortgage-backed securities, making them more susceptible than other debt
securities to a decline in market value when interest rates rise. This could
increase the volatility of the fund's returns and share price.
Some ARMS in which the fund may invest are backed by mortgages having limits
on the amount the loan rate can fluctuate. During periods of extreme
fluctuations in market interest rates, the interest rates on the underlying
mortgages will not adjust beyond the limits, and the securities will behave
more like long-term, fixed-rate debt securities. This could increase the
volatility of the fund's return and share price.
Stripped mortgage-backed securities have greater market volatility than other
types of mortgage securities in which the fund invests. The value of these
securities is extremely sensitive to changes in interest rates and the rate
of principal payments and prepayments on the underlying mortgage assets.
Issuers of asset-backed securities may have limited ability to enforce the
security interest in the underlying assets, and credit enhancements provided
to support these securities, if any, may be inadequate to protect investors
in the event of a default. Like mortgage-backed securities, asset-backed
securities are subject to prepayment risk.
NON-DIVERSIFICATION RISK. There is no limit on the amount of the fund's
assets that it can invest in any one issuer. Economic, business, political,
or other changes can affect securities of a similar type. As a
non-diversified fund, the fund may be more sensitive to these changes.
FOREIGN SECURITIES RISK. The value of foreign (and U.S.) securities is
affected by general economic conditions and individual company and industry
earnings prospects. While foreign securities may offer significant
opportunities for gain, they also involve additional risks that can increase
the potential for losses in the fund. These risks can be significantly
greater for investments in emerging markets. Investments in American
Depositary Receipts also involve some or all of the risks described below.
The political, economic, and social structures of some countries in which the
fund invests may be less stable and more volatile than those in the U.S. 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.
There may be less publicly available information about a foreign company or
government than about a U.S. company or public entity. Certain countries'
financial markets and services are less developed than those in the U.S. or
other major economies. As a result, they 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. Transaction costs
on foreign securities markets are generally higher than in the U.S. The
settlement practices may be cumbersome and result in delays that may affect
portfolio liquidity. The funds may have greater difficulty voting proxies,
exercising shareholder rights, pursuing legal remedies, and obtaining
judgments with respect to foreign investments in foreign courts than with
respect to domestic issuers in U.S. courts.
Some of the countries in which the fund may invest such as Russia and certain
Asian and Eastern European countries are considered developing or emerging
markets. Investments in these markets are subject to all of the risks of
foreign investing generally, and have additional and heightened risks due to
a lack of legal, business, and social frameworks
to support securities markets.
Emerging markets involve additional significant risks, including political
and social uncertainty (for example, regional conflicts and risk of war),
currency exchange rate volatility, pervasiveness of corruption and crime,
delays in settling portfolio transactions, and risk of loss arising out of
the system of share registration and custody. For more information on the
risks associated with emerging markets securities, please see the SAI.
On July 1, 1997, Hong Kong reverted to the sovereignty of China. As with any
major political transfer of power, this could result in political, social,
economic, market, or other developments in Hong Kong, China, or other
countries that could affect the value of the fund's investments.
DERIVATIVE SECURITIES RISK. Derivative investments are those whose values are
dependent upon the performance of one or more other securities or investments
or indices; in contrast to common stock, for example, whose value is
dependent upon the operations of the issuer. Option transactions, foreign
currency exchange transactions, futures contracts, and swap agreements are
considered derivative investments. To the extent the fund enters into these
transactions, their success will depend upon Advisers' ability to predict
pertinent market movements. These securities are subject to the risk that the
other party to the transaction may fail to perform, resulting in losses to
the fund.
INTEREST RATE, CURRENCY AND MARKET RISK. To the extent the fund invests in
debt securities, changes in interest rates in any country where the fund is
invested will affect the value of the fund's portfolio and its share price.
Rising interest rates, which often occur during times of inflation or a
growing economy, are likely to have a negative effect on the value of the
fund's shares. To the extent the fund invests in common stocks, a general
market decline in any country where the fund is invested may cause the value
of what the fund owns, and thus the fund's share price, to decline. Changes
in currency valuations may also affect the price of fund shares. The value of
stock markets, currency valuations and interest rates throughout the world
have increased and decreased in the past. These changes are unpredictable.
EURO RISK. On January 1, 1999, the European Monetary Union (EMU) plans to
introduce a new single currency, the euro, which will replace the national
currency for participating member countries. If the fund holds investments in
countries with currencies replaced by the euro, the investment process,
including trading, foreign exchange, payments, settlements, cash accounts,
custody and accounting will be impacted.
Because this change to a single currency is new and untested, the
establishment of the euro may result in market volatility. For the same
reason, it is not possible to predict the impact of the euro on the business
or financial condition of European issuers which the fund may hold in its
portfolio, and their impact on the value of fund shares. To the extent the
fund holds non-U.S. dollar (euro or other) denominated securities, it will
still be exposed to currency risk due to fluctuations in those currencies
versus the U.S. dollar.
YEAR 2000. When evaluating current and potential portfolio positions, Year
2000 is one of the factors the fund's manager considers.
The manager will rely upon public filings and other statements made by
companies about their Year 2000 readiness. Issuers in countries outside the
U.S., particularly in emerging markets, may not be required to make the same
level of disclosure about Year 2000 readiness as is required in the U.S. The
manager, of course, cannot audit each company and its major suppliers to
verify their Year 2000 readiness.
If a company in which the fund is invested in is adversely affected by Year
2000 problems, it is likely that the price of its security will also be
adversely affected. A decrease in the value of one or more of the fund's
portfolio holdings will have a similar impact on the price of the fund's
shares. Please see "Year 2000 Problem" under "Who Manages the Fund?" for more
information.
WHO MANAGES THE FUND?
THE BOARD. The Board oversees the management of the fund and elects its
officers. The officers are responsible for the fund's day-to-day operations.
The Board also monitors the fund to ensure no material conflicts exist among
the fund's classes of shares. While none is expected, the Board will act
appropriately to resolve any material conflict that may arise.
INVESTMENT MANAGER. Franklin Advisers, Inc. manages the fund's assets and
makes its investment decisions. The manager also performs similar services
for other funds. It is wholly owned by Resources, a publicly owned company
engaged in the financial services industry through its subsidiaries. Charles
B. Johnson and Rupert H. Johnson, Jr. are the principal shareholders of
Resources. Together, the manager and its affiliates manage over $208 billion
in assets. Please see "Investment Management and Other Services" and
"Miscellaneous Information" in the SAI for information on securities
transactions and a summary of the fund's Code of Ethics.
Under an agreement with the manager, Templeton Investment Counsel, Inc. is
the sub-advisor of the fund. The sub-advisor provides the manager with
investment management advice and assistance. The sub-advisor's activities are
subject to the Board's review and control, as well as the manager's
instruction and supervision.
MANAGEMENT TEAM. The team responsible for the day-to-day management of the
fund's portfolio is:
Christopher Molumphy
Senior Vice President of Franklin Advisers, Inc.
Mr. Molumphy is a Chartered Financial Analyst and holds a Master of Business
Administration degree from the University of Chicago. He earned his Bachelor
of Arts degree in Economics from Stanford University. He has been with the
Franklin Templeton Group since 1988. Mr. Molumphy is a member of several
securities industry-related associations.
Thomas J. Dickson
Portfolio Manager of Templeton Investment Counsel, Inc.
Mr. Dickson is currently a portfolio manager for several Franklin Templeton
mutual funds. He holds a BS in managerial economics from the University of
California at Davis. Prior to joining the Templeton organization in 1994, Mr.
Dickson worked as a fixed-income analyst and trader for Franklin Advisers,
Inc. Mr. Dickson currently manages fixed income and currency trading for the
Templeton organization and has country responsibilities for Australia,
Canada, Japan and New Zealand.
Eric G. Takaha
Vice President of Franklin Advisers, Inc.
Mr. Takaha is a Chartered Financial Analyst and holds a Master of Business
Administration degree from Stanford University. He earned his Bachelor of
Science degree in Business Administration from the University of California
at Berkeley. Mr. Takaha joined the Franklin Templeton Group in July of 1989.
He is a member of several securities industry-related associations.
MANAGEMENT FEES. During the fiscal year ended April 30, 1998, management fees,
before any advance waiver, totaled 0.61% of the average daily net assets of the
fund. Total operating expenses were 1.04% for Class A. Under an agreement by the
manager to waive its fees, the fund paid no management fees and operating
expenses totaling 0.25% for Class A. The manager may end this arrangement at any
time upon notice to the Board. During the same period, the manager paid the
sub-advisor no sub-advisory fees.
PORTFOLIO TRANSACTIONS. The manager tries to obtain the best execution on all
transactions. If the manager believes more than one broker or dealer can provide
the best execution, it may consider research and related services and the sale
of fund shares, as well as shares of other funds in the Franklin Templeton Group
of Funds, when selecting a broker or dealer. Please see "How Does the Fund Buy
Securities for Its Portfolio?" in the SAI for more information.
ADMINISTRATIVE SERVICES. Under an agreement with the manager, FT Services
provides certain administrative services and facilities for the fund. During
the fiscal year ended April 30, 1998, administration fees totaling 0.15% of
the average daily net assets of the fund were paid to FT Services. These fees
are paid by the manager. They are not a separate expense of the fund. Please
see "Investment Management and Other Services" in the SAI for more
information.
YEAR 2000 PROBLEM. The fund's business operations depend on a worldwide
network of computer systems that contain date fields, including securities
trading systems, securities transfer agent operations and stock market links.
Many of the systems currently use a two digit date field to represent the
date, and unless these systems are changed or modified, they may not be able
to distinguish the Year 1900 from the Year 2000 (commonly referred to as the
Year 2000 problem). In addition, the fact that the Year 2000 is a
non-standard leap year may create difficulties for some systems.
When the Year 2000 arrives, the fund's operations could be adversely affected
if the computer systems used by the manager, its service providers and other
third parties it does business with are not Year 2000 ready. For example, the
fund's portfolio and operational areas could be impacted, including
securities trade processing, interest and dividend payments, securities
pricing, shareholder account services, reporting, custody functions and
others. The fund could experience difficulties in effecting transactions if
any of its foreign subcustodians, or if foreign broker-dealers or foreign
markets are not ready for Year 2000.
The fund's manager and its affiliated service providers are making a
concerted effort to take steps they believe are reasonably designed to
address their Year 2000 problems. Of course, the fund's ability to reduce the
effects of the Year 2000 problem is also very much dependent upon the efforts
of third parties over which the fund and its manager may have no control.
THE RULE 12B-1 PLANS
Each class has a separate distribution or "Rule 12b-1" plan under which the
fund shall pay or may reimburse Distributors or others for the expenses of
activities that are primarily intended to sell shares of the class. These
expenses may include, among others, distribution or service fees paid to
Securities Dealers or others who have executed a servicing agreement with the
fund, Distributors or its affiliates; a prorated portion of Distributors'
overhead expenses; and the expenses of printing prospectuses and reports used
for sales purposes, and preparing and distributing sales literature and
advertisements.
Payments by the fund under the Class A plan may not exceed 0.25% per year of
Class A's average daily net assets. All distribution expenses over this
amount will be borne by those who have incurred them. During the first year
after certain Class A purchases made without a sales charge, Securities
Dealers may not be eligible to receive the Rule 12b-1 fees associated with
the purchase.
Under the Class B plan, the fund pays Distributors up to 0.50% per year of
Class B's average daily net assets to pay Distributors for providing
distribution and related services and bearing certain Class B expenses. All
distribution expenses over this amount will be borne by those who have
incurred them. Securities Dealers are not be eligible to receive this portion
of the Rule 12b-1 fees associated with the purchase.
The fund may also pay a servicing fee of up to 0.15% per year of Class B's
average daily net assets under the Class B plan. This fee may be used to pay
Securities Dealers or others for, among other things, helping to establish
and maintain customer accounts and records, helping with requests to buy and
sell shares, receiving and answering correspondence, monitoring dividend
payments from the fund on behalf of customers, and similar servicing and
account maintenance activities. Securities Dealers may be eligible to receive
this portion of the Rule 12b-1 fees from the date of purchase. After 8 years,
Class B shares convert to Class A shares and Securities Dealers may then
receive the Rule 12b-1 fees applicable to Class A.
The expenses relating to the Class B plan are also used to pay Distributors
for advancing the commission costs to Securities Dealers with respect to the
initial sale of Class B shares. Further, the expenses relating to the Class B
plan may be used by Distributors to pay third party financing entities that
have provided financing to Distributors in connection with advancing
commission costs to Securities Dealers.
Under the Class C plan, the fund may pay Distributors up to 0.50% per year of
Class C's average daily net assets to pay Distributors or others for
providing distribution and related services and bearing certain Class C
expenses. All distribution expenses over this amount will be borne by those
who have incurred them. During the first year after a purchase of Class C
shares, Securities Dealers may not be eligible to receive this portion of the
Rule 12b-1 fees associated with the purchase.
The fund may also pay a servicing fee of up to 0.15% per year of Class C's
average daily net assets under the Class C plan. This fee may be used to pay
Securities Dealers or others for, among other things, helping to establish
and maintain customer accounts and records, helping with requests to buy and
sell shares, receiving and answering correspondence, monitoring dividend
payments from the fund on behalf of customers, and similar servicing and
account maintenance activities.
The Rule 12b-1 fees charged to each class are based only on the fees
attributable to that particular class. For more information, please see "The
Fund's Underwriter" in the SAI.
<TABLE>
<CAPTION>
HOW TAXATION AFFECTS THE FUND AND ITS SHAREHOLDERS
<S> <C>
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TAXATION OF THE FUND'S INVESTMENTS HOW DOES THE FUND EARN INCOME AND GAINS?
The fund invests your money in the stocks, The fund earns dividends and interest
bonds and other securities that are (the fund's "income") on its investments.
described in the section "How Does the When the fund sells a security for a
Fund Invest Its Assets?" Special tax rules price that is higher than it paid, it has
may apply in determining the income and a gain. When the fund sells a security
gains that the fund earns on its for a price that is lower than it paid,
investments. These rules may, in turn, it has a loss. If the fund has held the
affect the amount of distributions that security for more than one year, the gain
the fund pays to you. These special tax or loss will be a long-term capital gain
rules are discussed in the SAI. or loss. If the fund has held the
security for one year or less, the gain
TAXATION OF THE FUND. As a regulated or loss will be a short-term caital gain
investment company, the fund generally or loss. The fund's gains and losses are
pays no federal income tax on the income netted together, and, if the fund has a
and gains that it distributes to you. net gain (the fund's "gains"), that gain
will generally be distrbuted to you.
FOREIGN TAXES. Foreign governments may
impose taxes on the income and gains from ------------------------------------------
the fund's investments in foreign stocks and bonds. These taxes will reduce the amount
of the fund's distributions to you, but, depending upon the amount of the fund's
assets that are invested in foreign securities and foreign taxes paid, may be passed
through to you as a foreign tax credit on your income tax return. The fund may also
invest in the securities of foreign companies that are "passive foreign investment
companies" ("PFICs"). These investments in PFICs may cause the fund to pay income
taxes and interest charges. If possible, the fund will adopt strategies to avoid PFIC
taxes and interest charges.
-------------------------------------------
WHAT IS A DISTRIBUTION?
TAXATION OF SHAREHOLDERS
As a shareholder, you will receive your
Distributions. Distributions from the share of the fund's income and gains on
fund, whether you receive them in cash or its investments in stocks, bonds and
in additional shares, are generally other securities. The fund's income and
subject to income tax. The fund will send short term capital gains are paid to you
you a statement in January of the current as ordinary dividends. The fund's
year that reflects the amount of ordinary long-term capital gains are paid to you
dividends, capital gain distributions and as capital gain distributions. If the
non-taxable distributions you received fund pays you an amount in excess of its
from the fund in the prior year. This income and gains, this excess will
statement will include distributions generally be treated as a non-taxable
declared in December and paid to you in distribution. These amounts, taken
January of the current year, but which are together, are what we call the fund's
taxable as if paid on December 31 of the distributions to you.
prior year.The IRS requires you to report -------------------------------------------
these amounts on your income tax return for the prior year.
DISTRIBUTIONS TO RETIREMENT PLANS. Fund distributions received by your qualified
retirement plan, such as a 401(k) plan or IRA, are generally tax-deferred; this means
that you are not required to report fund distributions on your income tax return when
paid to your plan, but, rather, when your plan makes payments to you. Special rules
apply to payouts from Roth and Education IRAs.
DIVIDENDS-RECEIVED DEDUCTION. Corporate investors may be entitled to a
dividends-received deduction on a portion of the ordinary dividends they receive from
the fund.
REDEMPTIONS AND EXCHANGES. If you redeem -------------------------------------------
your shares or if you exchange your shares WHAT IS A REDEMPTION?
in the fund for shares of another Franklin
Templeton Fund, you will generally have a A redemption is a sale by you to the fund
gain or loss that the IRS requires you to of some or all of your shares in the
report on your income tax return. If you fund. The price per share
exchange fund shares held for 90 days or you receive when you redeem fund shares
less and pay no sales charge, or a reduced may be more or less than the price at
sales charge, for the new shares, all or a which you purchased those shares. An
portion of the sales charge you paid on exchange of shares of the fund for shares
the purchase of the shares you exchanged of another Franklin Templeton Fund is
is not included in their cost for purposes treated as a redemption of fund shares
of computing gain or loss on the exchange. and then a purchase of shares of the
If you hold your shares for six months or other fund. When you redeem or exchange
less, any loss you have will be treated as your shares, you will generally have a
a long-term capital loss to the extent of gain or loss, depending upon whether the
any capital gain distributions received by amount you receive for your shares is
you from the fund. All or a portion of any more or less than your cost or other
loss on the redemption or exchange of your basis in the shares.
shares will be disallowed by the IRS if -------------------------------------------
you purchase other shares in the fund
within 30 days before or after your redemption
or exchange.
NON-U.S. INVESTORS. Ordinary dividends generally will be subject to U.S. income tax
withholding. Your home country may also tax ordinary dividends, capital gain
distributions and gains arising from redemptions or exchanges of your fund shares.
Fund shares held by the estate of a non-U.S. investor may be subject to U.S. estate
tax. You may wish to contact your tax advisor to determine the U.S. and non-U.S. tax
consequences of your investment in the fund.
STATE TAXES. Ordinary dividends and capital gain distributions that you receive from
the fund, and gains arising from redemptions or exchanges of your fund shares will
generally be subject to state and local income tax. The holding of fund shares may
also be subject to state and local intangibles taxes. You may wish to contact your
tax advisor to determine the state and local tax consequences of your investment in
the fund.
-------------------------------------------
BACKUP WITHHOLDING. When you open an WHAT IS A BACKUP WITHHOLDING?
account, IRS regulations require that you
provide your taxpayer identification Backup withholding occurs when the fund
number ("TIN"), certify that it is is required to withhold and pay over to
correct, and certify that you are not the IRS 31% of your distributions and
subject to backup withholding under IRS redemption proceeds. You can avoid backup
rules. If you fail to provide a correct withholding by providing the fund with
TIN or the proper tax certifications, the your TIN, and by completing the tax
fund is required to withhold 31% of all certifications on your shareholder
the distributions (including ordinary application that you were asked to sign
dividends and capital gain distributions) when you opened your account. However, if
and redemption proceeds paid to you. The the IRS instructs the fund to begin
fund is also required to begin backup backup withholding, it is required to do
withholding on your account if the IRS so even if you provided the fund with
instructs the fund to do so. The fund your TIN and these tax certifications,
reserves the right not to open your and backup withholding will remain in
account, or, alternatively, to redeem your place until the fund is instructed by the
shares at the current net asset value, IRS that it is no longer required.
less any taxes withheld, if you fail to
provide a correct TIN, fail to provide the -----------------------------------------
proper tax certifications, or the IRS
instructs the fund to begin backup
withholding on your account.
THIS TAX DISCUSSION IS FOR GENERAL INFORMATION ONLY. PROSPECTIVE INVESTORS SHOULD
CONSULT THEIR OWN TAX ADVISORS CONCERNING THE FEDERAL, STATE, LOCAL OR FOREIGN TAX
CONSEQUENCES OF AN INVESTMENT IN THE FUND. A MORE COMPLETE DISCUSSION OF THESE RULES
AND RELATED MATTERS IS CONTAINED IN THE SECTION ENTITLED "ADDITIONAL INFORMATION ON
DISTRIBUTIONS AND TAXES" IN THE SAI.
</TABLE>
HOW IS THE TRUST ORGANIZED?
The fund is a series of Franklin Strategic Series (the "Trust"), an open-end
management investment company, commonly called a mutual fund. It was
organized as a Delaware business trust on January 25, 1991, and is registered
with the SEC. The fund offers three classes of shares: Franklin Strategic
Income Fund - Class A, Franklin Strategic Income Fund - Class B, and Franklin
Strategic Income Fund - Class C. Additional series and classes of shares may
be offered in the future.
Shares of each class represent proportionate interests in the assets of the
fund and have the same voting and other rights and preferences as any other
class of the fund for matters that affect the fund as a whole. For matters
that only affect one class, however, only shareholders of that class may
vote. Each class will vote separately on matters affecting only that class,
or expressly required to be voted on separately by state or federal law.
Shares of each class of a series have the same voting and other rights and
preferences as the other classes and series of the Trust for matters that
affect the Trust as a whole.
The Trust has noncumulative voting rights. This gives holders of more than
50% of the shares voting the ability to elect all of the members of the
Board. If this happens, holders of the remaining shares voting will not be
able to elect anyone to the Board.
The Trust does not intend to hold annual shareholder meetings. The Trust or a
series of the Trust may hold special meetings, however, for matters requiring
shareholder approval. A meeting may be called by the Board to consider the
removal of a Board member if requested in writing by shareholders holding at
least 10% of the outstanding shares. In certain circumstances, we are
required to help you communicate with other shareholders about the removal of
a Board member. A special meeting may also be called by the Board in its
discretion.
ABOUT YOUR ACCOUNT
HOW DO I BUY SHARES?
OPENING YOUR ACCOUNT
To open your account, please follow the steps below. This will help avoid any
delays in processing your request.
1. Read this prospectus carefully.
2. Determine how much you would like to invest. The fund's minimum
investments are:
o To open a regular, non-retirement account $1,000
o To open an IRA, IRA Rollover, Roth IRA,
or Education IRA $ 250*
o To open a custodial account for a minor
(an UGMA/UTMA account) $ 100
o To open an account with an automatic
investment plan $ 50**
o To add to an account $ 50***
*For all other retirement accounts, there is no minimum investment
requirement.
**$25 for an Education IRA.
***For all retirement accounts except IRAs, IRA Rollovers, Roth IRAs, or
Education IRAs, there is no minimum to add to an account.
We reserve the right to change the amount of these minimums from time to time
or to waive or lower these minimums for certain purchases. We also reserve
the right to refuse any order to buy shares.
3. Carefully complete and sign the enclosed account application, including
the optional shareholder privileges section. By applying for privileges now,
you can avoid the delay and inconvenience of having to send an additional
application to add privileges later. PLEASE ALSO INDICATE WHICH CLASS OF
SHARES YOU WANT TO BUY. IF YOU DO NOT SPECIFY A CLASS, WE WILL INVEST YOUR
PURCHASE IN CLASS A SHARES. It is important that we receive a signed
application since we will not be able to process any redemptions from your
account until we receive your signed application.
4. Make your investment using the table below.
METHOD STEPS TO FOLLOW
- ------------------------------------------------------------------------------
BY MAIL For an initial investment:
Return the application to the fund with your check
made payable to the fund.
For additional investments:
Send a check made payable to the fund. Please
include your account number on the check.
- ------------------------------------------------------------------------------
BY WIRE 1. Call Shareholder Services or, if that number is
busy, call 1-650/312-2000 collect, to receive a
wire control number and wire instructions. You
need a new wire control number every time you
wire money into your account. If you do not have
a currently effective wire control number, we
will return the money to the bank, and we will
not credit the purchase to your account.
2. For an initial investment you must also return
your signed shareholder application to the fund.
IMPORTANT DEADLINES: If we receive your call before
1:00 p.m. Pacific time and the bank receives the
wired funds and reports the receipt of wired funds to
the fund by 3:00 p.m. Pacific time, we will credit
the purchase to your account that day. If we receive
your call after 1:00 p.m. or the bank receives the
wire after 3:00 p.m., we will credit the purchase to
your account the following business day.
- ------------------------------------------------------------------------------
THROUGH YOUR DEALER Call your investment representative
- ------------------------------------------------------------------------------
CHOOSING A SHARE CLASS
Each class has its own sales charge and expense structure, allowing you to
choose the class that best meets your situation. Your financial
representative can help you decide.
CLASS A* Class B* Class C*
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
o Front-end sales o No front-end sales o Front-end sales
charge of 4.25% or charge charge of 1%
less
o Contingent Deferred o Contingent Deferred o Contingent Deferred
Sales Charge of 1% on Sales Charge of 4% or Sales Charge of 1% on
purchases of $1 less on shares you shares you sell
million or more sold sell within six years within 18 months
within one year
o Lower annual expenses o Higher annual o Higher annual
than Class B or C due expenses than Class A expenses than Class A
to lower Rule 12b-1 (same as Class C) due (same as Class B) due
fees to higher Rule 12b-1 to higher Rule 12b-1
fees. Automatic fees. No conversion
conversion to Class A to Class A shares, so
shares after eight annual expenses do
years, reducing future not decrease
annual expenses.
o No maximum purchase o Maximum purchase o Maximum purchase
amount amount of $249,999. We amount of $999,999.
invest any investment We invest any
of $250,000 or more in investment of $1
Class A shares, since million or more in
a reduced front-end Class A shares, since
sales charge is there is no front-end
available and Class sales charge and
A's annual expenses Class A's annual
are lower. expenses are lower.
*Before January 1, 1999, Class A shares were designated Class I and Class C
shares were designated Class II. The fund began offering Class B shares on
January 1, 1999. Class B shares are not available to all retirement plans.
Class B shares are only available to IRAs (of any type), Franklin Templeton
Trust Company 403(b) plans, and Franklin Templeton Trust Company qualified
plans with participant or earmarked accounts.
PURCHASE PRICE OF FUND SHARES
For Class A shares, the sales charge you pay depends on the dollar amount you
invest, as shown in the table below. The sales charge for Class C shares is
1% and, unlike Class A, does not vary based on the size of your purchase.
There is no front-end sales charge for Class B shares.
TOTAL SALES CHARGE AMOUNT PAID
AS A PERCENTAGE OF TO DEALER AS A
AMOUNT OF PURCHASE OFFERING NET AMOUNT PERCENTAGE OF
AT OFFERING PRICE PRICE INVESTED OFFERING PRICE
- ------------------------------------------------------------------------------
CLASS A
Under $100,000 4.25% 4.44% 4.00%
$100,000 but less than $250,000 3.50% 3.63% 3.25%
$250,000 but less than $500,000 2.50% 2.56% 2.25%
$500,000 but less than $1,000,000 2.00% 2.04% 1.85%
$1,000,000 or more* None None None
CLASS B* None None None
CLASS C
Under $1,000,000* 1.00% 1.01% 1.00%
*A Contingent Deferred Sales Charge of 1% may apply to Class A purchases of
$1 million or more and any Class C purchase. A Contingent Deferred Sales
Charge of up to 4% may apply to any Class B purchase. Please see "How Do I
Sell Shares? - Contingent Deferred Sales Charge." Please also see "Other
Payments to Securities Dealers" below for a discussion of payments
Distributors may make out of its own resources to Securities Dealers for
certain purchases.
SALES CHARGE REDUCTIONS AND WAIVERS
- - IF YOU QUALIFY TO BUY SHARES UNDER ONE OF THE SALES CHARGE REDUCTION OR
WAIVER CATEGORIES DESCRIBED BELOW, PLEASE INCLUDE A WRITTEN STATEMENT WITH
EACH PURCHASE ORDER EXPLAINING WHICH PRIVILEGE APPLIES. IF YOU DON'T
INCLUDE THIS STATEMENT, WE CANNOT GUARANTEE THAT YOU WILL RECEIVE THE
SALES CHARGE REDUCTION OR WAIVER.
CUMULATIVE QUANTITY DISCOUNTS - CLASS A ONLY. To determine if you may pay a
reduced sales charge, the amount of your current Class A purchase is added to
the cost or current value, whichever is higher, of your existing shares in
the Franklin Templeton Funds, as well as those of your spouse, children under
the age of 21 and grandchildren under the age of 21. If you are the sole
owner of a company, you may also add any company accounts, including
retirement plan accounts. Companies with one or more retirement plans may add
together the total plan assets invested in the Franklin Templeton Funds
to determine the sales charge that applies.
LETTER OF INTENT - CLASS A ONLY. You may buy Class A shares at a reduced
sales charge by completing the Letter of Intent section of the account
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 on Class A shares.
BY COMPLETING THE LETTER OF INTENT SECTION OF THE ACCOUNT APPLICATION, YOU
ACKNOWLEDGE AND AGREE TO THE FOLLOWING:
o You authorize Distributors to reserve 5% of your total intended purchase
in Class A shares registered in your name until you fulfill your Letter.
o You give Distributors a security interest in the reserved shares and
appoint Distributors as attorney-in-fact.
o Distributors may sell any or all of the reserved shares to cover any
additional sales charge if you do not fulfill the terms of the Letter.
o Although you may exchange your shares, you may not sell reserved shares
until you complete the Letter or pay the higher sales charge.
Your periodic statements will include the reserved shares in the total shares
you own. We will pay or reinvest dividend and capital gain distributions on
the reserved shares as you direct. Our policy of reserving shares does not
apply to certain retirement plans.
If you would like more information about the Letter of Intent privilege,
please see "How Do I Buy, Sell and Exchange Shares? - Letter of Intent" in
the SAI or call Shareholder Services.
GROUP PURCHASES - CLASS A ONLY. If you are a member of a qualified group, you
may buy Class A shares at a reduced sales charge that applies 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.
A qualified group is one that:
o Was formed at least six months ago,
o Has a purpose other than buying fund shares at a discount,
o Has more than 10 members,
o Can arrange for meetings between our representatives and group members,
o Agrees to include Franklin Templeton Fund sales and other materials in
publications and mailings to its members at reduced or no cost to
Distributors,
o Agrees to arrange for payroll deduction or other bulk transmission of
investments to the fund, and
o Meets other uniform criteria that allow Distributors to achieve cost
savings in distributing shares.
A qualified group does not include a 403(b) plan that only allows salary
deferral contributions. 403(b) plans that only allow salary deferral
contributions and that purchased Class A shares of the fund at a reduced
sales charge under the group purchase privilege before February 1, 1998,
however, may continue to do so.
SALES CHARGE WAIVERS. If one of the following sales charge waivers applies to
you or your purchase of fund shares, you may buy shares of the fund without a
front-end sales charge or a Contingent Deferred Sales Charge. All of the
sales charge waivers listed below apply to purchases of Class A shares only,
except for items 1 and 2 which also apply to Class B and C purchases.
Certain distributions, payments or redemption proceeds that you receive may
be used to buy shares of the fund without a sales charge if you reinvest them
within 365 days of their payment or redemption date. They include:
1. Dividend and capital gain distributions from any Franklin Templeton Fund.
The distributions generally must be reinvested in the same class of
shares. Certain exceptions apply, however, to Class C shareholders who
chose to reinvest their distributions in Class A shares of the fund
before November 17, 1997, and to Advisor Class or Class Z shareholders of
a Franklin Templeton Fund who may reinvest their distributions in Class A
shares of the fund.
2. Redemption proceeds from the sale of shares of any Franklin Templeton
Fund. The proceeds must be reinvested in the same class of shares, except
proceeds from the sale of Class B shares will be reinvested in Class A
shares.
If you paid a Contingent Deferred Sales Charge when you sold your Class A
or C shares, we will credit your account with the amount of the
Contingent Deferred Sales Charge paid but a new Contingent Deferred Sales
Charge will apply. For Class B shares reinvested in Class A, a new
Contingent Deferred Sales Charge will not apply, although your account
will not be credited with the amount of any Contingent Deferred Sales
Charge paid when you sold your Class B shares. If you own both Class A
and B shares and you later sell your shares, we will sell your Class A
shares first, unless otherwise instructed.
Proceeds immediately placed in a Franklin Bank CD also may be reinvested
without a front-end sales charge if you reinvest them within 365 days
from the date the CD matures, including any rollover.
This waiver does not apply to shares you buy and sell under our exchange
program. Shares purchased with the proceeds from a money fund may be
subject to a sales charge.
3. Dividend or capital gain distributions from a real estate investment
trust (REIT) sponsored or advised by Franklin Properties, Inc.
4. Annuity payments received under either an annuity option or from death
benefit proceeds, only if the annuity contract offers as an investment
option the Franklin Valuemark Funds or the Templeton Variable Products
Series Fund. You should contact your tax advisor for information on any
tax consequences that may apply.
5. Redemption proceeds from a repurchase of shares of Franklin Floating Rate
Trust, if the shares were continuously held for at least 12 months.
If you immediately placed your redemption proceeds in a Franklin Bank CD
or a Franklin Templeton money fund, you may reinvest them as described
above. The proceeds must be reinvested within 365 days from the date the
CD matures, including any rollover, or the date you redeem your money
fund shares.
6. Redemption proceeds from the sale of Class A shares of any of the
Templeton Global Strategy Funds if you are a qualified investor.
If you paid a contingent deferred sales charge when you sold your Class A
shares from a Templeton Global Strategy Fund, we will credit your account
with the amount of the contingent deferred sales charge paid but a new
Contingent Deferred Sales Charge will apply.
If you immediately placed your redemption proceeds in a Franklin
Templeton money fund, you may reinvest them as described above. The
proceeds must be reinvested within 365 days from the date they are
redeemed from the money fund.
7. Distributions from an existing retirement plan invested in the Franklin
Templeton Funds
Various individuals and institutions also may buy Class A shares without a
front-end sales charge or Contingent Deferred Sales Charge, including:
1. Trust companies and bank trust departments agreeing to invest in Franklin
Templeton Funds over a 13 month period at least $1 million of assets held
in a fiduciary, agency, advisory, custodial or similar capacity and over
which the trust companies and bank trust departments or other plan
fiduciaries or participants, in the case of certain retirement plans,
have full or shared investment discretion. We will accept orders for
these 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 the order.
2. An Eligible Governmental Authority. Please consult your legal and
investment advisors to determine if an investment in the fund is
permissible and suitable for you and the effect, if any, of payments by
the fund on arbitrage rebate calculations.
3. Broker-dealers, registered investment advisors or certified financial
planners who have entered into an agreement with Distributors for clients
participating in comprehensive fee programs. The minimum initial
investment is $250.
4. Qualified registered investment advisors who buy through a broker-dealer
or service agent who has entered into an agreement with Distributors
5. Registered Securities Dealers and their affiliates, for their investment
accounts only
6. Current employees of Securities Dealers and their affiliates and their
family members, as allowed by the internal policies of their employer
7. Officers, trustees, directors and full-time employees of the Franklin
Templeton Funds or the Franklin Templeton Group, and their family
members, consistent with our then-current policies. The minimum initial
investment is $100.
8. Investment companies exchanging shares or selling assets pursuant to a
merger, acquisition or exchange offer
9. Accounts managed by the Franklin Templeton Group
10. Certain unit investment trusts and their holders reinvesting
distributions from the trusts
11. Group annuity separate accounts offered to retirement plans
12. Chilean retirement plans that meet the requirements described under
"Retirement Plans" below
RETIREMENT PLANS. Retirement plans sponsored by an employer (i) with at least
100 employees, or (ii) with retirement plan assets of $1 million or more, or
(iii) that agrees to invest at least $500,000 in the Franklin Templeton Funds
over a 13 month period may buy Class A shares without a front-end sales
charge. Retirement plans that are not Qualified Retirement Plans, SIMPLEs or
SEPs must also meet the requirements described under "Group Purchases - Class
A Only" above to be able to buy Class A shares without a front-end sales
charge. We may enter into a special arrangement with a Securities Dealer,
based on criteria established by the fund, to add together certain small
Qualified Retirement Plan accounts for the purpose of meeting these
requirements.
For retirement plan accounts opened on or after May 1, 1997, a Contingent
Deferred Sales Charge may apply if the retirement plan is transferred out of
the Franklin Templeton Funds or terminated within 365 days of the retirement
plan account's initial purchase in the Franklin Templeton Funds. Please see
"How Do I Sell Shares? - Contingent Deferred Sales Charge" for details.
HOW DO I BUY SHARES IN CONNECTION WITH RETIREMENT PLANS?
Your individual or employer-sponsored retirement plan may invest in the fund.
Plan documents are required for all retirement plans. Franklin Templeton
Trust Company, an affiliate of Distributors and a wholly owned subsidiary of
Resources, can provide the plan documents for you and serve as custodian or
trustee.
Franklin Templeton Trust Company can provide you with brochures containing
important information about its plans. These plans require separate
applications and their policies and procedures may be different than those
described in this prospectus. For more information, including a free
retirement plan brochure or application, please call Retirement Plan Services.
Please consult your legal, tax or retirement plan specialist before choosing
a retirement plan. Your investment representative or advisor can help you
make investment decisions within your plan.
OTHER PAYMENTS TO SECURITIES DEALERS
The payments described below may be made to Securities Dealers who initiate
and are responsible for Class B and C purchases and certain Class A purchases
made without a sales charge. The payments are subject to the sole discretion
of Distributors, and are paid by Distributors or one of its affiliates and
not by the fund or its shareholders.
1. Class A purchases of $1 million or more - up to 0.75% of the amount
invested.
2. Class B purchases - up to 3% of the amount invested.
3. Class C purchases - up to 1% of the purchase price.
4. Class A purchases made without a front-end sales charge by certain
retirement plans described under "Sales Charge Reductions and Waivers -
Retirement Plans" above - up to 1% of the amount invested.
5. Class A purchases by trust companies and bank trust departments,
Eligible Governmental Authorities, and broker-dealers or others on
behalf of clients participating in comprehensive fee programs - up to
0.25% of the amount invested.
6. Class A purchases by Chilean retirement plans - up to 1% of the amount
invested.
A Securities Dealer may receive only one of these payments for each
qualifying purchase. Securities Dealers who receive payments in connection
with investments described in paragraphs 1, 3 or 6 above or a payment of up
to 1% for investments described in paragraph 4 will be eligible to receive
the Rule 12b-1 fee associated with the purchase starting in the thirteenth
calendar month after the purchase.
FOR BREAKPOINTS THAT MAY APPLY AND INFORMATION ON ADDITIONAL COMPENSATION
PAYABLE TO SECURITIES DEALERS IN CONNECTION WITH THE SALE OF FUND SHARES,
PLEASE SEE "HOW DO I BUY, SELL AND EXCHANGE SHARES? - OTHER PAYMENTS TO
SECURITIES DEALERS" IN THE SAI.
FOR INVESTORS OUTSIDE THE U.S.
The distribution of this prospectus and the offering of fund shares may be
limited in many jurisdictions. An investor who wishes to buy shares of the
fund should determine, or have a broker-dealer determine, the applicable laws
and regulations of the relevant jurisdiction. Investors are responsible for
compliance with tax, currency exchange or other regulations applicable to
redemption and purchase transactions in any jurisdiction to which they may be
subject. Investors should consult appropriate tax and legal advisors to
obtain information on the rules applicable to these transactions.
MAY I EXCHANGE SHARES FOR SHARES OF ANOTHER FUND?
We offer a wide variety of funds. If you would like, you can move your
investment from your fund account to an existing or new account in another
Franklin Templeton Fund (an "exchange"). Because it is technically a sale and
a purchase of shares, an exchange is a taxable transaction.
If you own Class A shares, you may exchange into any of our money funds
except Franklin Templeton Money Fund. Franklin Templeton Money Fund is the
only money fund exchange option available to Class B and C shareholders.
Unlike our other money funds, shares of Franklin Templeton Money Fund may not
be purchased directly and no drafts (checks) may be written on Franklin
Templeton Money Fund accounts.
Before making an exchange, please read the prospectus of the fund you are
interested in. This will help you learn about the fund, its investment goal
and policies, and its rules and requirements for exchanges. For example, some
Franklin Templeton Funds do not accept exchanges and others may have
different investment minimums. Some Franklin Templeton Funds do not offer
Class B or C shares.
METHOD STEPS TO FOLLOW
- ------------------------------------------------------------------------------
BY MAIL 1. Send us signed written instructions
2. Include any outstanding share certificates for the
shares you want to exchange
- ------------------------------------------------------------------------------
BY PHONE Call Shareholder Services or TeleFACTS(R)
- If you do not want the ability to exchange by phone
to apply to your account, please let us know.
- ------------------------------------------------------------------------------
THROUGH YOUR DEALER Call your investment representative
- ------------------------------------------------------------------------------
Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to exchange shares.
WILL SALES CHARGES APPLY TO MY EXCHANGE?
You can exchange shares between most Franklin Templeton Funds, generally
without paying any additional sales charges. If you exchange shares held for
less than six months, however, you may be charged the difference between the
front-end sales charge of the two funds if the difference is more than 0.25%.
If you exchange shares from a money fund, a sales charge may apply no matter
how long you have held the shares.
CONTINGENT DEFERRED SALES CHARGE. We will not impose a Contingent Deferred
Sales Charge when you exchange shares. Any shares subject to a Contingent
Deferred Sales Charge at the time of exchange, however, will remain so in the
new fund. The purchase price for determining a Contingent Deferred Sales
Charge on exchanged shares will be the price you paid for the original shares.
For accounts with shares subject to a Contingent Deferred Sales Charge, we
will first exchange any shares in your account that are not subject to the
charge. If there are not enough of these to meet your exchange request, we
will exchange shares subject to the charge in the order they were purchased.
If you exchange Class A shares into one of our money funds, the time your
shares are held in that fund will not count towards the completion of any
Contingency Period. If you exchange your Class B or C shares for the same
class of shares of Franklin Templeton Money Fund, however, the time your
shares are held in that fund will count towards
the completion of any Contingency Period.
For more information about the Contingent Deferred Sales Charge, please see
"How Do
I Sell Shares?"
EXCHANGE RESTRICTIONS
Please be aware that the following restrictions apply to exchanges:
o You must meet the applicable minimum investment amount of the fund you
are exchanging into, or exchange 100% of your fund shares.
o You may only exchange shares within the same class, except as noted
below. If you exchange your Class B shares for the same class of shares of
another Franklin Templeton Fund, the time your shares are held in that
fund will count towards the eight year period for automatic conversion to
Class A shares.
o Generally exchanges may only be made between identically registered
accounts, unless you send written instructions with a signature guarantee.
You may, however, exchange shares from a fund account requiring two or
more signatures into an identically registered money fund account
requiring only one signature for all transactions. PLEASE NOTIFY US IN
WRITING IF YOU DO NOT WANT THIS OPTION TO BE AVAILABLE ON YOUR ACCOUNT.
Additional procedures may apply. Please see "Transaction Procedures and
Special Requirements."
o Franklin Templeton Trust Company IRA or 403(b) retirement plan accounts
may exchange shares as described above. Restrictions may apply to other
types of retirement plans. Please contact Retirement Plan Services for
information on exchanges within these plans.
o The fund you are exchanging into must be eligible for sale in your state.
o We may modify or discontinue our exchange policy if we give you 60 days'
written notice.
o Your exchange may be restricted or refused if you have: (i) requested an
exchange out of the fund within two weeks of an earlier exchange request,
(ii) exchanged shares out of the fund more than twice in a calendar
quarter, or (iii) exchanged shares equal to at least $5 million, or more
than 1% of the fund's net assets. Shares under common ownership or control
are combined for these limits. If you have exchanged shares as described
in this paragraph, you will be considered a Market Timer. Each exchange by
a Market Timer, if accepted, will be charged $5. Some of our funds do not
allow investments by Market Timers.
Because excessive trading can hurt fund performance, operations and
shareholders, we may refuse any exchange purchase if (i) we believe the fund
would be harmed or unable to invest effectively, or (ii) the fund receives or
anticipates simultaneous orders that may significantly affect the fund.
LIMITED EXCHANGES BETWEEN DIFFERENT CLASSES OF SHARES
Certain funds in the Franklin Templeton Funds offer classes of shares not
offered by the fund, such as "Advisor Class" or "Class Z" shares. Because the
fund does not currently offer an Advisor Class, you may exchange Advisor
Class shares of any Franklin Templeton Fund for Class A shares of the fund at
Net Asset Value. If you do so and you later decide you would like to exchange
into a fund that offers an Advisor Class, you may exchange your Class A
shares for Advisor Class shares of that fund. Certain shareholders of Class Z
shares of Franklin Mutual Series Fund Inc. also may exchange their Class Z
shares for Class A shares of the fund at Net Asset Value.
HOW DO I SELL SHARES?
You may sell (redeem) your shares at any time.
METHOD STEPS TO FOLLOW
- ------------------------------------------------------------------------------
BY MAIL 1. Send us signed written instructions. If you would
like your redemption proceeds wired to a bank
account, your instructions should include:
o The name, address and telephone number of the
bank where you want the proceeds sent
o Your bank account number
o The Federal Reserve ABA routing number
o If you are using a savings and loan or credit
union, the name of the corresponding bank and
the account number
2. Include any outstanding share certificates for the
shares you are selling
3. Provide a signature guarantee if required
4. Corporate, partnership and trust accounts may need
to send additional documents. Accounts under
court jurisdiction may have other requirements.
- ------------------------------------------------------------------------------
BY PHONE Call Shareholder Services. If you would like your
redemption proceeds wired to a bank account, other
than an escrow account, you must first sign up for
the wire feature. To sign up, send us written
instructions, with a signature guarantee. To avoid
any delay in processing, the instructions should
include the items listed in "By Mail" above.
Telephone requests will be accepted:
o If the request is $100,000 or less. Institutional
accounts may exceed $100,000 by completing a
separate agreement. Call Institutional Services to
receive a copy.
o If there are no share certificates issued for the
shares you want to sell or you have already
returned them to the fund
o Unless the address on your account was changed by
phone within the last 15 days
- If you do not want the ability to redeem by phone
to apply to your account, please let us know.
- ------------------------------------------------------------------------------
THROUGH
YOUR DEALER Call your investment representative
- ------------------------------------------------------------------------------
We will send your redemption check within seven days after we receive your
request in proper form. If you would like the check sent to an address other
than the address of record or made payable to someone other than the
registered owners on the account, send us written instructions signed by all
account owners, with a signature guarantee. We are not able to receive or pay
out cash in the form of currency.
The wiring of redemption proceeds is a special service that we make available
whenever possible for redemption requests of $1,000 or more. If we receive
your request in proper form before 1:00 p.m. Pacific time, your wire payment
will be sent the next business day. For requests received in proper form
after 1:00 p.m. Pacific time, the payment will be sent the second business
day. By offering this service to you, the fund is not bound to meet any
redemption request in less than the seven day period prescribed by law.
Neither the fund nor its agents shall be liable to you or any other person
if, for any reason, a redemption request by wire is not processed as
described in this section.
If you sell shares you recently purchased with a check or draft, we may delay
sending you the proceeds until your check or draft has cleared, which may
take seven business days or more. A certified or cashier's check may clear in
less time.
Under unusual circumstances, we may suspend redemptions or postpone payment
for more than seven days as permitted by federal securities law.
Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to sell shares.
FRANKLIN TEMPLETON TRUST COMPANY RETIREMENT PLAN ACCOUNTS
Before you can sell shares in a Franklin Templeton Trust Company retirement
plan, you may need to complete additional forms. For participants under age
591/2, tax penalties may apply. Call Retirement Plan Services at
1-800/527-2020 for details.
CONTINGENT DEFERRED SALES CHARGE
For Class A purchases, if you did not pay a front-end sales charge because
you invested $1 million or more or agreed to invest $1 million or more under
a Letter of Intent, a Contingent Deferred Sales Charge may apply if you sell
all or a part of your investment within the Contingency Period. Once you have
invested $1 million or more, any additional Class A investments you make
without a sales charge may also be subject to a Contingent Deferred Sales
Charge if they are sold within the Contingency Period. For any Class C
purchase, a Contingent Deferred Sales Charge may apply if you sell the shares
within the Contingency Period. The charge is 1% of the value of the shares
sold or the Net Asset Value at the time of purchase, whichever is less.
Certain retirement plan accounts opened on or after May 1, 1997, and that
qualify to buy Class A shares without a front-end sales charge may also be
subject to a Contingent Deferred Sales Charge if the retirement plan is
transferred out of the Franklin Templeton Funds or terminated within 365 days
of the account's initial purchase in the Franklin Templeton Funds.
For Class B shares, there is a Contingent Deferred Sales Charge if you sell
your shares within six years, as described in the table below. The charge is
based on the value of the shares sold or the Net Asset Value at the time of
purchase, whichever is less.
THIS % IS DEDUCTED
IF YOU SELL YOUR CLASS B FROM YOUR PROCEEDS AS A
SHARES WITHIN THIS MANY CONTINGENT DEFERRED
YEARS AFTER BUYING THEM SALES CHARGE
- ------------------------------------------------------------------------------
1 YEAR 4
2 Years 4
3 Years 3
4 Years 3
5 Years 2
6 Years 1
7 Years 0
FOR EACH CLASS, WE WILL FIRST REDEEM ANY SHARES IN YOUR ACCOUNT THAT ARE NOT
SUBJECT TO A CONTINGENT DEFERRED SALES CHARGE. IF THERE ARE NOT ENOUGH OF
THESE TO MEET YOUR REQUEST, WE WILL REDEEM SHARES SUBJECT TO THE CHARGE IN
THE ORDER THEY WERE PURCHASED.
Unless otherwise specified, when you request to sell a stated DOLLAR AMOUNT,
we will redeem additional shares to cover any Contingent Deferred Sales
Charge. For requests to sell a stated NUMBER OF SHARES, we will deduct the
amount of the Contingent Deferred Sales Charge, if any, from the sale
proceeds.
WAIVERS. We waive the Contingent Deferred Sales Charge for:
o Account fees
o Sales of Class A shares purchased without a front-end sales charge by
certain retirement plan accounts if (i) the account was opened before May
1, 1997, or (ii) the Securities Dealer of record received a payment from
Distributors of 0.25% or less, or (iii) Distributors did not make any
payment in connection with the purchase, or (iv) the Securities Dealer of
record has entered into a supplemental agreement
with Distributors
o Redemptions by the fund when an account falls below the minimum required
account size
o Redemptions following the death of the shareholder or beneficial owner
o Redemptions through a systematic withdrawal plan set up before February
1, 1995
o Redemptions through a systematic withdrawal plan set up on or after
February 1, 1995, up to 1% monthly, 3% quarterly, 6% semiannually or 12%
annually of your account's Net Asset Value depending on the frequency of
your plan
o Redemptions by Franklin Templeton Trust Company employee benefit plans or
employee benefit plans serviced by ValuSelect(R) (not applicable to Class B)
o Distributions from IRAs due to death or disability or upon periodic
distributions based on life expectancy (for Class B, this applies to all
retirement plan accounts, not only IRAs)
o Returns of excess contributions (and earnings, if applicable) from
retirement plan accounts
o Participant initiated distributions from employee benefit plans or
participant initiated exchanges among investment choices in employee
benefit plans (not applicable to Class B)
WHAT DISTRIBUTIONS MIGHT I RECEIVE FROM THE FUND?
The fund intends to pay a dividend at least monthly, on or about the 15th day
of the month, representing its net investment income. Capital gains, if any,
may be distributed annually. The amount of these distributions will vary and
there is no guarantee the fund will pay dividends. The fund does not pay
"interest" or guarantee any fixed rate of return on an investment in its
shares.
To receive a distribution, you must be a shareholder on the record date. The
record dates for the fund's distributions will vary. Please keep in mind that
if you invest in the fund shortly before the record date of a distribution,
any distribution will lower the value of the fund's shares by the amount of
the distribution and you will receive some of your investment back in the
form of a taxable distribution. If you would like information on upcoming
record dates for the fund's distributions, please call 1-800/DIAL BEN.
Dividends and capital gains are calculated and distributed the same way for
each class. The amount of any income dividends per share will differ,
however, generally due to the difference in the Rule 12b-1 fees of each class.
DISTRIBUTION OPTIONS
You may receive your distributions from the fund in any of these ways:
1. BUY ADDITIONAL SHARES OF THE FUND - You may reinvest distributions you
receive from the fund in additional shares of the fund (without a sales
charge or imposition of a Contingent Deferred Sales Charge). This is a
convenient way to accumulate additional shares and maintain or increase your
earnings base.
2. BUY SHARES OF OTHER FRANKLIN TEMPLETON FUNDS - You may direct your
distributions to buy 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.
Please note that distributions may only be directed to an existing account.
3. RECEIVE DISTRIBUTIONS IN CASH - You may receive your distributions from
the fund in cash. If you have the money sent to another person or to a
checking or savings account, you may need a signature guarantee. If you send
the money to a checking or savings account, please see "Electronic Fund
Transfers" under "Services to Help You Manage Your Account."
Distributions may be reinvested only in the same class of shares, except as
follows: (i) Class C shareholders who chose to reinvest their distributions in
Class A shares of the fund or another Franklin Templeton Fund before November
17, 1997, may continue to do so; and (ii) Class B and C shareholders may
reinvest their distributions in shares of any Franklin Templeton money fund.
PLEASE INDICATE ON YOUR APPLICATION THE DISTRIBUTION OPTION YOU HAVE CHOSEN,
OTHERWISE WE WILL REINVEST YOUR DISTRIBUTIONS IN THE SAME SHARE CLASS OF THE
FUND. You may change your distribution option at any time by notifying us by
mail or phone. Please allow at least seven days before the record date for us
to process the new option. For Franklin Templeton Trust Company retirement
plans, special forms are required to receive distributions in cash.
TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
SHARE PRICE
When you buy shares, you pay the Offering Price. This is the Net Asset Value
per share of the class you wish to purchase, plus any applicable sales
charges. When you sell shares, you receive the Net Asset Value per share
minus any applicable Contingent Deferred Sales Charges.
The Net Asset Value we use when you buy or sell shares is the one next
calculated after we receive your transaction request in proper form. If you
buy or sell shares through your Securities Dealer, however, we will use the
Net Asset Value next calculated after your Securities Dealer receives your
request, which is promptly transmitted to the fund. Your redemption proceeds
will not earn interest between the time we receive the order from your dealer
and the time we receive any required documents.
HOW AND WHEN SHARES ARE PRICED
The fund is open for business each day the NYSE is open. We determine the Net
Asset Value per share of each class as of the close of the NYSE, normally
1:00 p.m. Pacific time. You can find the prior day's closing Net Asset Value
and Offering Price for each class in many newspapers.
The Net Asset Value of all outstanding shares of each class is calculated on
a pro rata basis. It is based on each class' proportionate participation in
the fund, determined by the value of the shares of each class. Each class,
however, bears the Rule 12b-1 fees payable under its Rule 12b-1 plan. To
calculate Net Asset Value per share of each class, the assets of each class
are valued and totaled, liabilities are subtracted, and the balance, called
net assets, is divided by the number of shares of the class outstanding. The
fund's assets are valued as described under "How Are Fund Shares Valued?" in
the SAI.
WRITTEN INSTRUCTIONS
Written instructions must be signed by all registered owners. To avoid any
delay in processing your transaction, they should include:
o Your name,
o The fund's name,
o The class of shares,
o A description of the request,
o For exchanges, the name of the fund you are exchanging into,
o Your account number,
o The dollar amount or number of shares, and
o A telephone number where we may reach you during the day, or in the
evening if preferred.
JOINT ACCOUNTS. For accounts with more than one registered owner, the fund
accepts written instructions signed by only one owner for transactions and
account changes that could otherwise be made by phone. For all other
transactions and changes, all registered owners must sign the instructions.
Please keep in mind that if you have previously told us that you do not want
telephone exchange or redemption privileges on your account, then we can only
accept written instructions to exchange or redeem shares if they are signed
by all registered owners
on the account.
SIGNATURE GUARANTEES
For our mutual protection, we require a signature guarantee in the following
situations:
1) You wish to sell over $100,000 worth of shares,
2) You want the proceeds to be paid to someone other than the registered
owners,
3) The proceeds are not being sent to the address of record, preauthorized
bank account, or preauthorized brokerage firm account,
4) We receive instructions from an agent, not the registered owners,
5) We believe a signature guarantee would protect us against potential claims
based on the instructions received.
A signature guarantee verifies the authenticity of your signature. You should
be able to obtain a signature guarantee from a bank, broker, credit union,
savings association, clearing agency, or securities exchange or association.
A NOTARIZED SIGNATURE IS NOT SUFFICIENT.
SHARE CERTIFICATES
We will credit your shares to your fund account. We do not issue share
certificates unless you specifically request them. This eliminates the costly
problem of replacing lost, stolen or destroyed certificates. If a certificate
is lost, stolen or destroyed, you may have to pay an insurance premium of up
to 2% of the value of the certificate to replace it.
Any outstanding share certificates must be returned to the fund if you want
to sell or exchange those shares or if you would like to start a systematic
withdrawal plan. The certificates should be properly endorsed. You can do
this either by signing the back of the certificate or by completing a share
assignment form. For your protection, you may prefer to complete a share
assignment form and to send the certificate and assignment form in separate
envelopes.
TELEPHONE TRANSACTIONS
You may initiate many transactions and changes to your account by phone.
Please refer to the sections of this prospectus that discuss the transaction
you would like to make or call Shareholder Services.
When you call, we will request personal or other identifying information to
confirm that instructions are genuine. We may also record calls. If our lines
are busy or you are otherwise unable to reach us by phone, you may wish to
ask your investment representative for assistance or send us written
instructions, as described elsewhere in this prospectus.
For your protection, we may delay a transaction or not implement one if we
are not reasonably satisfied that the instructions are genuine. If this
occurs, we will not be liable for any loss. We also will not be liable for
any loss if we follow instructions by phone that we reasonably believe are
genuine or if you are unable to execute a transaction by phone.
ACCOUNT REGISTRATIONS AND REQUIRED DOCUMENTS
When you open an account, we need you to tell us how you want your shares
registered. How you register your account will affect your ownership rights
and ability to make certain transactions. If you have questions about how to
register your account, you should consult your investment representative or
legal advisor. Please keep the following information in mind when registering
your account.
JOINT OWNERSHIP. If you open an account with two or more owners, we register
the account as "joint tenants with rights of survivorship" unless you tell us
otherwise. An account registered as "joint tenants with rights of
survivorship" is shown as "Jt Ten" on your account statement. For any account
with two or more owners, we cannot accept instructions to change owners on
the account unless all owners agree in writing, even if the law in your state
says otherwise. If you would like another person or owner to sign for you,
please send us a current power of attorney.
GIFTS AND TRANSFERS TO MINORS. You may set up a custodial account for a minor
under your state's Uniform Gifts/Transfers to Minors Act. Other than this
form of registration, a minor may not be named as an account owner.
TRUSTS. You should register your account as a trust only if you have a valid
written trust document. This avoids future disputes or possible court action
over who owns the account.
REQUIRED DOCUMENTS. For corporate, partnership and trust accounts, please
send us the following documents when you open your account. This will help
avoid delays in processing your transactions while we verify who may sign on
the account.
TYPE OF ACCOUNT DOCUMENTS REQUIRED
- ------------------------------------------------------------------------------
CORPORATION Corporate Resolution
- ------------------------------------------------------------------------------
PARTNERSHIP 1. The pages from the partnership agreement that
identify the general partners, or
2. A certification for a partnership agreement
- ------------------------------------------------------------------------------
TRUST 1. The pages from the trust document that identify
the trustees, or
2. A certification for trust
- ------------------------------------------------------------------------------
STREET OR NOMINEE ACCOUNTS. If you have fund shares held in a "street" or
"nominee" name account with your Securities Dealer, you may transfer the
shares to the street or nominee name account of another Securities Dealer.
Both dealers must have an agreement with Distributors or we cannot process
the transfer. Contact your Securities Dealer to initiate the transfer. We
will process the transfer after we receive authorization in proper form from
your delivering Securities Dealer. Accounts may be transferred electronically
through the NSCC. For accounts registered in street or nominee name, we may
take instructions directly from the Securities Dealer or your nominee.
IMPORTANT INFORMATION IF YOU HAVE AN INVESTMENT REPRESENTATIVE
If there is a Securities Dealer or other representative of record on your
account, we are authorized: (1) to provide confirmations, account statements
and other information about your account directly to your dealer and/or
representative; and (2) to accept telephone and electronic instructions
directly from your dealer or representative, including instructions to
exchange or redeem your shares. Electronic instructions may be processed
through established electronic trading systems and programs used by the fund.
Telephone instructions directly from your representative will be accepted
unless you have told us that you do not want telephone privileges to apply to
your account.
KEEPING YOUR ACCOUNT OPEN
Due to the relatively high cost of maintaining a small account, we may close
your account if the value of your shares is less than $250, or less than $50 for
employee accounts and custodial accounts for minors. We will only do this if the
value of your account fell below this amount because you voluntarily sold your
shares and your account has been inactive (except for the reinvestment of
distributions) for at least six months. Before we close your account, we will
notify you and give you 30 days to increase the value of your account to $1,000,
or $100 for employee accounts and custodial accounts for minors. These minimums
do not apply to IRAs and other retirement plan accounts or to accounts managed
by the Franklin Templeton Group.
SERVICES TO HELP YOU MANAGE YOUR ACCOUNT
AUTOMATIC INVESTMENT PLAN
Our automatic investment plan offers a convenient way to invest in the fund.
Under the plan, you can have money transferred automatically from your
checking or savings account to the fund each month to buy additional shares.
If you are interested in this program, please refer to the account
application included with this prospectus or contact your investment
representative. The market value of the fund's shares may fluctuate and a
systematic investment plan such as this will not assure a profit or protect
against a loss. You may discontinue the program at any time by calling
Shareholder Services.
AUTOMATIC PAYROLL DEDUCTION - CLASS A ONLY
You may have money transferred from your paycheck to the fund to buy
additional Class A shares. Your investments will continue automatically until
you instruct the fund and your employer to discontinue the plan. To process
your investment, we must receive both the check and payroll deduction
information in required form. Due to different procedures used by employers
to handle payroll deductions, there may be a delay between the time of the
payroll deduction and the time we receive the money.
SYSTEMATIC WITHDRAWAL PLAN
Our systematic withdrawal plan allows you to sell your shares and receive
regular payments from your account on a monthly, quarterly, semiannual or
annual basis. The value of your account must be at least $5,000 and the
minimum payment amount for each withdrawal must be at least $50. For
retirement plans subject to mandatory distribution requirements, the $50
minimum will not apply.
If you would like to establish a systematic withdrawal plan, please complete the
systematic withdrawal plan section of the account application included with this
prospectus and indicate how you would like to receive your payments. You may
choose to direct your payments to buy the same class of shares of another
Franklin Templeton Fund or have the money sent directly to you, to another
person, or to a checking or savings account. If you choose to have the money
sent to a checking or savings account, please see "Electronic Fund Transfers"
below. Once your plan is established, any distributions paid by the fund will be
automatically reinvested in your account.
You will generally receive your payment by the end of the month in which a
payment is scheduled. When you sell your shares under a systematic withdrawal
plan, it is a taxable transaction.
To avoid paying sales charges on money you plan to withdraw within a short
period of time, you may not want to set up a systematic withdrawal plan if you
plan to buy shares on a regular basis. Shares sold 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 discontinue a systematic withdrawal plan, change the amount and
schedule of withdrawal payments, or suspend one payment by notifying us by
mail or by phone at least seven business days before the end of the month
preceding a scheduled payment. Please see "How Do I Buy, Sell and Exchange
Shares? - Systematic Withdrawal Plan" in the SAI for more information.
ELECTRONIC FUND TRANSFERS
You may choose to have dividend and capital gain distributions or payments
under a systematic withdrawal plan sent directly to a checking or savings
account. If the account is with 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. We will send any payments made during that time to the
address of record on your account.
TELEFACTS(R)
From a touch-tone phone, you may call our TeleFACTS system (day or night) at
1-800/247-1753 to:
o obtain information about your account;
o obtain price and performance information about any Franklin Templeton
Fund;
o exchange shares (within the same class) between identically registered
Franklin Templeton Class A, B or Class C accounts; and
o request duplicate statements and deposit slips for Franklin Templeton
accounts.
You will need the code number for each class to use TeleFACTS. The code
number is 194 for Class A, 394 for Class B and 294 for Class C.
STATEMENTS AND REPORTS TO SHAREHOLDERS
We will send you the following statements and reports on a regular basis:
o Confirmation and account statements reflecting transactions in your
account, including additional purchases and dividend reinvestments. PLEASE
VERIFY THE ACCURACY OF YOUR STATEMENTS WHEN YOU RECEIVE THEM.
o Financial reports of the fund will be sent every six months. To reduce
fund expenses, we attempt to identify related shareholders within a
household and send only one copy of a report. Call Fund Information if you
would like an additional free copy of the fund's financial reports.
INSTITUTIONAL ACCOUNTS
Additional methods of buying, selling or exchanging shares of the fund may be
available to institutional accounts. Institutional investors may also be
required to complete an institutional account application. For more
information, call Institutional Services.
AVAILABILITY OF THESE SERVICES
The services above are available to most shareholders. If, however, your
shares are held by a financial institution, in a street name account, or
networked through the NSCC, the fund may not be able to offer these services
directly to you. Please contact your investment representative.
WHAT IF I HAVE QUESTIONS ABOUT MY ACCOUNT?
If you have any questions about your account, you may write to Investor
Services at 777 Mariners Island Blvd., P.O. Box 7777, San Mateo, California
94403-7777. The fund, Distributors and the manager are also located at this
address. The sub-advisor is located at Broward Financial Centre, Suite 2100,
Fort Lauderdale, Florida 33394-3091. You may also contact us by phone at one
of the numbers listed below.
HOURS OF OPERATION (PACIFIC TIME)
DEPARTMENT NAME TELEPHONE NO. (MONDAY THROUGH FRIDAY)
- -------------------------------------------------------------------------------
Shareholder Services 1-800/632-2301 5:30 a.m. to 5:00 p.m.
Dealer Services 1-800/524-4040 5:30 a.m. to 5:00 p.m.
Fund Information 1-800/DIAL BEN 5:30 a.m. to 8:00 p.m.
(1-800/342-5236) 6:30 a.m. to 2:30 p.m. (Saturday)
Retirement Plan Services 1-800/527-2020 5:30 a.m. to 5:00 p.m.
Institutional Services 1-800/321-8563 6:00 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 5:30 a.m. to 5:00 p.m.
Your phone call may be monitored or recorded to ensure we provide you with
high quality service. You will hear a regular beeping tone if your call is
being recorded.
GLOSSARY
USEFUL TERMS AND DEFINITIONS
BOARD - The Board of Trustees of the Trust
CD - Certificate of deposit
CLASS A, CLASS B AND CLASS C - The fund offers three classes of shares,
designated "Class A", "Class B" and "Class C." The three classes have
proportionate interests in the fund's portfolio. They differ, however,
primarily in their sales charge structures and Rule 12b-1 plans.
CODE - Internal Revenue Code of 1986, as amended
CONTINGENCY PERIOD - For Class A shares, the 12 month period during which a
Contingent Deferred Sales Charge may apply. The contingency period is six
years for Class B shares and 18 months for Class C shares. The holding period
begins on the day you buy your shares. For example, if you buy shares on the
18th of the month, they will age one month on the 18th day of the next month
and each following month.
CONTINGENT DEFERRED SALES CHARGE (CDSC) - A sales charge of 1% that may apply
if you sell your Class A or C shares within the Contingency Period. For Class
B, the maximum CDSC is 4% and declines to 0% after six years.
DISTRIBUTORS - Franklin/Templeton Distributors, Inc., the fund's principal
underwriter.
The SAI lists the officers and Board members who are affiliated with
Distributors. See "Officers and Trustees."
ELIGIBLE GOVERNMENTAL AUTHORITY - Any state or local government or any
instrumentality, department, authority or agency thereof that has determined
the fund is a legally permissible investment and that can only buy shares of
the fund without paying sales charges.
FRANKLIN TEMPLETON FUNDS - The U.S. registered mutual funds in the Franklin
Group of Funds(R) and the Templeton Group of Funds except Franklin Valuemark
Funds, Templeton Capital Accumulator Fund, Inc., and Templeton Variable
Products Series Fund
FRANKLIN TEMPLETON GROUP - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries
FRANKLIN TEMPLETON GROUP OF FUNDS - All U.S. registered investment companies
in the Franklin Group of Funds(R) and the Templeton Group of Funds.
FT SERVICES - Franklin Templeton Services, Inc., the fund's administrator
INVESTOR SERVICES - Franklin/Templeton Investor Services, Inc., the fund's
shareholder servicing and transfer agent
IRA - Individual retirement account or annuity qualified under section 408 of
the Code
IRS - Internal Revenue Service
LETTER - Letter of Intent
MARKET TIMERS - Market Timers generally include market timing or asset
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 or whose transactions include
frequent or large exchanges.
MOODY'S - Moody's Investors Service, Inc.
NET ASSET VALUE (NAV) - The value of a mutual fund is determined by deducting
the fund's liabilities from the total assets of the portfolio. The net asset
value per share is determined by dividing the net asset value of the fund by
the number of shares outstanding.
NSCC - National Securities Clearing Corporation
NYSE - New York Stock Exchange
OFFERING PRICE - The public offering price is based on the Net Asset Value
per share of the class and includes the front-end sales charge. The maximum
front-end sales charge is 4.25% for Class A and 1% for Class C. There is no
front-end sales charge for Class B. We calculate the offering price to two
decimal places using standard rounding criteria.
QUALIFIED RETIREMENT PLANS - An employer sponsored pension or profit-sharing
plan that qualifies under section 401 of the Code. Examples include 401(k),
money purchase pension, profit sharing and defined benefit plans.
RESOURCES - Franklin Resources, Inc.
SAI - Statement of Additional Information
S&P - Standard & Poor's Corporation
SEC - U.S. Securities and Exchange Commission
SECURITIES DEALER - A financial institution that, either directly or through
affiliates, has an agreement with Distributors to handle customer orders and
accounts with the fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity.
SEP - An employer sponsored simplified employee pension plan established
under section 408(k) of the Code
SIMPLE (Savings Incentive Match Plan for Employees) - An employer sponsored
salary deferral plan established under section 408(p) of the Code
TELEFACTS(R) - Franklin Templeton's automated customer servicing system
WE/OUR/US - Unless the context indicates a different meaning, these terms
refer to the fund and/or Investor Services, Distributors, or other wholly
owned subsidiaries of Resources.
APPENDIX
DESCRIPTION OF RATINGS
CORPORATE BOND RATINGS
S&P
AAA - This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.
AA - Bonds rated AA also qualify as high-quality debt obligations. Capacity
to pay principal and interest is very strong and, in the majority of
instances, differ from AAA issues only in a small degree.
A - Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay principal and interest for bonds in this
category than for bonds in the A category.
BB, B, CCC, CC - Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of the obligations.
BB indicates the lowest degree of speculation and CC the highest degree of
speculation. While these bonds will likely have some quality and protective
characteristics, they are outweighed by large uncertainties or major risk
exposures to adverse conditions.
C - Bonds rated C are typically subordinated debt to senior debt that is
assigned an actual or implied CCC- rating. The C rating may also reflect the
filing of a bankruptcy petition under circumstances where debt service
payments are continuing. The C1 rating is reserved for income bonds on which
no interest is being paid.
D - Debt rated D is in default and payment of interest and/or repayment of
principal is in arrears.
Plus (+) or minus (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
COMMERCIAL PAPER RATINGS
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.
The relative degree of safety, however, 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.
FSS1 *SA
SHARE CLASS REDESIGNATION
EFFECTIVE JANUARY 1, 1999
Class A - Formerly Class I
Class B - New Share Class (California
Fund Only)
Class C - Formerly Class II
SUPPLEMENT DATED JANUARY 1, 1999
TO THE STATEMENT OF ADDITIONAL INFORMATION OF
FRANKLIN STRATEGIC SERIES
(FSS1 - FRANKLIN CALIFORNIA GROWTH FUND, FRANKLIN MIDCAP GROWTH FUND,
AND FRANKLIN BLUE CHIP FUND)
DATED SEPTEMBER 1, 1998
The Statement of Additional Information is amended as follows:
I. As of January 1, 1999, the Calfiornia Fund offers three classes of
shares: Class A, Class B and Class C. The MidCap Fund and Blue Chip Fund
each offers one class of shares, which is considered Class A. Before
January 1, 1999, Class A shares were designated Class I and Class C shares
were designated Class II. All references in the Statement of Additional
Information to Class I shares are replaced with Class A, and all references
to Class II shares are replaced with Class C.
II. The following is added to the "Officers and Trustees" section:
As of November 25, 1998, the officers and Board members, as a group,
owned of record and beneficially the following shares of the funds:
approximately 5,211 shares of the California Fund - Class A, 150
shares of the MidCap Fund and 4,419 shares of the Blue Chip Fund, or
less than 1% of the total outstanding shares of each fund.
III.The first sentence in the section "Additional Information on Exchanging
Shares," found under "How Do I Buy, Sell and Exchange Shares?", is replaced
with the following:
If you request the exchange of the total value of your account,
declared but unpaid income dividends and capital gain distributions
will be reinvested in the fund and exchanged into the new fund at Net
Asset Value when paid.
IV. In the section "The Rule 12b-1 Plans," found under "The Funds' Underwriter,"
(a) the first sentence is replaced with the following:
The MidCap Fund and the Blue Chip Fund and each class of the California Fund
have separate distribution or "Rule 12b-1" plans that were adopted pursuant
to Rule 12b-1 of the 1940 Act.
(b) the following paragraphs are added after the section "The Class I
Plan":
THE CLASS B PLAN. Under the Class B plan, the California Fund pays
Distributors up to 0.75% per year of the class' average daily net assets,
payable quarterly, to pay Distributors or others for providing distribution
and related services and bearing certain expenses. All distribution
expenses over this amount will be borne by those who have incurred them.
The California Fund may also pay a servicing fee of up to 0.25% per year of
the class' average daily net assets, payable quarterly. This fee may be
used to pay Securities Dealers or others for, among other things, helping
to establish and maintain customer accounts and records, helping with
requests to buy and sell shares, receiving and answering correspondence,
monitoring dividend payments from the fund on behalf of customers, and
similar servicing and account maintenance activities.
The expenses relating to the Class B plan are also used to pay Distributors
for advancing the commission costs to Securities Dealers with respect to
the initial sale of Class B shares. Further, the expenses relating to the
Class B plan may be used by Distributors to pay third party financing
entities that have provided financing to Distributors in connection with
advancing commission costs to Securities Dealers.
(c) and the section "The Class I and Class II Plans" is renamed "The Class
A, B and C Plans."
V. Under "Miscellaneous Information," the following is added:
The Information Services & Technology division of Resources established a
Year 2000 Project Team in 1996. This team has already begun making necessary
software changes to help the computer systems that service the funds and
their shareholders to be Year 2000 compliant. After completing these
modifications, comprehensive tests are conducted in one of Resources' U.S.
test labs to verify their effectiveness. Resources continues to seek
reasonable assurances from all major hardware, software or data-services
suppliers that they will be Year 2000 compliant on a timely basis. Resources
is also beginning to develop a contingency plan, including identification of
those mission critical systems for which it is practical to develop a
contingency plan. However, in an operation as complex and geographically
distributed as Resources' business, the alternatives to use of normal
systems, especially mission critical systems, or supplies of electricity or
long distance voice and data lines are limited.
As of November 25, 1998, the principal shareholders of each fund, beneficial
or of record, were as follows:
NAME AND ADDRESS SHARE AMOUNT PERCENTAGE
------------------------------------------------------------------------
MIDCAP FUND
Franklin Resources, Inc.
Corporate Accounting
Attn: Michael Corcoran
555 Airport Blvd., 4th Fl
Burlingame, CA 94010 625,630.520 27.24%
BLUE CHIP FUND
Franklin Resources, Inc.
Corporate Accounting
Attn: Michael Corcoran
555 Airport Blvd., 4th Fl
Burlingame, CA 94010 153,929.566 7.20%
VI.In the "Useful Terms and Definitions" section, the definitions of "Class I
and Class II" and "Offering Price" are replaced with the following:
CLASS A, CLASS B AND CLASS C - The California Fund offers three classes of
shares, designated "Class A," "Class B" and "Class C." The three classes have
proportionate interests in the fund's portfolio. They differ, however,
primarily in their sales charge structures and Rule 12b-1 plans. Shares of
the MidCap Fund and Blue Chip Fund are considered Class A shares for
redemption, exchange and other purposes.
OFFERING PRICE - The public offering price is based on the Net Asset Value
per share of the class and includes the front-end sales charge. The maximum
front-end sales charge is 5.75% for Class A and 1% for Class C. There is no
front-end sales charge for Class B. We calculate the offering price to two
decimal places using standard rounding criteria.
Please keep this supplement for future reference.
FSS2 *SA
SHARE CLASS REDESIGNATION
EFFECTIVE JANUARY 1, 1999
Class A - Formerly Class I
Class B - New Share Class (Health Care
and Utilities Funds Only)
Class C - Formerly Class II
SUPPLEMENT DATED JANUARY 1, 1999
TO THE STATEMENT OF ADDITIONAL INFORMATION OF
FRANKLIN STRATEGIC SERIES
(FSS2 - FRANKLIN BIOTECHNOLOGY DISCOVERY FUND, FRANKLIN GLOBAL HEALTH
CARE FUND, FRANKLIN GLOBAL UTILITIES FUND, AND
FRANKLIN NATURAL RESOURCES FUND)
DATED SEPTEMBER 1, 1998
The Statement of Additional Information is amended as follows:
I. As of January 1, 1999, the Health Care Fund and Utilities Fund each
offer three classes of shares: Class A, Class B and Class C. The Natural
Resources Fund offers two classes of shares: Class A and Advisor Class. The
Biotechnology Fund offers one class of shares, which is considered Class A.
Before January 1, 1999, Class A shares were designated Class I and Class C
shares were designated Class II. All references in the Statement of
Additional Information to Class I shares are replaced with Class A, and all
references to Class II shares are replaced with Class C.
II. The second paragraph on the cover is replaced with the following:
This SAI describes each fund's Class A shares and the Class B and C shares
of the Health Care Fund and Utilities Fund. The Natural Resources Fund
currently offers another share class with a different sales charge and
expense structure, which affects performance. To receive more information
about the fund's other share class, contact your investment representative
or call 1-800/DIAL BEN.
III. The following is added to the "Officers and Trustees" section:
As of November 25, 1998, the officers and Board members, as a group, owned
of record and beneficially the following shares of the funds: approximately
32 shares of the Biotechnology Fund, 20,927 shares of the Health Care Fund
- Class A, 1,429 shares of the Natural Resources Fund - Class A and 1,861
shares of the Utilities Fund - Class A, or less than 1% of the total
outstanding shares of each fund's Class A shares.
IV. The first sentence in the section "Additional Information on Exchanging
Shares," found under "How Do I Buy, Sell and Exchange Shares?", is replaced
with the following:
If you request the exchange of the total value of your account, declared
but unpaid income dividends and capital gain distributions will be
reinvested in the fund and exchanged into the new fund at Net Asset Value
when paid.
V. In the section "The Rule 12b-1 Plans," found under "The Fund's
Underwriter,"
(a) the first sentence is replaced with the following:
Class A of the Biotechnology Fund and Natural Resources Fund and each class
of the Health Care Fund and Utilities Fund have separate distribution or
"Rule 12b-1" plans that were adopted pursuant to Rule 12b-1 of the 1940
Act.
(b) the following paragraphs are added after the section "The Class I
Plan":
THE CLASS B PLAN. Under the Class B plan, the Health Care Fund and
Utilities Fund each pays Distributors up to 0.75% per year of the class'
average daily net assets, payable quarterly, to pay Distributors or others
for providing distribution and related services and bearing certain
expenses. All distribution expenses over this amount will be borne by those
who have incurred them. The Health Care Fund and Utilities Fund each may
also pay a servicing fee of up to 0.25% per year of the class' average
daily net assets, payable quarterly. This fee may be used to pay Securities
Dealers or others for, among other things, helping to establish and
maintain customer accounts and records, helping with requests to buy and
sell shares, receiving and answering correspondence, monitoring dividend
payments from the fund on behalf of customers, and similar servicing and
account maintenance activities.
The expenses relating to the Class B plan are also used to pay Distributors
for advancing the commission costs to Securities Dealers with respect to
the initial sale of Class B shares. Further, the expenses relating to the
Class B plan may be used by Distributors to pay third party financing
entities that have provided financing to Distributors in connection with
advancing commission costs to Securities Dealers.
(c) and the section "The Class I and Class II Plans" is renamed "The Class
A, B and C Plans."
VI. Under "Miscellaneous Information," the following is added:
The Information Services & Technology division of Resources established a
Year 2000 Project Team in 1996. This team has already begun making
necessary software changes to help the computer systems that service the
funds and their shareholders to be Year 2000 compliant. After completing
these modifications, comprehensive tests are conducted in one of Resources'
U.S. test labs to verify their effectiveness. Resources continues to seek
reasonable assurances from all major hardware, software or data-services
suppliers that they will be Year 2000 compliant on a timely basis.
Resources is also beginning to develop a contingency plan, including
identification of those mission critical systems for which it is practical
to develop a contingency plan. However, in an operation as complex and
geographically distributed as Resources' business, the alternatives to use
of normal systems, especially mission critical systems, or supplies of
electricity or long distance voice and data lines are limited.
VII. In the "Useful Terms and Definitions" section, the definitions of
"Class I, Class II and Advisor Class" and "Offering Price" are replaced
with the following:
CLASS A, CLASS B, CLASS C AND ADVISOR - The Health Care Fund and Utilities
Fund each offers three classes of shares, designated "Class A," "Class B"
and "Class C." The Natural Resources Fund offers two classes of shares,
designated "Class A" and "Advisor Class." The classes have proportionate
interests in the fund's portfolio. They differ, however, primarily in their
sales charge and expense structures. Because the Biotechnology Fund's sales
charge structure and Rule 12b-1 plan are similar to those of Class A
shares, shares of the Biotechnology Fund are considered Class A shares for
redemption, exchange and other purposes.
OFFERING PRICE - The public offering price is based on the Net Asset Value
per share of the class and includes the front-end sales charge. The maximum
front-end sales charge is 5.75% for Class A and 1% for Class C. There is no
front-end sales charge for Class B. We calculate the offering price to two
decimal places using standard rounding criteria.
Please keep this supplement for future reference.
194*SA
SHARE CLASS REDESIGNATION
EFFECTIVE JANUARY 1, 1999
Class A - Formerly Class I
Class B - New Share Class
Class C - Formerly Class II
SUPPLEMENT DATED JANUARY 1, 1999
TO THE STATEMENT OF ADDITIONAL INFORMATION OF
FRANKLIN STRATEGIC INCOME FUND
DATED SEPTEMBER 1, 1998
The Statement of Additional Information is amended as follows:
I. As of January 1, 1999, the fund offers three classes of shares: Class A,
Class B and Class C. Before January 1, 1999, Class A shares were designated
Class I and Class C shares were designated Class II. All references in the
Statement of Additional Information to Class I shares are replaced with
Class A, and all references to Class II shares are replaced with Class C.
II. The following is added to the "Officers and Trustees" section:
As of November 25, 1998, the officers and Board members, as a group, owned
of record and beneficially the following shares of the fund: approximately
6,558 Class A shares, or less than 1% of the total outstanding Class A
shares of the fund.
III. The first sentence in the section "Additional Information on Exchanging
Shares," found under "How Do I Buy, Sell and Exchange Shares?", is replaced
with the following:
If you request the exchange of the total value of your account, declared
but unpaid income dividends and capital gain distributions will be
reinvested in the fund and exchanged into the new fund at Net Asset Value
when paid.
IV. In the section "The Rule 12b-1 Plans," found under "The Fund's
Underwriter,"
(a) the first sentence is replaced with the following:
Each class has a separate distribution or "Rule 12b-1" plan that was
adopted pursuant to Rule 12b-1 of the 1940 Act.
(b) the following paragraphs are added after the section "The Class I
Plan":
THE CLASS B PLAN. Under the Class B plan, the fund pays Distributors up to
0.50% per year of the class' average daily net assets, payable quarterly,
to pay Distributors or others for providing distribution and related
services and bearing certain expenses. All distribution expenses over this
amount will be borne by those who have incurred them. The fund may also pay
a servicing fee of up to 0.15% per year of the class' average daily net
assets, payable quarterly. This fee may be used to pay Securities Dealers
or others for, among other things, helping to establish and maintain
customer accounts and records, helping with requests to buy and sell
shares, receiving and answering correspondence, monitoring dividend
payments from the fund on behalf of customers, and similar servicing and
account maintenance activities.
The expenses relating to the Class B plan are also used to pay Distributors
for advancing the commission costs to Securities Dealers with respect to
the initial sale of Class B shares. Further, the expenses relating to the
Class B plan may be used by Distributors to pay third party financing
entities that have provided financing to Distributors in connection with
advancing commission costs to Securities Dealers.
(c) and the section "The Class I and Class II Plans" is renamed "The Class
A, B and C Plans."
V. Under "Miscellaneous Information," the following is added:
The Information Services & Technology division of Resources established a
Year 2000 Project Team in 1996. This team has already begun making
necessary software changes to help the computer systems that service the
fund and its shareholders to be Year 2000 compliant. After completing these
modifications, comprehensive tests are conducted in one of Resources' U.S.
test labs to verify their effectiveness. Resources continues to seek
reasonable assurances from all major hardware, software or data-services
suppliers that they will be Year 2000 compliant on a timely basis.
Resources is also beginning to develop a contingency plan, including
identification of those mission critical systems for which it is practical
to develop a contingency plan. However, in an operation as complex and
geographically distributed as Resources' business, the alternatives to use
of normal systems, especially mission critical systems, or supplies of
electricity or long distance voice and data lines are limited.
VI. In the "Useful Terms and Definitions" section, the definitions of "Class
I and Class II" and "Offering Price" are replaced with the following:
CLASS A, CLASS B AND CLASS C - The fund offers three classes of shares,
designated "Class A," "Class B" and "Class C." The three classes have
proportionate interests in the fund's portfolio. They differ, however,
primarily in their sales charge structures and Rule 12b-1 plans.
OFFERING PRICE - The public offering price is based on the Net Asset Value
per share of the class and includes the front-end sales charge. The maximum
front-end sales charge is 4.25% for Class A and 1% for Class C. There is no
front-end sales charge for Class B. We calculate the offering price to two
decimal places using standard rounding criteria.
Please keep this supplement for future reference.
FRANKLIN STRATEGIC SERIES
File Nos. 33-39088
811-6243
FORM N-1A
PART C
Other Information
ITEM 24 FINANCIAL STATEMENTS AND EXHIBITS
a) Financial Statements
(1) Audited Financial Statements incorporated herein by reference to the
Registrant's Annual Report to Shareholders dated April 30, 1998 as
filed with the SEC electronically on Form Type N-30D on June 17, 1998
(i) Financial Highlights
(ii) Statement of Investments, April 30, 1998
(iii) Statements of Assets and Liabilities - April 30, 1998
(iv) Statements of Operations - for the year ended April 30, 1998
(v) Statements of Changes in Net Assets - for the years ended April
30, 1998 and 1997
(vi) Notes to Financial Statements
(vii) Independent Auditors' Report
b) Exhibits
The following exhibits are incorporated by reference herein, except
exhibits 6(iii), 8(iv), 8(v), 9(i), 11(i), 15(xi), 15(xii), 15(xiii),
15(xiv), 18(i), 18(ii), 18(iii) and 18(vi) 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 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
(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
(v) Certificate of Amendment of Agreement and Declaration of Trust of
Franklin Strategic Series dated April 18, 1995
Filing: Post-Effective Amendment No. 21 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: August 6, 1996
(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 5 percent
of any class of equity securities of the Registrant;
Not Applicable
(4) Copies of all instruments defining the rights of the holders of the
securities being registered including, where applicable, the relevant
portion of the articles of incorporation or by-laws of the Registrant
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 Global Health Care Fund, Franklin Small Cap Growth Fund,
Franklin Global Utilities Fund, and Franklin Natural Resources
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) Management Agreement between the Registrant, on behalf of
Franklin Strategic Income Fund, and Franklin Advisers, Inc.,
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
(iii) Subadvisory Agreement between Franklin Advisers, Inc., on behalf
of the Franklin Strategic Income Fund, and Templeton Investment
Counsel, Inc., dated May 24, 1994
Filing: Post-Effective Amendment No. 21 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: August 6, 1996
(iv) Amended and Restated Management Agreement between the
Registrant, on behalf of Franklin California Growth Fund, and
Franklin Advisers, Inc., dated 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
(v) Management Agreement between the Registrant, on behalf of
Franklin Blue Chip Fund, and Franklin Advisers, Inc., dated
February 13, 1996
Filing: Post-Effective Amendment No. 18 to Registration Statement
on Form N-1A
File No. 33-39088
Filing Date: March 14, 1996
(vi) Management Agreement between the Registrant, on behalf of
Franklin Institutional MidCap Growth Fund (now known as Franklin
MidCap Growth Fund), and Franklin Advisers, Inc., dated January
1, 1996
Filing: Post-Effective Amendment No. 19 to Registration Statement
on Form N-1A
File No. 33-39088
Filing Date: March 27, 1996
(vii) Amendment dated August 1, 1995 to the Management Agreement
between the Registrant, on behalf of Franklin California Growth
Fund, and Franklin Advisers, Inc., dated July 12, 1993
Filing: Post-Effective Amendment No. 21 to Registration Statement
on Form N-1A
File No. 33-39088
Filing Date: August 6, 1996
(viii) Amendment dated August 1, 1995 to the Management Agreement
between the Registrant, on behalf of Franklin Global Health Care
Fund, Franklin Small Cap Growth Fund, Franklin Global Utilities
Fund, and Franklin Natural Resources Fund, and Franklin Advisers,
Inc., dated February 24, 1992
Filing: Post-Effective Amendment No. 21 to Registration Statement
on Form N-1A
File No. 33-39088
Filing Date: August 6, 1996
(ix) Amendment dated August 1, 1995 to the Management Agreement
between the Registrant, on behalf of Franklin Strategic Income
Fund, and Franklin Advisers, Inc., dated May 24, 1994
Filing: Post-Effective Amendment No. 21 to Registration Statement
on Form N-1A
File No. 33-39088
Filing Date: August 6, 1996
(x) Management Agreement between the Registrant, on behalf of
Franklin Biotechnology Discovery Fund, and Franklin Advisers,
Inc., dated July 15, 1997
Filing: Post-Effective Amendment No. 25 to Registration Statement
on Form N-1A
File No. 33-39088
Filing Date: August 22, 1997
(xi) Administration Agreement between the Registrant, on behalf of
Franklin Biotechnology Discovery Fund, and Franklin Templeton
Services, Inc., dated July 15, 1997
Filing: Post-Effective Amendment No. 25 to Registration Statement
on Form N-1A
File No. 33-39088
Filing Date: August 22, 1997
(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 Fund, 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 Fund, 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) Forms of Dealer Agreements between Franklin/Templeton
Distributors, Inc. and Securities Dealers dated March 1, 1998
(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) Master Custody Agreement between the Registrant and Bank of New
York dated February 16, 1996
Filing: Post-Effective Amendment No. 19 to Registration Statement
on Form N-1A
File No. 33-39088
Filing Date: March 14, 1996
(ii) Terminal Link Agreement between the Registrant and Bank of New
York dated February 16, 1996
Filing: Post-Effective Amendment No. 19 to Registration Statement
on Form N-1A
File No. 33-39088
Filing Date: March 14, 1996
(iii) Amendment dated May 7, 1997 to Master Custody Agreement between
Registrant and Bank of New York dated February 16, 1996
Filing: Post-Effective Amendment No. 27 to Registration Statement
on Form N-1A
File No. 33-39088
Filing Date: March 13, 1998
(iv) Amendment dated February 27, 1998 to Master Custody Agreement
between Registrant and Bank of New York dated February 16, 1996
(v) Foreign Custody Manager Agreement between the Registrant and The
Bank of New York dated February 27, 1998
(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;
(i) Subcontract for Fund Administrative Services dated October 1,
1996 and Amendment thereto dated April 30, 1998 between Franklin
Advisers, Inc. and Franklin Templeton Services, Inc.
(10) An opinion and consent of counsel as to the legality of the securities
being registered, indicating whether they will when sold be legally
issued, fully paid and nonassessable;
(i) Opinion and consent of counsel dated June 16, 1998
Filing: Post-Effective Amendment No. 29 to Registration Statement
on Form N-1A
File No. 33-39088
Filing Date: June 19, 1998
(11) Copies of any other opinions, appraisals or rulings and consents to the
use thereof relied on in the preparation of this Registration
Statement and required by Section 7 of the 1933 Act;
(i) Consent of Independent Auditors
(12) All financial statements omitted from Item 23;
Not Applicable
(13) Copies of any agreements or understandings made in consideration for
providing the initial capital between or among the Registrant, the
underwriter, adviser, promoter or initial stockholders and written
assurances from promoters or initial stockholders that their purchases
were made for investment purposes without any present intention of
redeeming or reselling;
(i) Letter of Understanding for Franklin California Growth Fund 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 for Franklin Global Utilities Fund -
Class II 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 for Franklin Natural Resources Fund 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
(iv) Letter of Understanding for Franklin California Growth Fund-Class
II dated August 30, 1996
Filing: Post-Effective Amendment No. 27 to Registration Statement
on Form N-1A
File No. 33-39088
Filing Date: March 13, 1998
(v) Letter of Understanding for Franklin Global Health Care Fund
dated August 30, 1996
Filing: Post-Effective Amendment No. 27 to Registration Statement
on Form N-1A
File No. 33-39088
Filing Date: March 13, 1998
(vi) Letter of Understanding for Franklin Blue Chip Fund dated May 24,
1996
Filing: Post-Effective Amendment No. 27 to Registration Statement
on Form N-1A
File No. 33-39088
Filing Date: March 13, 1998
(vii) Letter of Understanding for Franklin Biotechnology Discovery Fund
dated September 5, 1997
Filing: Post-Effective Amendment No. 27 to Registration Statement
on Form N-1A
File No. 33-39088
Filing Date: March 13, 1998
(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 the
Registrant, on behalf of Franklin California Growth Fund,
Franklin Small Cap Growth Fund, Franklin Global Health Care Fund
and Franklin Global Utilities Fund, and Franklin/Templeton
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 the Registrant, 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/Templeton Distributors, Inc., 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
(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
Filing: Post-Effective Amendment No. 14 to Registration Statement
on Form N-1A
File No. 33-39088
Filing Date: June 1, 1995
(v) Distribution Plan pursuant to Rule 12b-1 between the Registrant,
on behalf of the Franklin MidCap Growth Fund, and
Franklin/Templeton Distributors, Inc., dated June 1, 1996
Filing: Post-Effective Amendment No. 21 to Registration Statement
on Form N-1A
File No. 33-39088
Filing Date: August 7, 1996
(vi) Distribution Plan pursuant to Rule 12b-1 between the Registrant,
on behalf of the Franklin Blue Chip Fund, and Franklin/Templeton
Distributors, Inc., dated May 28, 1996
Filing: Post-Effective Amendment No. 21 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: August 7, 1996
(vii) Distribution Plan pursuant to Rule 12b-1 between the Registrant,
on behalf of Franklin Small Cap Growth Fund - Class II, and
Franklin/Templeton Distributors, Inc., dated September 29, 1995
Filing: Post-Effective Amendment No. 21 to Registration Statement
on Form N-1A
File No. 33-39088
Filing Date: August 7, 1996
(viii) Distribution Plan pursuant to Rule 12b-1 between the Registrant,
on behalf of Franklin Biotechnology Discovery Fund and
Franklin/Templeton Distributors, Inc., dated September 15, 1997
Filing: Post-Effective Amendment No. 27 to Registration Statement
on Form N-1A
File No. 33-39088
Filing Date: March 13, 1998
(ix) Distribution Plan pursuant to Rule 12b-1 between the Registrant,
on behalf of Franklin California Growth Fund - Class II and
Franklin Global Health Care Fund - Class II, and
Franklin/Templeton Distributors, Inc., dated September 3, 1996
Filing: Post-Effective Amendment No. 26 to Registration Statement
on Form N-1A
File No. 33-39088
Filing Date: August 29, 1997
(x) Distribution Plan pursuant to Rule 12b-1 between Registrant on
behalf of Franklin Strategic Income Fund - Class II, and
Franklin/Templeton Distributors, Inc. dated February 26, 1998
Filing: Post-Effective Amendment No. 28 to Registration Statement
on Form N-1A
File No. 33-39088
Filing date: April 21, 1998
(xi) Form of Class B Distribution Plan pursuant to Rule 12b-1 between
the Registrant on behalf of California Growth Fund - Class B and
Franklin/Templeton Distributors, Inc.
(xii) Form of Class B Distribution Plan pursuant to Rule 12b-1 between
the Registrant on behalf of Franklin Global Health Care Fund -
Class B and Franklin/Templeton Distributors, Inc.
(xiii) Form of Class B Distribution Plan pursuant to Rule 12b-1 between
the Registrant on behalf of Franklin Global Utilities Fund -
Class B and Franklin/Templeton Distributors, Inc.
(xiv) Form of Class B Distribution Plan pursuant to Rule 12b-1 between
the Registrant on behalf of Franklin Strategic Income Fund -
Class B and Franklin/Templeton Distributors, Inc.
(16) Schedule for computation of each performance quotation provided in the
registration statement in response to Item 22 (which need not be
audited).
Not Applicable
(17) Power of Attorney
(i) Power of Attorney for Franklin Strategic Series dated April 16,
1998
Filing: Post-Effective Amendment No. 28 to Registration Statement
on Form N-1A
File No. 33-39088
Filing date: April 21, 1998
(ii) Certificate of Secretary for Franklin Strategic Series dated
April 16, 1998
Filing: Post-Effective Amendment No. 28 to Registration Statement
on Form N-1A
File No. 33-39088
Filing date: April 21, 1998
(18) Copies of any plan entered into by Registrant pursuant to Rule 18f-3
under the 1940 Act
(i) Form of Multiple Class Plan for Franklin Global Utilities Fund
(ii) Form of Multiple Class Plan for Franklin California Growth Fund
(iii) Form of Multiple Class Plan for Franklin Global Health Care Fund
(iv) Multiple Class Plan for Franklin Small Cap Growth Fund dated June
18, 1996
Filing: Post-Effective Amendment No. 24 to Registration Statement
on Form N-1A
File No. 33-39088
Filing Date: December 11, 1996
(v) Multiple Class Plan for Franklin Natural Resources Fund dated
June 18, 1996
Filing: Post-Effective Amendment No. 24 to Registration Statement
on Form N-1A
File No. 33-39088
Filing Date: December 11, 1996
(vi) Form of Multiple Class Plan for Franklin Strategic Income Fund
(27) Financial Data Schedule
Not Applicable
ITEM 25 PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None
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 of 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 Franklin Advisers, Inc.
("Advisers") also serve as officers and/or directors for (1) Advisers' corporate
parent, Franklin Resources, Inc., and/or (2) other investment companies in the
Franklin Templeton Group of Funds. In addition, Mr. Charles B. Johnson was
formerly a director of General Host Corporation. For additional information
please see Part B and Schedules A and D of Form ADV of Advisers (SEC File
801-26292) incorporated herein by reference, which sets forth the officers and
directors of Advisers 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:
Franklin Asset Allocation Fund
Franklin California Tax-Free Income Fund, Inc.
Franklin California Tax-Free Trust
Franklin Custodian Funds, Inc.
Franklin Equity Fund
Franklin Federal Money Fund
Franklin Federal Tax-Free Income Fund
Franklin Floating Rate Trust
Franklin Gold Fund
Franklin High Income Trust
Franklin Investors Securities Trust
Franklin Managed Trust
Franklin Money Fund
Franklin Mutual Series Fund Inc.
Franklin Municipal Securities Trust
Franklin New York Tax-Free Income Fund
Franklin New York Tax-Free Trust
Franklin Real Estate Securities Trust
Franklin Strategic Mortgage Portfolio
Franklin Tax-Exempt Money Fund
Franklin Tax-Free Trust
Franklin Templeton Fund Allocator Series
Franklin Templeton Global Trust
Franklin Templeton International Trust
Franklin Templeton Money Fund Trust
Franklin Value Investors Trust
Institutional Fiduciary Trust
Templeton American Trust, Inc.
Templeton Capital Accumulator Fund, Inc.
Templeton Developing Markets Trust
Templeton Funds, Inc.
Templeton Global Investment Trust
Templeton Global Opportunities Trust
Templeton Global Real Estate Fund
Templeton Global Smaller Companies Fund, Inc.
Templeton Growth Fund, Inc.
Templeton Income Trust
Templeton Institutional Funds, Inc.
Templeton Variable Products Series Fund
b) The information required by this Item 29 with respect to each director
and officer of Distributors is incorporated by reference to Part B of this
N-1A and Schedule A of Form BD filed by Distributors with the Securities and
Exchange Commission pursuant to the Securities Act of 1934 (SEC File No.
8-5889)
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 percent of the Registrant's outstanding shares and 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.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Post-Effective Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of San Mateo and the State of
California, on the 23rd day of December, 1998.
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
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: December 23, 1998
MARTIN L. FLANAGAN* Principal Financial Officer
Martin L. Flanagan Dated: December 23, 1998
DIOMEDES LOO-TAM* Principal Accounting Officer
Diomedes Loo-Tam Dated: December 23, 1998
FRANK H. ABBOTT, III* Trustee
Frank H. Abbott, III Dated: December 23, 1998
HARRIS J. ASHTON* Trustee
Harris J. Ashton Dated: December 23, 1998
HARMON E. BURNS* Trustee
Harmon E. Burns Dated: December 23, 1998
S. JOSEPH FORTUNATO* Trustee
S. Joseph Fortunato Dated: December 23, 1998
EDITH E. HOLIDAY* Trustee
Edith E. Holiday Dated: December 23, 1998
CHARLES B. JOHNSON* Trustee
Charles B. Johnson Dated: December 23, 1998
FRANK W.T. LAHAYE* Trustee
Frank W.T. LaHaye Dated: December 23, 1998
GORDON S. MACKLIN* Trustee
Gordon S. Macklin Dated:, December 23 1998
*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 dated 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 to the Certificate of *
Trust of 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.B1(v) Certificate of Amendment of Agreement and *
Declaration of Trust of Franklin Strategic
Series dated April 18, 1995
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 the Registrant, *
on behalf of Franklin Global Health Care Fund,
Franklin Small Cap Growth Fund, Franklin
Global Utilities Fund, and Franklin Natural
Resources Fund, and Franklin Advisers, Inc.,
dated February 24, 1992
EX-99.B5(ii) Management Agreement between the Registrant, *
on behalf of Franklin Strategic Income Fund,
and Franklin Advisers, Inc., dated May 24, 1994
EX-99.B5(iii) Subadvisory Agreement between Franklin *
Advisers, Inc., on behalf of the Franklin
Strategic Income Fund, and Templeton
Investment Counsel, Inc., dated May 24, 1994
EX-99.B5(iv) Amended and Restated Management Agreement *
between the Registrant, on behalf of Franklin
California Growth Fund, and Franklin Advisers,
Inc., dated July 12, 1993
EX-99.B5(v) Management Agreement between the Registrant, *
on behalf of Franklin Blue Chip Fund, and
Franklin Advisers, Inc., dated February 13,
1996
EX-99.B5(vi) Management Agreement between the Registrant, *
on behalf of Franklin Institutional MidCap
Growth Fund (now known as Franklin MidCap
Growth Fund), and Franklin Advisers, Inc.,
dated January 1, 1996
EX-99.B5(vii) Amendment dated August 1, 1995 to the *
Management Agreement between the Registrant,
on behalf of Franklin California Growth Fund,
and Franklin Advisers, Inc., dated July 12,
1993
EX-99.B5(viii) Amendment dated August 1, 1995 to the *
Management Agreement between the Registrant,
on behalf of Franklin Global Health Care Fund,
and Franklin Small Cap Growth Fund, Franklin
Global Utilities Fund, and Franklin Natural
Resources Fund, and Franklin Advisers, Inc.,
dated February 24, 1992
EX-99.B5(ix) Amendment dated August 1, 1995 to the *
Management Agreement between the Registrant on
behalf of Franklin Strategic Income Fund, and
Franklin Advisers, Inc., dated May 24, 1994
EX-99.B5(x) Management Agreement between the Registrant, *
on behalf of Franklin Biotechnology Discovery
Fund, and Franklin Advisers, Inc., dated July
15, 1997
EX-99.B5(xi) Administration Agreement between the *
Registrant, on behalf of Franklin
Biotechnology Discovery Fund, and Franklin
Templeton Services, Inc., dated July 15, 1997
EX-99.B6(i) Amended and Restated Distribution Agreement *
between the Registrant, on behalf of all
Series except Franklin Strategic Income Fund,
and Franklin/Templeton Distributors, Inc.,
dated April 23, 1995
EX-99.B6(ii) Amended and Restated Distribution Agreement *
between the Registrant, on behalf of Franklin
Strategic Income Fund, and Franklin/Templeton
Distributors, Inc., dated March 29, 1995
EX-99.B6(iii) Forms of Dealer Agreements between Attached
Franklin/Templeton Distributors, Inc., and
Securities Dealers dated March 1, 1998
EX-99.B8(i) Master Custody Agreement between the *
Registrant and Bank of New York dated February
16, 1996
EX-99.B8(ii) Terminal Link Agreement between the Registrant *
and Bank of New York dated February 16, 1996
EX-99.B8(iii) Amendment dated May 7, 1997 to Master Custody *
Agreement between Registrant and Bank of New
York dated February 16, 1996
EX-99.B8(iv) Amendment dated February 27, 1998 to Master Attached
Custody Agreement between Registrant and Bank
of New York dated February 16, 1996
EX-99.B8(v) Foreign Custody Manager Agreement between the Attached
Registrant and The Bank of New York dated
February 27, 1998
EX-99.B9(i) Subcontract for Fund Administrative Services Attached
dated October 1, 1996 and Amendment thereto
dated April 30, 1998 between Franklin
Advisers, Inc. and Franklin Templeton
Services, Inc.
EX-99.B10(i) Opinion and consent of counsel dated June 16, *
1998
EX-99.B11(i) Consent of Independent Auditors Attached
EX-99.B13(i) Letter of Understanding for California Growth *
Fund dated August 20, 1991
EX-99.B13(ii) Letter of Understanding for Franklin Global *
Utilities Fund dated April 12, 1995
EX-99.B13(iii) Letter of Understanding for Franklin Natural *
Resources Fund dated June 5, 1995
EX-99.B13(iv) Letter of Understanding for Franklin *
California Growth Fund dated August 30, 1996
EX-99.B13(v) Letter of Understanding for Franklin Global *
Health Care Fund dated August 30, 1996
EX-99.B13(vi) Letter of Understanding for Franklin Blue Chip *
Fund dated May 24, 1996
EX-99.B13(vii) Letter of Understanding for Franklin *
Biotechnology Discovery Fund dated September
5, 1997
EX-99.B15(i) Amended and Restated Distribution Plan between *
the Registrant, on behalf of Franklin
California Growth Fund, Franklin Small Cap
Growth Fund, Franklin Global Health Care Fund
and Franklin Global Utilities Fund, and
Franklin/Templeton Distributors, Inc., dated
July 1, 1993
EX-99.B15(ii) Distribution Plan between the Registrant, on *
behalf of Franklin Global Utilities Fund -
Class II, and Franklin/Templeton Distributors,
Inc., dated March 30, 1995
EX-99.B15(iii) Distribution Plan pursuant to Rule 12b-1 *
between the Registrant, on behalf of Franklin
Strategic Income Fund, and Franklin/Templeton
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.B15(v) Distribution Plan pursuant to Rule 12b-1 *
between the Registrant, on behalf of the
Franklin MidCap Growth Fund, and
Franklin/Templeton Distributors, Inc., dated
June 1, 1996
EX-99.B15(vi) Distribution Plan pursuant to Rule 12b-1 *
between the Registrant, on behalf of the
Franklin Blue Chip Fund, and
Franklin/Templeton Distributors, Inc., dated
May 28, 1996
EX-99.B15(vii) Distribution Plan pursuant to Rule 12b-1 *
between the Registrant, on behalf of Franklin
Small Cap Growth Fund - Class II, and
Franklin/Templeton Distributors, Inc., dated
September 29, 1995
EX-99.B15(viii) Distribution Plan pursuant to Rule 12b-1 *
between the Registrant, on behalf of Franklin
Biotechnology Discovery Fund, and
Franklin/Templeton Distributors, Inc., dated
September 15, 1997
EX-99.B15(ix) Distribution Plan pursuant to Rule 12b-1 *
between the Registrant, on behalf of Franklin
California Growth Fund - Class II, and
Franklin Global Health Care Fund - Class II,
and Franklin/Templeton Distributors, Inc.,
dated September 3, 1996
EX-99.B15(x) Distribution Plan pursuant to Rule 12b-1 *
between Registrant on behalf of Franklin
Strategic Income Fund - Class II, and
Franklin/Templeton Distributors, Inc. dated
February 26, 1998
EX-99.B15(xi) Form of Class B Distribution Plan pursuant to Attached
Rule 12b-1 between the Registrant on behalf of
California Growth Fund - Class B and
Franklin/Templeton Distributors, Inc.
EX-99.B15(xii) Form of Class B Distribution Plan pursuant to Attached
Rule 12b-1 between the Registrant on behalf of
Franklin Global Health Care Fund - Class B and
Franklin/Templeton Distributors, Inc.
EX-99.B15(xiii) Form of Class B Distribution Plan pursuant to Attached
Rule 12b-1 between the Registrant on behalf of
Franklin Global Utilities Fund - Class B and
Franklin/Templeton Distributors, Inc.
Ex-99.B15(xiv) Form of Class B Distribution Plan pursuant to Attached
Rule 12b-1 between the Registrant on behalf of
Franklin Strategic Income Fund - Class B and
Franklin/Templeton Distributors, Inc.
EX-99.B17(i) Power of Attorney for Franklin Strategic *
Series dated April 16, 1998
EX-99.B17(ii) Certificate of Secretary for Franklin *
Strategic Series dated April 16, 1998
EX-99.B18(i) Form of Multiple Class Plan for Franklin Attached
Global Utilities Fund
EX-99.B18(ii) Form of Multiple Class Plan for Franklin Attached
California Growth Fund
EX-99.B18(iii) Form of Multiple Class Plan for Franklin Attached
Global Health Care Fund
EX-99.B18(iv) Multiple Class Plan for Franklin Small Cap *
Growth Fund dated June 18, 1996
EX-99.B18(v) Multiple Class Plan for Franklin Natural *
Resources Fund dated June 18, 1996
EX-99.B18(vi) Form of Multiple Class Plan for Franklin Attached
Strategic Income Fund
* Incorporated by reference
DEALER AGREEMENT
Effective: March 1, 1998
Dear Securities Dealer:
Franklin/Templeton Distributors, Inc. ("we" or "us") invites you to
participate in the distribution of shares of the Franklin Templeton
investment companies (the "Funds") for which we now or in the future serve as
principal underwriter, subject to the terms of this Agreement. We will notify
you from time to time of the Funds which are eligible for distribution and
the terms of compensation under this Agreement. This Agreement supersedes any
prior dealer agreements between us, as stated in Section 18, below.
1. LICENSING.
(a) You represent that you are (i) a member in good standing of the
National Association of Securities Dealers, Inc. ("NASD") and are presently
licensed to the extent necessary by the appropriate regulatory agency of each
jurisdiction in which you will offer and sell shares of the Funds, or (ii) a
broker, dealer or other company licensed, registered or otherwise qualified to
effect transactions in securities in a country (a "foreign country") other than
the United States of America (the "U.S.") where you will offer or sell shares of
the Funds. You agree that termination or suspension of such membership with the
NASD, or of your license to do business by any regulatory agency having
jurisdiction, at any time shall terminate or suspend this Agreement forthwith
and shall require you to notify us in writing of such action. If you are not a
member of the NASD but are a broker, dealer or other company subject to the laws
of a foreign country, you agree to conform to the Conduct Rules of the NASD.
This Agreement is in all respects subject to the Conduct Rules of the NASD,
particularly Conduct Rule 2830 of the NASD, which shall control any provision to
the contrary in this Agreement.
(b) You agree to notify us immediately in writing if at any time you are
not a member in good standing of the Securities Investor Protection Corporation
("SIPC").
2. SALES OF FUND SHARES. You may offer and sell shares of each Fund and class of
each Fund only at the public offering price which shall be applicable to, and in
effect at the time of, each transaction. The procedures relating to all orders
and the handling of them shall be subject to the terms of the applicable then
current prospectus and statement of additional information (hereafter, the
"prospectus") and new account application, including amendments, for each such
Fund and each class of such Fund, and our written instructions from time to
time. This Agreement is not exclusive, and either party may enter into similar
agreements with third parties.
3. DUTIES OF DEALER: You agree:
(a) To act as principal, or as agent on behalf of your customers, in all
transactions in shares of the Funds except as provided in Section 4 hereof. You
shall not have any authority to act as agent for the issuer (the Funds), for the
Principal Underwriter, or for any other dealer in any respect, nor will you
represent to any third party that you have such authority or are acting in such
capacity.
(b) To purchase shares only from us or from your customers.
(c) To enter orders for the purchase of shares of the Funds only from us
and only for the purpose of covering purchase orders you have already received
from your customers or for your own bona fide investment.
(d) To maintain records of all sales, redemptions and repurchases of shares
made through you and to furnish us with copies of such records on request.
(e) To distribute prospectuses and reports to your customers in compliance
with applicable legal requirements, except to the extent that we expressly
undertake to do so on your behalf.
(f) That you will not withhold placing customers' orders for shares so as
to profit yourself as a result of such withholding or place orders for shares in
amounts just below the point at which sales charges are reduced so as to benefit
from a higher sales charge applicable to an amount below the breakpoint.
(g) That if any shares confirmed to you hereunder are repurchased or
redeemed by any of the Funds within seven business days after such confirmation
of your original order, you shall forthwith refund to us the full concession,
allowed to you on such orders, including any payments we made to you from our
own resources as provided in Section 6(b) hereof with respect to such orders. We
shall forthwith pay to the appropriate Fund the share, if any, of the sales
charge we retained on such order and shall also pay to such Fund the refund of
the concession we receive from you as herein provided (other than the portion of
such concession we paid to you from our own resources as provided in Section
6(b) hereof). We shall notify you of such repurchase or redemption within a
reasonable time after settlement. Termination or suspension of this Agreement
shall not relieve you or us from the requirements of this subsection.
(h) That if payment for the shares purchased is not received within the
time customary or the time required by law for such payment, the sale may be
canceled without notice or demand and without any responsibility or liability on
our part or on the part of the Funds, or at our option, we may sell the shares
which you ordered back to the Funds, in which latter case we may hold you
responsible for any loss to the Funds or loss of profit suffered by us resulting
from your failure to make payment as aforesaid. We shall have no liability for
any check or other item returned unpaid to you after you have paid us on behalf
of a purchaser. We may refuse to liquidate the investment unless we receive the
purchaser's signed authorization for the liquidation.
(i) That you shall assume responsibility for any loss to the Funds caused
by a correction made subsequent to trade date, provided such correction was not
based on any error, omission or negligence on our part, and that you will
immediately pay such loss to the Funds upon notification.
(j) That if on a redemption which you have ordered, instructions in proper
form, including outstanding certificates, are not received within the time
customary or the time required by law, the redemption may be canceled forthwith
without any responsibility or liability on our part or on the part of any Fund,
or at our option, we may buy the shares redeemed on behalf of the Fund, in which
latter case we may hold you responsible for any loss to the Fund or loss of
profit suffered by us resulting from your failure to settle the redemption.
(k) To obtain from your customers all consents required by applicable
privacy laws to permit us, any of our affiliates or the Funds to provide you
either directly or through a service established for that purpose with
confirmations, account statements and other information about your customers'
investments in the Funds.
4. DUTIES OF DEALER: RETIREMENT ACCOUNTS. In connection with orders for the
purchase of shares on behalf of an Individual Retirement Account, Self-Employed
Retirement Plan or other retirement accounts, by mail, telephone, or wire, you
shall act as agent for the custodian or trustee of such plans (solely with
respect to the time of receipt of the application and payments), and you shall
not place such an order until you have received from your customer payment for
such purchase and, if such purchase represents the first contribution to such a
plan, the completed documents necessary to establish the plan and enrollment in
the plan. You agree to indemnify us and Franklin Templeton Trust Company and/or
Templeton Funds Trust Company as applicable for any claim, loss, or liability
resulting from incorrect investment instructions received from you which cause a
tax liability or other tax penalty.
5. CONDITIONAL ORDERS; CERTIFICATES. We will not accept from you any conditional
orders for shares of any of the Funds. Delivery of certificates or confirmations
for shares purchased shall be made by the Funds only against constructive
receipt of the purchase price, subject to deduction for your concession and our
portion of the sales charge, if any, on such sale. No certificates for shares of
the Funds will be issued unless specifically requested.
6. DEALER COMPENSATION.
(a) On each purchase of shares by you from us, the total sales charges and
your dealer concessions shall be as stated in each Fund's then current
prospectus, subject to NASD rules and applicable laws. Such sales charges and
dealer concessions are subject to reductions under a variety of circumstances as
described in the Funds' prospectuses. For an investor to obtain these
reductions, we must be notified at the time of the sale that the sale qualifies
for the reduced charge. If you fail to notify us of the applicability of a
reduction in the sales charge at the time the trade is placed, neither we nor
any of the Funds will be liable for amounts necessary to reimburse any investor
for the reduction which should have been effected.
(b) In accordance with the Funds' prospectuses, we or our affiliates may,
but are not obligated to, make payments to you from our own resources as
compensation for certain sales which are made at net asset value ("Qualifying
Sales"). If you notify us of a Qualifying Sale, we may make a contingent advance
payment up to the maximum amount available for payment on the sale. If any of
the shares purchased in a Qualifying Sale are repurchased or redeemed within
twelve months of the month of purchase, we shall be entitled to recover any
advance payment attributable to the repurchased or redeemed shares by reducing
any account payable or other monetary obligation we may owe to you or by making
demand upon you for repayment in cash. We reserve the right to withhold advances
to you, if for any reason we believe that we may not be able to recover unearned
advances from you. Termination or suspension of this Agreement shall not relieve
you or us from the requirements of this subsection.
7. REDEMPTIONS OR REPURCHASES. Redemptions or repurchases of shares of the Funds
will be made at the net asset value of such shares, less any applicable deferred
sales or redemption charges, in accordance with the applicable prospectuses.
Except as permitted by applicable law, you agree not to purchase any shares from
your customers at a price lower than the net asset value of such shares next
computed by the Funds after the purchase (the "Redemption/Repurchase Price").
You shall, however, be permitted to sell shares of the Funds for the account of
the record owner to the Funds at the Redemption/Repurchase Price for such
shares.
8. EXCHANGES. Telephone exchange orders will be effective only for
uncertificated shares or for which share certificates have been previously
deposited and may be subject to any fees or other restrictions set forth in the
applicable prospectuses. Exchanges from a Fund sold with no sales charge to a
Fund which carries a sales charge, and exchanges from a Fund sold with a sales
charge to a Fund which carries a higher sales charge may be subject to a sales
charge in accordance with the terms of the applicable Fund's prospectus. You
will be obligated to comply with any additional exchange policies described in
the applicable Fund's prospectus, including without limitation any policy
restricting or prohibiting "Timing Accounts" as therein defined.
9. TRANSACTION PROCESSING. All orders are subject to acceptance by us and by the
Fund or its transfer agent, and become effective only upon confirmation by us.
If required by law, each transaction shall be confirmed in writing on a fully
disclosed basis and if confirmed by us, a copy of each confirmation shall be
sent simultaneously to you if you so request. All sales are made subject to
receipt of shares by us from the Funds. We reserve the right in our discretion,
without notice, to suspend the sale of shares of the Funds or withdraw the
offering of shares of the Funds entirely. Orders will be effected at the
price(s) next computed on the day they are received if, as set forth in the
applicable Fund's current prospectus, the orders are received by us, an agent
appointed by us or the Funds prior to the time the price of the Fund's shares is
calculated. Orders received after that time will be effected at the price(s)
computed on the next business day. All orders must be accompanied by payment in
U.S. Dollars. Orders payable by check must be drawn payable in U.S. Dollars on a
U.S. bank, for the full amount of the investment.
10. MULTIPLE CLASSES. We may from time to time provide to you written compliance
guidelines or standards relating to the sale or distribution of Funds offering
multiple classes of shares (each, a "Class") with different sales charges and
distribution related operating expenses. In addition, you will be bound by any
applicable rules or regulations of government agencies or self-regulatory
organizations generally affecting the sale or distribution of shares of
investment companies offering multiple classes of shares.
11. RULE 12B-1 PLANS. You are invited to participate in all distribution plans
(each, a "Plan") adopted for a Class of a Fund or for a Fund that has only a
single Class (each, a "Plan Class") pursuant to Rule 12b-1 under the Investment
Company Act of 1940, as amended (the "1940 Act").
To the extent you provide administrative and other services, including, but
not limited to, furnishing personal and other services and assistance to your
customers who own shares of a Plan Class, answering routine inquiries regarding
a Fund or Class, assisting in changing account designations and addresses,
maintaining such accounts or such other services as a Fund may require, to the
extent permitted by applicable statutes, rules, or regulations, we shall pay you
a Rule 12b-1 servicing fee. To the extent that you participate in the
distribution of Fund shares that are eligible for a Rule 12b-1 distribution fee,
we shall also pay you a Rule 12b-1 distribution fee. All Rule 12b-1 servicing
and distribution fees shall be based on the value of shares attributable to
customers of your firm and eligible for such payment, and shall be calculated on
the basis and at the rates set forth in the compensation schedule then in effect
for the applicable Plan (the "Schedule"). Without prior approval by a majority
of the outstanding shares of a particular Class of a Fund which has a Plan, the
aggregate annual fees paid to you pursuant to such Plan shall not exceed the
amounts stated as the "annual maximums" in such Plan Class' prospectus, which
amount shall be a specified percent of the value of such Plan Class' net assets
held in your customers' accounts which are eligible for payment pursuant to this
Agreement (determined in the same manner as such Plan Class uses to compute its
net assets as set forth in its effective prospectus).
You shall furnish us and each Fund that has a Plan Class (each, a "Plan
Fund") with such information as shall reasonably be requested by the Board of
Directors, Trustees or Managing General Partners (hereinafter referred to as
"Directors") of such Plan Fund with respect to the fees paid to you pursuant to
the Schedule of such Plan Fund. We shall furnish to the Boards of Directors of
the Plan Funds, for their review on a quarterly basis, a written report of the
amounts expended under the Plans and the purposes for which such expenditures
were made.
Each Plan and the provisions of any agreement relating to such Plan must be
approved annually by a vote of the Directors of the Fund that has such Plan,
including such persons who are not interested persons of such Plan Fund and who
have no financial interest in such Plan or any related agreement ("Rule 12b-1
Directors"). Each Plan or the provisions of this Agreement relating to such Plan
may be terminated at any time by the vote of a majority of the Rule 12b-1
Directors, or by a vote of a majority of the outstanding shares of the Class
that has such Plan, on sixty (60) days' written notice, without payment of any
penalty. A Plan or the provisions of this Agreement may also be terminated by
any act that terminates the Underwriting Agreement between us and the Fund that
has such Plan, and/or the management or administration agreement between
Franklin Advisers, Inc. or Templeton Investment Counsel, Inc. or their
affiliates and such Plan Fund. In the event of the termination of a Plan for any
reason, the provisions of this Agreement relating to such Plan will also
terminate.
Continuation of a Plan and provisions of this Agreement relating to such
Plan are conditioned on Rule 12b-1 Directors being ultimately responsible for
selecting and nominating any new Rule 12b-1 Directors. Under Rule 12b-1,
Directors of any of the Plan Funds have a duty to request and evaluate, and
persons who are party to any agreement related to a Plan have a duty to furnish,
such information as may reasonably be necessary to an informed determination of
whether the Plan or any agreement should be implemented or continued. Under Rule
12b-1, a Plan Fund is permitted to implement or continue a Plan or the
provisions of this Agreement relating to such Plan from year-to-year only if,
based on certain legal considerations, the Board of Directors of such Plan Fund
is able to conclude that such Plan will benefit the Plan Class. Absent such
yearly determination, such Plan and the provisions of this Agreement relating to
such Plan must be terminated as set forth above. In addition, any obligation
assumed by a Fund pursuant to this Agreement shall be limited in all cases to
the assets of such Fund and no person shall seek satisfaction thereof from
shareholders of a Fund. You agree to waive payment of any amounts payable to you
by us under a Fund's Plan until such time as we are in receipt of such fee from
the Fund.
The provisions of the Plans between the Plan Funds and us shall control
over the provisions of this Agreement in the event of any inconsistency.
12. REGISTRATION OF SHARES. Upon request, we shall notify you of the states or
other jurisdictions in which each Fund's shares are currently noticed,
registered or qualified for offer or sale to the public. We shall have no
obligation to make notice filings of, register or qualify, or to maintain notice
filings of, registration of or qualification of, Fund shares in any state or
other jurisdiction. We shall have no responsibility, under the laws regulating
the sale of securities in any U.S. or foreign jurisdiction, for the
registration, qualification or licensed status of persons offering or selling
Fund shares or for the manner of offering or sale of Fund shares. If it is
necessary to file notice of, register or qualify Fund shares in any foreign
jurisdictions in which you intend to offer the shares of any Funds, it will be
your responsibility to arrange for and to pay the costs of such notice filing,
registration or qualification; prior to any such notice filing, registration or
qualification, you will notify us of your intent and of any limitations that
might be imposed on the Funds, and you agree not to proceed with such notice
filing, registration or qualification without the written consent of the
applicable Funds and of ourselves. Except as stated in this section, we shall
not, in any event, be liable or responsible for the issue, form, validity,
enforceability and value of such shares or for any matter in connection
therewith, and no obligation not expressly assumed by us in this Agreement shall
be implied. Nothing in this Agreement shall be deemed to be a condition,
stipulation or provision binding any person acquiring any security to waive
compliance with any provision of the Securities Act of 1933, as amended (the
"1933 Act"), the Securities Exchange Act of 1934, as amended (the "1934 Act"),
the 1940 Act, the rules and regulations of the U.S. Securities and Exchange
Commission, or any applicable laws or regulations of any government or
authorized agency in the U.S. or any other country having jurisdiction over the
offer or sale of shares of the Funds, or to relieve the parties hereto from any
liability arising under such laws, rules and regulations.
13. CONTINUOUSLY OFFERED CLOSED-END FUNDS. This Section 13 relates solely to
shares of Funds that represent a beneficial interest in the Franklin Floating
Rate Trust and shares issued by any other continuously offered closed-end
investment company registered under the 1940 Act for which we or an affiliate of
ours serve as principal underwriter and that periodically repurchases its shares
(each, a "Trust"). Shares of a Trust that are offered to the public will be
registered under the 1933 Act, and are expected to be offered during an offering
period that may continue indefinitely ("Continuous Offering Period"). There is
no guarantee that such a continuous offering will be maintained by a Trust. The
Continuous Offering Period, shares of a Trust and certain of the terms on which
such shares are offered shall be as described in the prospectus of the Trust.
As set forth in a Trust's then current prospectus, we may, but are not
obligated to, provide you with appropriate compensation for selling shares of
the Trust. In addition, you may be entitled to a fee for servicing your clients
who are shareholders in a Trust, subject to applicable law and NASD Conduct
Rules. You agree that any repurchases of shares of a Trust that were originally
purchased as Qualifying Sales shall be subject to Subsection 6(b) hereof.
You expressly acknowledge and understand that, notwithstanding anything to
the contrary in this Agreement:
(a) No Trust has a Rule 12b-1 Plan and in no event will a Trust pay, or
have any obligation to pay, any compensation directly or indirectly to
you.
(b) Shares of a Trust will not be repurchased by either the Trust (other
than through repurchase offers by the Trust from time to time, if any)
or by us and no secondary market for such shares exists currently, or
is expected to develop. Any representation as to a repurchase or
tender offer by a Trust, other than that set forth in the Trust's then
current prospectus, notification letters, reports or other related
material provided by the Trust, is expressly prohibited.
(c) An early withdrawal charge payable by shareholders of a Trust to us
may be imposed on shares accepted for repurchase by the Trust that
have been held for less than a stated period, as set forth in the
Trust's then current Prospectus.
(d) In the event your customer cancels his or her order for shares of a
Trust after confirmation, such shares will not be repurchased,
remarketed or otherwise disposed of by or though us.
14. FUND INFORMATION. No person is authorized to give any information or make
any representations concerning shares of any Fund except those contained in the
Fund's then current prospectus or in materials issued by us as information
supplemental to such prospectus. We will supply reasonable quantities of
prospectuses, supplemental sales literature, sales bulletins, and additional
information as issued by the Fund or us. You agree not to use other advertising
or sales material relating to the Funds except that which (a) conforms to the
requirements of any applicable laws or regulations of any government or
authorized agency in the U.S. or any other country having jurisdiction over the
offering or sale of shares of the Funds, and (b) is approved in writing by us in
advance of such use. Such approval may be withdrawn by us in whole or in part
upon notice to you, and you shall, upon receipt of such notice, immediately
discontinue the use of such sales literature, sales material and advertising.
You are not authorized to modify or translate any such materials without our
prior written consent.
15. INDEMNIFICATION. You agree to indemnify, defend and hold harmless us, the
Funds, and the respective officers, directors and employees of the Funds and us
from any and all losses, claims, liabilities and expenses arising out of (1) any
alleged violation of any statute or regulation (including without limitation the
securities laws and regulations of the U.S. or any state or foreign country) or
any alleged tort or breach of contract, in or related to the offer or sale by
you of shares of the Funds pursuant to this Agreement (except to the extent that
our negligence or failure to follow correct instructions received from you is
the cause of such loss, claim, liability or expense), (2) any redemption or
exchange pursuant to telephone instructions received from you or your agents or
employees, or (3) the breach by you of any of the terms and conditions of this
Agreement. This Section 15 shall survive the termination of this Agreement.
16. TERMINATION; SUCCESSION; ASSIGNMENT; AMENDMENT. Each party to this Agreement
may terminate its participation in this Agreement by giving written notice to
the other parties. Such notice shall be deemed to have been given and to be
effective on the date on which it was either delivered personally to the other
parties or any officer or member thereof, or was mailed postpaid or delivered by
electronic transmission to the other parties' chief legal officers at the
addresses shown herein or in the most recent NASD Manual. This Agreement shall
terminate immediately upon the appointment of a Trustee under the Securities
Investor Protection Act or any other act of insolvency by you. The termination
of this Agreement by any of the foregoing means shall have no effect upon
transactions entered into prior to the effective date of termination. A trade
placed by you subsequent to your voluntary termination of this Agreement will
not serve to reinstate the Agreement. Reinstatement, except in the case of a
temporary suspension of a dealer, will be effective only upon written
notification by us to you. This Agreement will terminate automatically in the
event of its assignment by us. For purposes of the preceding sentence, the word
"assignment" shall have the meaning given to it in the 1940 Act. This Agreement
may not be assigned by you without our prior written consent. This Agreement may
be amended by us at any time by written notice to you and your placing of an
order or acceptance of payments of any kind after the effective date and receipt
of notice of any such Amendment shall constitute your acceptance of such
Amendment.
17. SETOFF; DISPUTE RESOLUTION. Should any of your concession accounts with us
have a debit balance, we may offset and recover the amount owed to us or the
Funds from any other account you have with us, without notice or demand to you.
In the event of a dispute concerning any provision of this Agreement, either
party may require the dispute to be submitted to binding arbitration under the
commercial arbitration rules of the NASD or the American Arbitration
Association. Judgment upon any arbitration award may be entered by any court
having jurisdiction. This Agreement shall be construed in accordance with the
laws of the State of California, not including any provision that would require
the general application of the law of another jurisdiction.
18. ACCEPTANCE; CUMULATIVE EFFECT. This Agreement is cumulative and supersedes
any agreement previously in effect. It shall be binding upon the parties hereto
when signed by us and accepted by you. If you have a current dealer agreement
with us, your first trade or acceptance of payments from us after your receipt
of this Agreement, as it may be amended pursuant to Section 16, above, shall
constitute your acceptance of its terms. Otherwise, your signature below shall
constitute your acceptance of its terms.
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
By /s/ Greg Johnson
------------------------
Greg Johnson, President
777 Mariners Island Blvd.
San Mateo, CA 94404
Attention: Chief Legal Officer (for legal notices only)
415/312-2000
700 Central Avenue
St. Petersburg, Florida 33701-3628
813/823-8712
- --------------------------------------------------------------------------------
Dealer: If you have NOT previously signed a Dealer Agreement with us, please
complete and sign this section and return the original to us.
__________________________________
DEALER NAME:
By _______________________________
(Signature)
Name:_____________________________
Title: ___________________________
Address: ______________________________
_______________________________________
_______________________________________
Telephone: _______________________
NASD CRD # _______________________
- --------------------------------------------------------------------------------
Franklin Templeton Dealer # ______________________
(Internal Use Only)
- --------------------------------------------------------------------------------
Version 12/31/97
232567.4
Franklin Templeton Distributors, Inc.
777 Mariners Island Boulevard
San Mateo, CA 94403-7777
May 15, 1998
Re: Amendment of Dealer Agreement - Notice Pursuant to Section 16
Dear Securities Dealer:
This letter constitutes notice of amendment of the current Dealer Agreement (the
"Agreement") between Franklin/Templeton Distributors, Inc. ("we" or "us") and
you pursuant to Section 16 of the Agreement. The Agreement is hereby amended as
follows:
1. Defined terms in this amendment have the meanings as stated in the
Agreement unless otherwise indicated.
2. Section 6 is modified to add a subsection 6(c), as follows:
(c) The following limitations apply with respect to shares of each Trust as
described in Section 13 of this Agreement.
(1) Consistent with the NASD Conduct Rules, the total compensation to
be paid to us and selected dealers and their affiliates, including you and your
affiliates, in connection with the distribution of shares of a Trust will not
exceed the underwriting compensation limitation prescribed by NASD Conduct Rule
2710. The total underwriting compensation to be paid to us and selected dealers
and their affiliates, including you and your affiliates, may include: (i) at the
time of purchase of shares a payment to you or another securities dealer of 1%
of the dollar amount of the purchased shares by the Distributor; and (ii) a
quarterly payment at an annual rate of .50% to you or another securities dealer
based on the value of such remaining shares sold by you or such securities
dealer, if after twelve (12) months from the date of purchase, the shares sold
by you or such securities dealer remain outstanding.
(2) The maximum compensation shall be no more than as disclosed in the
section "Payments to Dealers" of the prospectus of the applicable Trust.
Pursuant to Section 16 of the Agreement, your placement of an order or
acceptance of payments of any kind after the effective date and receipt of
notice of this amendment shall constitute your acceptance of this amendment.
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
By /s/ Greg Johnson
--------------------------
Greg Johnson, President
777 Mariners Island Blvd.
San Mateo, CA 94404
Attention: Chief Legal Officer (for legal notices only)
650/312-2000
100 Fountain Parkway
St. Petersburg, FL 33716
813/299-8712
MUTUAL FUND PURCHASE AND SALES AGREEMENT
FOR ACCOUNTS OF BANK AND TRUST COMPANY CUSTOMERS
EFFECTIVE: APRIL 1, 1998
1. INTRODUCTION
The parties to this Agreement are the undersigned bank or trust company
("Bank") and Franklin/Templeton Distributors, Inc. ("FTDI"). This Agreement sets
forth the terms and conditions under which FTDI will execute purchases and
redemptions of shares of the Franklin or Templeton investment companies or
series of such investment companies for which FTDI now or in the future serves
as principal underwriter (each, a "Fund"), at the request of the Bank upon the
order and for the account of Bank's customers ("Customers"). In this Agreement,
"Customer" shall include the beneficial owners of an account and any agent or
attorney-in-fact duly authorized or appointed to act on the owners' behalf with
respect to the account; and "redemptions" shall include redemptions of shares of
Funds that are open-end management investment companies and repurchases of
shares of Funds that are closed-end investment companies by the Fund that is the
issuer of such shares. FTDI will notify Bank from time to time of the Funds
which are eligible for distribution and the terms of compensation under this
Agreement. This Agreement is not exclusive, and either party may enter into
similar agreements with third parties.
2. REPRESENTATIONS AND WARRANTIES OF BANK
Bank warrants and represents to FTDI and the Funds that:
a) Bank is a "bank" as defined in section 3(a)(6) of the Securities
Exchange Act of 1934, as amended (the "1934 Act");
b) Bank is authorized to enter into this Agreement as agent for the
Customers, and Bank's performance of its obligations and receipt of
consideration under this Agreement will not violate any law,
regulation, charter, agreement, or regulatory restriction to which
Bank is subject; and
c) Bank has received all regulatory agency approvals and taken all legal
and other steps necessary for offering the services Bank will provide
to Customers and receiving any applicable compensation in connection
with this Agreement.
3. REPRESENTATIONS AND WARRANTIES OF THE PRINCIPAL UNDERWRITER
FTDI warrants and represents to Bank that:
a) FTDI is a broker/dealer registered under the 1934 Act; and
b) FTDI is the principal underwriter of the Funds.
4. COVENANTS OF BANK
a) For each purchase or redemption transaction under this Agreement
(each, a "Transaction"), Bank will:
1) be authorized to engage in the Transaction;
2) act as agent for the Customer, unless Bank is the Customer;
3) act solely at the request of and for the account of the Customer,
unless Bank is the Customer;
4) not submit an order unless Bank has already received the order
from the Customer, unless Bank is the Customer;
5) not offer to sell shares of Fund(s) or submit a purchase order
unless Bank has already delivered to the Customer a copy of the
then current prospectuses for the Fund(s) whose shares are
offered or are to be purchased;
6) not withhold placing any Customer's order for the purpose of
profiting from the delay or place orders for shares in amounts
just below the point at which sales charges are reduced so as to
benefit from a higher Fee (as defined in Paragraph 5(e) below)
applicable to a Transaction in an amount below the breakpoint;
7) have no beneficial ownership of the securities in any purchase
Transaction (the Customer will have the full beneficial
ownership), unless Bank is the Customer (in which case, Bank will
not engage in the Transaction unless the Transaction is legally
permissible for Bank);
8) not accept or withhold any Fee (as defined in Paragraph 5(e) of
this Agreement) otherwise allowed under Paragraphs 5(d) and (e)
of this Agreement, if prohibited by the Employee Retirement
Income Security Act of 1974, as amended, or trust or similar laws
to which Bank is subject, in the case of Transactions of Fund
shares involving retirement plans, trusts, or similar accounts;
9) maintain records of all Transactions of Fund shares made through
Bank and furnish FTDI with copies of such records on request; and
10) distribute prospectuses, statements of additional information and
reports to Customers in compliance with applicable legal
requirements, except to the extent that FTDI expressly undertakes
to do so on behalf of Bank.
b) While this Agreement is in effect, Bank will:
1) not purchase any Fund shares from any person at a price lower
than the redemption or repurchase price as applicable next
determined by the applicable Fund;
2) repay FTDI the full Fee received by Bank under Paragraphs 5(d)
and (e) of this Agreement, and any payments FTDI or its
affiliates made to Bank from their own resources under Paragraph
5(e) of this Agreement ("FTDI Payments"), for any Fund shares
purchased under this Agreement which are redeemed or repurchased
by the Fund within 7 business days after the purchase; in turn,
FTDI shall pay to the Fund the amount repaid by Bank (other than
any portion of such repayment that is a repayment of FTDI
Payments) and will notify Bank of any such redemption within a
reasonable time (termination or suspension of this Agreement
shall not relieve Bank or FTDI from the requirements of this
subparagraph);
3) in connection with orders for the purchase of Fund shares on
behalf of an Individual Retirement Account, Self-Employed
Retirement Plan or other retirement accounts, by mail, telephone,
or wire, act as agent for the custodian or trustee of such plans
(solely with respect to the time of receipt of the application
and payments) and shall not place such an order until Bank has
received from its Customer payment for such purchase and, if such
purchase represents the first contribution to such a plan, the
completed documents necessary to establish the plan and
enrollment in the plan (Bank agrees to indemnify FTDI and
Franklin Templeton Trust Company and/or Templeton Funds Trust
Company as applicable for any claim, loss, or liability resulting
from incorrect investment instructions received from Bank which
cause a tax liability or other tax penalty);
4) be responsible for compliance with all laws and regulations,
including those of the applicable federal and state bank and
securities regulatory authorities, with regard to Bank and Bank's
Customers; and
5) obtain from its Customers any consents required by applicable
federal and/or state privacy laws to permit FTDI, any of its
affiliates or the Funds to provide Bank with confirmations,
account statements and other information about Customers'
investments in the Funds.
5. TERMS AND CONDITIONS FOR TRANSACTIONS
a) Price
Purchase orders for Fund shares received from Bank will be accepted only at
the public offering price and in compliance with procedures applicable to each
purchase order as set forth in the then current prospectus and statement of
additional information (hereinafter, collectively, "prospectus") for the
applicable Fund. All purchase orders must be accompanied by payment in U.S.
Dollars. Orders payable by check must be drawn payable in U.S. Dollars on a U.S.
bank, for the full amount of the investment. All sales are made subject to
receipt of shares by FTDI from the Funds. FTDI reserves the right in its
discretion, without notice, to suspend the sale of shares or withdraw the
offering of shares entirely.
b) Orders and Confirmations
All orders are subject to acceptance or rejection by FTDI and by the Fund
or its transfer agent at their sole discretion, and become effective only upon
confirmation by FTDI. Transaction orders shall be made using the procedures and
forms required by FTDI from time to time. Orders received by FTDI or an agent
appointed by FTDI or the Funds on any business day after the time for
calculating the price of Fund shares as set forth in each Fund's current
prospectus will be effected at the price determined on the next business day. No
order will be accepted unless Bank or the Customer shall have provided FTDI with
the Customer's full name, address and other information normally required by
FTDI to open a customer account, and FTDI shall be entitled to rely on the
accuracy of the information provided by Bank. A written confirming statement
will be sent to Bank and to Customer upon settlement of each Transaction.
c) Multiple Class Guidelines
FTDI may from time to time provide to Bank written compliance guidelines or
standards relating to the sale or distribution of Funds offering multiple
classes of shares (each, a "Class") with different sales charges and
distribution-related operating expenses. Bank will comply with FTDI's written
compliance guidelines and standards, as well as with any applicable rules or
regulations of government agencies or self-regulatory organizations generally
affecting the sale or distribution of investment companies offering multiple
classes of shares, whether or not Bank deems itself otherwise subject to such
rules or regulations.
d) Payments by Bank for Purchases
On the settlement date for each purchase, Bank shall either (i) remit the
full purchase price by wire transfer to an account designated by FTDI, or (ii)
following FTDI's procedures, wire the purchase price less the Fee allowed by
Paragraph 5(e) of this Agreement. Twice monthly, FTDI will pay Bank Fees not
previously paid to or withheld by Bank. Each calendar month, FTDI, as
applicable, will prepare and mail an activity statement summarizing all
Transactions.
e) Fees and Payments
Where permitted by the prospectus for a Fund, a charge, concession, or fee
(each of the foregoing forms of compensation, a "Fee") may be paid to Bank,
related to services provided by Bank in connection with Transactions in shares
of such Fund. The amount of the Fee, if any, is set by the relevant prospectus.
Adjustments in the Fee are available for certain purchases, and Bank is solely
responsible for notifying FTDI when any purchase or redemption order is
qualified for such an adjustment. If Bank fails to notify FTDI of the
applicability of a reduction in the sales charge at the time the trade is
placed, neither FTDI nor any of the Funds will be liable for amounts necessary
to reimburse any Customer for the reduction which should have been effected.
In accordance with the Funds' prospectuses, FTDI or its affiliates may, but
are not obligated to, make payments from their own resources to Bank as
compensation for certain sales that are made at net asset value ("Qualifying
Sales"). If Bank notifies FTDI of a Qualifying Sale, FTDI may make a contingent
advance payment up to the maximum amount available for payment on the sale. If
any of the shares purchased in a Qualifying Sale are redeemed or repurchased
within twelve months of the month of purchase, FTDI shall be entitled to recover
any advance payment attributable to the redeemed or repurchased shares by
reducing any account payable or other monetary obligation FTDI may owe to Bank
or by making demand upon Bank for repayment in cash. FTDI reserves the right to
withhold any one or more advances, if for any reason FTDI believes that FTDI may
not be able to recover unearned advances. Termination or suspension of this
Agreement does not relieve Bank from the requirements of this paragraph.
f) Rule 12b-1 Plans
Bank is also invited to participate in all distribution plans (each, a
"Plan") adopted for a Class of a Fund or for a Fund that has only a single Class
(each, a "Plan Class") pursuant to Rule 12b-1 under the Investment Company Act
of 1940, as amended (the "1940 Act").
To the extent Bank provides administrative and other services, including,
but not limited to, furnishing personal and other services and assistance to
Customers who own shares of a Plan Class, answering routine inquiries regarding
a Fund or Class, assisting in changing account designations and addresses,
maintaining such accounts or such other services as a Fund may require, to the
extent permitted by applicable statutes, rules, or regulations, FTDI shall pay
Bank a Rule 12b-1 servicing fee. To the extent that Bank participates in the
distribution of Fund shares that are eligible for a Rule 12b-1 distribution
fee,FTDI shall also pay Bank a Rule 12b-1 distribution fee. All Rule 12b-1
servicing and distribution fees shall be based on the value of shares
attributable to Customers and eligible for such payment, and shall be calculated
on the basis and at the rates set forth in the compensation schedule then in
effect for the applicable Plan (the "Schedule"). Without prior approval by a
majority of the outstanding shares of a particular Class of a Fund, the
aggregate annual fees paid to Bank pursuant to such Plan shall not exceed the
amounts stated as the "annual maximums" in such Plan Class' prospectus, which
amount shall be a specified percent of the value of such Plan Class' net assets
held in Customers' accounts which are eligible for payment pursuant to this
Agreement (determined in the same manner as such Plan Class uses to compute its
net assets as set forth in its effective Prospectus).
Bank shall furnish FTDI and each Fund that has a Plan Class (each, a "Plan
Fund") with such information as shall reasonably be requested by the Board of
Directors, Trustees or Managing General Partners (hereinafter referred to as
"Directors") of such Plan Fund with respect to the fees paid to Bank pursuant to
the Schedule of such Plan Fund. FTDI shall furnish to the Boards of Directors of
the Plan Funds, for their review on a quarterly basis, a written report of the
amounts expended under the Plans and the purposes for which such expenditures
were made.
Each Plan and the provisions of any agreement relating to such Plan must be
approved annually by a vote of the Directors of the Fund that has such Plan,
including such persons who are not interested persons of such Plan Fund and who
have no financial interest in such Plan or any related agreement ("Rule 12b-1
Directors"). Each Plan or the provisions of this Agreement relating to such Plan
may be terminated at any time by the vote of a majority of Rule 12b-1 Directors
of the Fund that has such Plan, or by a vote of a majority of the outstanding
shares of the Class that has such Plan on sixty (60) days' written notice,
without payment of any penalty. A Plan or the provisions of this Agreement may
also be terminated by any act that terminates the Underwriting Agreement between
FTDI and the Fund that has such Plan, and/or the management or administration
agreement between Franklin Advisers, Inc. or Templeton Investment Counsel, Inc.
or their affiliates and such Plan Fund. In the event of the termination of a
Plan for any reason, the provisions of this Agreement relating to such Plan will
also terminate.
Continuation of a Plan and the provisions of this Agreement relating to
such Plan are conditioned on Rule 12b-1 Directors being ultimately responsible
for selecting and nominating any new Rule 12b-1 Directors. Under Rule 12b-1,
Directors of any of the Plan Funds have a duty to request and evaluate, and
persons who are party to any agreement related to a Plan have a duty to furnish,
such information as may reasonably be necessary to an informed determination of
whether the Plan or any agreement should be implemented or continued. Under Rule
12b-1, a Plan Fund is permitted to implement or continue a Plan or the
provisions of this Agreement relating to such Plan from year-to-year only if,
based on certain legal considerations, the Board of Directors of such Plan Fund
is able to conclude that the Plan will benefit the Plan Class. Absent such
yearly determination, a Plan and the provisions of this Agreement relating to
such Plan must be terminated as set forth above. In addition, any obligation
assumed by a Fund pursuant to this Agreement shall be limited in all cases to
the assets of such Fund and no person shall seek satisfaction thereof from
shareholders of a Fund. Bank agrees to waive payment of any amounts payable to
Bank by FTDI under a Fund's Plan until such time as FTDI is in receipt of such
fee from the Fund.
The provisions of the Plans between the Plan Funds and FTDI shall control
over the provisions of this Agreement in the event of any inconsistency.
g) Other Distribution Services
From time to time, FTDI may offer telephone and other augmented services in
connection with Transactions under this Agreement. If Bank uses any such
service, Bank will be subject to the procedures applicable to the service,
whether or not Bank has executed any agreement required for the service.
h) Conditional Orders; Certificates
FTDI will not accept any conditional Transaction orders. Delivery of
certificates or confirmations for shares purchased shall be made by a Fund only
against constructive receipt of the purchase price, subject to deduction of any
Fee and FTDI's portion of the sales charge, if any, on such sale. No
certificates for shares of the Funds will be issued unless specifically
requested.
i) Cancellation of Orders
If payment for shares purchased is not received within the time customary
or the time required by law for such payment, the sale may be canceled without
notice or demand, and neither FTDI nor the Fund(s) shall have any responsibility
or liability for such a cancellation; alternatively, at FTDI's option, the
unpaid shares may be sold back to the Fund, and Bank shall be liable for any
resulting loss to FTDI or to the Fund(s). FTDI shall have no liability for any
check or other item returned unpaid to Bank after Bank has paid FTDI on behalf
of a purchaser. FTDI may refuse to liquidate the investment unless FTDI receives
the purchaser's signed authorization for the liquidation.
j) Order Corrections
Bank shall assume responsibility for any loss to a Fund(s) caused by a
correction made subsequent to trade date, provided such correction was not based
on any error, omission or negligence on FTDI's part, and Bank will immediately
pay such loss to the Fund(s) upon notification.
k) Redemptions; Cancellation
Redemptions or repurchases of shares will be made at the net asset value of
such shares, less any applicable deferred sales or redemption charges, in
accordance with the applicable prospectuses. If Bank sells shares for the
account of the record owner to the Funds, Bank shall be deemed to represent to
FTDI that Bank is doing so as agent for the Customer and that Bank is authorized
to do so in such capacity. Such sales to the Funds shall be at the redemption or
repurchase price then currently in effect for such shares. If on a redemption
which Bank has ordered, instructions in proper form, including outstanding
certificates, are not received within the time customary or the time required by
law, the redemption may be canceled forthwith without any responsibility or
liability on the part of FTDI or any Fund, or at the option of FTDI, FTDI may
buy the shares redeemed on behalf of the Fund, in which latter case FTDI may
hold Bank responsible for any loss to the Fund or loss of profit suffered by
FTDI resulting from Bank's failure to settle the redemption.
l) Exchanges
Telephone exchange orders will be effective only for uncertificated shares
or for which share certificates have been previously deposited and may be
subject to any fees or other restrictions set forth in the applicable
prospectuses. Exchanges from a Fund sold with no sales charge to a Fund which
carries a sales charge, and exchanges from a Fund sold with a sales charge to a
Fund which carries a higher sales charge may be subject to a sales charge in
accordance with the terms of the applicable Fund's prospectus. Bank will be
obligated to comply with any additional exchange policies described in the
applicable Fund's prospectus, including without limitation any policy
restricting or prohibiting "Timing Accounts" as therein defined.
m) Qualification of Shares; Indemnification
Upon request, FTDI shall notify Bank of the states or other jurisdictions
in which each Fund's shares are currently noticed, registered or qualified for
offer or sale to the public. FTDI shall have no obligation to make notice
filings of, register or qualify, or to maintain notice filings of, registration
of or qualification of, Fund shares in any state or other jurisdiction. FTDI
shall have no responsibility, under the laws regulating the sale of securities
in any U.S. or foreign jurisdiction, for the registration, qualification or
licensed status of Bank or any of its agents or sub-agents in connection with
the purchase or sale of Fund shares or for the manner of offering, sale or
purchase of Fund shares. Except as stated in this paragraph, FTDI shall not, in
any event, be liable or responsible for the issue, form, validity,
enforceability and value of such shares or for any matter in connection
therewith, and no obligation not expressly assumed by FTDI in this Agreement
shall be implied. If it is necessary to file notice of, register or qualify
shares of any Fund in any country, state or other jurisdiction having authority
over the purchase or sale of Fund shares that are purchased by a Customer, it
will be Bank's responsibility to arrange for and to pay the costs of such notice
filing, registration or qualification; prior to any such notice filing,
registration or qualification, Bank will notify FTDI of its intent and of any
limitations that might be imposed on the Funds, and Bank agrees not to proceed
with such notice filing, registration or qualification without the written
consent of the applicable Funds and of FTDI. Nothing in this Agreement shall be
deemed to be a condition, stipulation, or provision binding any person acquiring
any security to waive compliance with any provision of the Securities Act of
1933, as amended (the "1933 Act"), the 1934 Act, the 1940 Act, the rules and
regulations of the U.S. Securities and Exchange Commission, or any applicable
laws or regulations of any government or authorized agency in the U.S. or any
other country having jurisdiction over the offer or sale of shares of the Funds,
or to relieve the parties hereto from any liability arising under such laws,
rules or regulations.
Bank further agrees to indemnify, defend and hold harmless FTDI, the Funds,
their officers, directors and employees from any and all losses, claims,
liabilities and expenses, arising out of (1) any alleged violation of any
statute or regulation (including without limitation the securities laws and
regulations of the United States of America or any state or foreign country) or
any alleged tort or breach of contract, in or related to any offer, sale or
purchase of shares of the Funds involving Bank or any Customer pursuant to this
Agreement (except to the extent that FTDI's negligence or failure to follow
correct instructions received from Bank is the cause of such loss, claim,
liability or expense), (2) any redemption or exchange pursuant to telephone
instructions received from Bank or its agents or employees, or (3) the breach by
Bank of any of the terms and conditions of this Agreement. This Paragraph 5(m)
shall survive the termination of this Agreement.
n) Prospectus and Sales Materials; Limit on Advertising
No person is authorized to give any information or make any representations
concerning shares of any Fund except those contained in the Fund's current
prospectus or in materials issued by FTDI as information supplemental to such
prospectus. FTDI will supply prospectuses, reasonable quantities of supplemental
sale literature, sales bulletins, and additional information as issued. Bank
agrees not to use other advertising or sales material or other material or
literature relating to the Funds except that which (a) conforms to the
requirements of any applicable laws or regulations of any government or
authorized agency in the U.S. or any other country having jurisdiction over the
offering or sale of shares of the Funds, and (b) is approved in writing by FTDI
in advance of such use. Such approval may be withdrawn by FTDI in whole or in
part upon notice to Bank, and Bank shall, upon receipt of such notice,
immediately discontinue the use of such sales literature, sales material and
advertising. Bank is not authorized to modify or translate any such materials
without the prior written consent of FTDI.
o) Customer Information
1) DEFINITION. For purposes of this Paragraph 5(o), "Customer
Information" means customer names and other identifying
information pertaining to one or more Customers which is
furnished by Bank to FTDI in the ordinary course of business
under this Agreement. Customer Information shall not include any
information obtained from any sources other than the Customer or
the Bank.
2) PERMITTED USES. FTDI may use Customer Information to fulfill its
obligations under this Agreement, the Distribution Agreements
between the Funds and FTDI, the Funds' prospectuses, or other
duties imposed by law. In addition, FTDI or its affiliates may
use Customer Information in communications to shareholders to
market the Funds or other investment products or services,
including without limitation variable annuities, variable life
insurance, and retirement plans and related services. FTDI may
also use Customer Information if it obtains Bank's prior written
consent.
3) PROHIBITED USES. Except as stated above, FTDI shall not disclose
Customer Information to third parties, and shall not use Customer
Information in connection with any advertising, marketing or
solicitation of any products or services, provided that Bank
offers or soon expects to offer comparable products or services
to mutual fund customers and has so notified FTDI.
4) SURVIVAL; TERMINATION. The agreements described in this paragraph
5(o) shall survive the termination of this Agreement, but shall
terminate as to any account upon FTDI's receipt of valid
notification of either the termination of that account with Bank
or the transfer of that account to another bank or dealer.
6. CONTINUOUSLY OFFERED CLOSED-END FUNDS
This Paragraph 6 relates solely to shares of Funds that represent a
beneficial interest in the Franklin Floating Rate Trust or that are issued by
any other continuously offered closed-end investment company registered under
the 1940 Act for which FTDI or an affiliate of FTDI serves as principal
underwriter and that periodically repurchases its shares (each, a "Trust").
Shares of a Trust being offered to the public will be registered under the 1933
Act and are expected to be offered during an offering period that may continue
indefinitely ("Continuous Offering Period"). There is no guarantee that such a
continuous offering will be maintained by the Trust. The Continuous Offering
Period, shares of a Trust and certain of the terms on which such shares are
being offered are more fully described in the prospectus of the Trust.
As set forth in a Trust's then current prospectus, FTDI shall provide Bank
with appropriate compensation for purchases of shares of the Trust made by the
Bank for the account of Customers or by Customers. In addition, Bank may be
entitled to a fee for servicing Customers who are shareholders in a Trust,
subject to applicable law. Bank agrees that any repurchases of shares of a Trust
that were originally purchased as Qualifying Sales shall be subject to Paragraph
5(e) hereof.
Bank expressly acknowledges and understands that, notwithstanding anything
to the contrary in this Agreement:
a) No Trust has a Rule 12b-1 Plan and in no event will a Trust pay, or
have any obligation to pay, any compensation directly or indirectly to
Bank.
b) Shares of a Trust will not be repurchased by either the Trust (other
than through repurchase offers by the Trust from time to time, if any)
or by FTDI and no secondary market for such shares exists currently,
or is expected to develop. Any representation as to a repurchase or
tender offer by the Trust, other than that set forth in the Trust's
then current Prospectus, notification letters, reports or other
related material provided by the Trust, is expressly prohibited.
c) An early withdrawal charge payable by shareholders of a Trust to FTDI
may be imposed on shares accepted for repurchase by the Trust that
have been held for less than a stated period, as set forth in the
Trust's then current Prospectus.
d) In the event a Customer cancels his or her order for shares of a Trust
after confirmation, such shares will not be repurchased, remarketed or
otherwise disposed of by or though FTDI.
7. GENERAL
a) Successors and Assignments
This Agreement shall extend to and be binding upon the parties hereto and
their respective successors and assigns; provided that this Agreement will
terminate automatically in the event of its assignment by FTDI. For purposes of
the preceding sentence, the word "assignment" shall have the meaning given to it
in the 1940 Act. Bank may not assign this Agreement without the advance written
consent of FTDI.
b) Paragraph Headings
The paragraph headings of this Agreement are for convenience only, and
shall not be deemed to define, limit, or describe the scope or intent of this
Agreement.
c) Severability
Should any provision of this Agreement be determined to be invalid or
unenforceable under any law, rule, or regulation, that determination shall not
affect the validity or enforceability of any other provision of this Agreement.
d) Waivers
There shall be no waiver of any provision of this Agreement except a
written waiver signed by Bank and FTDI. No written waiver shall be deemed a
continuing waiver or a waiver of any other provision, unless the waiver
expresses such intention.
e) Sole Agreement
This Agreement is the entire agreement of Bank and FTDI and supersedes all
oral negotiations and prior writings.
f) Governing Law
This Agreement shall be construed in accordance with the laws of the State
of California, not including any provision which would require the general
application of the law of another jurisdiction, and shall be binding upon the
parties hereto when signed by FTDI and accepted by Bank, either by Bank's
signature in the space provided below or by Bank's first trade entered after
receipt of this Agreement.
g) Arbitration
Should Bank owe any sum of money to FTDI under or in relation to this
Agreement for the purchase, sale, redemption or repurchase of any Fund shares,
FTDI may offset and recover the amount owed by Bank to FTDI or the Funds from
any amount owed by FTDI to Bank or from any other account Bank has with FTDI,
without notice or demand to Bank. Either party may submit any dispute under this
Agreement to binding arbitration under the commercial arbitration rules of the
American Arbitration Association. Judgment upon any arbitration award may be
entered by any court having jurisdiction.
h) Amendments
FTDI may amend this Agreement at any time by depositing a written notice of
the amendment in the U.S. mail, first class postage pre-paid, addressed to
Bank's address given below. Bank's placement of any Transaction order or
acceptance of any payments after the effective date and receipt of notice of any
such amendment shall constitute Bank's acceptance of the amendment.
i) Term and Termination
This Agreement shall continue in effect until terminated and shall
terminate automatically in the event that Bank ceases to be a "bank" as set
forth in paragraph 2(a) of this Agreement. FTDI or Bank may terminate this
Agreement at any time by written notice to the other, but such termination shall
not affect the payment or repayment of Fees on Transactions prior to the
termination date. Termination also will not affect the indemnities given under
this Agreement.
j) Acceptance; Cumulative Effect
This Agreement is cumulative and supersedes any agreement previously in
effect. It shall be binding upon the parties hereto when signed by FTDI and
accepted by Bank. If Bank has a current agreement with FTDI, Bank's first trade
or acceptance of payments from FTDI after receipt of this Agreement, as it may
be amended pursuant to paragraph 7(h), above, shall constitute Bank's acceptance
of the terms of this Agreement.
Otherwise, Bank's signature below shall constitute Bank's acceptance of
these terms.
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
By: /s/ Greg Johnson
-----------------------
Greg Johnson, President
777 Mariners Island Blvd.
San Mateo, CA 94404
Attention: Chief Legal Officer (for legal
notices only)
650/312-2000
100 Fountain Parkway
St. Petersburg, Florida 33716
813/299-8712
- --------------------------------------------------------------------------------
To the Bank or Trust Company: If you have not previously signed an agreement
with FTDI for the sale of mutual fund shares to your customers, please complete
and sign this section and return the original to us.
BANK OR TRUST COMPANY:
____________________________________
(Bank's name)
By: ____________________________________
(Signature)
Name: _________________________________
Title: _________________________________
Franklin Templeton Distributors, Inc.
777 Mariners Island Boulevard
San Mateo, CA 94403-7777
May 15, 1998
Re: Amendment of Mutual Fund Purchase and Sales Agreement for Accounts of
Bank and Trust Company Customers - Notice Pursuant to Paragraph 7(h)
Dear Bank or Trust Company:
This letter constitutes notice of amendment of the current Mutual Fund Purchase
and Sales Agreement for Accounts of Bank and Trust Company Customers (the
"Agreement") between Franklin/Templeton Distributors, Inc. ("FTDI") and the bank
or trust company ("the Bank") pursuant to Paragraph 7(h) of the Agreement. The
Agreement is hereby amended as follows:
1. Defined terms in this amendment have the meanings as stated in the
Agreement unless otherwise indicated.
2. Paragraph 5(e) is modified to add the following language:
With respect to shares of each Trust as described in Paragraph 6 of this
Agreement, the total compensation to be paid to FTDI and selected dealers and
their affiliates, including the Bank and the Bank's affiliates, in connection
with the distribution of shares of a Trust will not exceed the underwriting
compensation limitation prescribed by NASD Conduct Rule 2710. The total
underwriting compensation to be paid to FTDI and selected dealers and their
affiliates, including the Bank and the Bank's affiliates, may include: (i) at
the time of purchase of shares a payment to the Bank or a securities dealer of
1% of the dollar amount of the purchased shares by FTDI; and (ii) a quarterly
payment at an annual rate of .50% to the Bank or a securities dealer based on
the value of such remaining shares sold by the Bank or such securities dealer,
if after twelve (12) months from the date of purchase, the shares sold by the
Bank or such securities dealer remain outstanding.
The maximum compensation shall be no more than as disclosed in the section
"Payments to Dealers" of the prospectus of the applicable Trust.
Pursuant to Paragraph 7(h) of the Agreement, the Bank's placement of an order or
acceptance of payments of any kind after the effective date and receipt of
notice of this amendment shall constitute the Bank's acceptance of this
amendment.
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
By /s/ Greg Johnson
------------------------
Greg Johnson, President
777 Mariners Island Blvd.
San Mateo, CA 94404
Attention: Chief Legal Officer (for legal notices only)
650/312-2000
100 Fountain Parkway
St. Petersburg, FL 33716
813/299-8712
Amendment to Master Custody Agreement
Effective February 27, 1998, The Bank of New York and each of the Investment
Companies listed in the Attachment appended to this Amendment, for themselves
and each series listed in the Attachment, hereby amend the Master Custody
Agreement dated as of February 16, 1996 by:
1. Replacing Exhibit A with the attached; and
2. Only with respect to the Investment Companies and series thereof listed in
the Attachment, deleting paragraphs (a) and (b) of Subsection 3.5 and
replacing them with the following:
(a) Promptly after each purchase of Securities by the Fund, the Fund shall
deliver to the Custodian Proper Instructions specifying with respect to
each such purchase: (a) the Series to which such Securities are to be
specifically allocated; (b) the name of the issuer and the title of the
Securities; (c) the number of shares or the principal amount purchased and
accrued interest, if any; (d) the date of purchase and settlement; (e) the
purchase price per unit; (f) the total amount payable upon such purchase;
(g) the name of the person from whom or the broker through whom the
purchase was made, and the name of the clearing broker, if any; and (h) the
name of the broker to whom payment is to be made. The Custodian shall, upon
receipt of Securities purchased by or for the Fund, pay to the broker
specified in the Proper Instructions out of the money held for the account
of such Series the total amount payable upon such purchase, provided that
the same conforms to the total amount payable as set forth in such Proper
Instructions.
(b) Promptly after each sale of Securities by the Fund, the Fund shall
deliver to the Custodian Proper Instructions specifying with respect to
each such sale: (a) the Series to which such Securities were specifically
allocated; (b) the name of the issuer and the title of the Security; (c)
the number of shares or the principal amount sold, and accrued interest, if
any; (d) the date of sale; (e) the sale price per unit; (f) the total
amount payable to the Fund upon such sale; (g) the name of the broker
through whom or the person to whom the sale was made, and the name of the
clearing broker, if any; and (h) the name of the broker to whom the
Securities are to be delivered. The Custodian shall deliver the Securities
specifically allocated to such Series to the broker specified in the Proper
Instructions against payment of the total amount payable to the Fund upon
such sale, provided that the same conforms to the total amount payable as
set forth in such Proper Instructions.
Investment Companies The Bank of New York
By: /s/ Elizabeth N. Cohernour By: /s/ Stephen E. Grunston
-------------------------- -----------------------
Name: Elizabeth N. Cohernour Name: Stephen E. Grunston
Title: Authorized Officer Title: Vice President
Attachment
INVESTMENT COMPANY SERIES
Franklin Mutual Series Fund Inc. Mutual Shares Fund
Mutual Qualified Fund
Mutual Beacon Fund
Mutual Financial Services Fund
Mutual European Fund
Mutual Discovery Fund
Franklin Valuemark Funds Mutual Discovery Securities Fund
Mutual Shares Securities Fund
Templeton Variable Products Series Fund Mutual Shares Investments Fund
Mutual Discovery Investments Fund
<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
Franklin Asset Allocation Fund Delaware Business Trust
Franklin California Tax-Free Income Maryland Corporation
Fund, Inc.
Franklin California Tax-Free Trust Massachusetts Business Trust Franklin California Insured Tax-Free Income 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
Franklin Equity Fund California Corporation
Franklin Federal Money Fund California Corporation
Franklin Federal Tax- Free Income Fund California Corporation
- ------------------------------------------- -------------------------------- -------------------------------------------------------
- ------------------------------------------- -------------------------------- -------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- ------------------------------------------- -------------------------------- -------------------------------------------------------
<S> <C> <C>
Franklin Gold Fund California Corporation
Franklin Government Securities Trust Massachusetts Business Trust
Franklin High Income Trust Delaware Business Trust AGE High Income Fund
Franklin Investors Securities Trust Massachusetts Business Trust Franklin Global Government Income Fund
Franklin Short-Intermediate U.S. Govt Securities Fund
Franklin Convertible Securities Fund
Franklin Adjustable U.S. Government Securities Fund
Franklin Equity Income Fund
Franklin Adjustable Rate Securities Fund
Franklin Managed Trust Massachusetts Business Trust Franklin Corporate Qualified Dividend Fund
Franklin Rising Dividends Fund
Franklin Investment Grade Income 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
- ------------------------------------------- -------------------------------- -------------------------------------------------------
- ------------------------------------------- -------------------------------- -------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- ------------------------------------------- -------------------------------- -------------------------------------------------------
<S> <C> <C>
Franklin Mutual Series Fund Inc. Maryland Corporation Mutual Shares Fund
Mutual Qualified Fund
Mutual Beacon Fund
Mutual Financial Services Fund
Mutual European Fund
Mutual Discovery Fund
Franklin New York Tax-Free Income Fund Delaware Business Trust
Franklin New York Tax-Free Trust Massachusetts Business Trust Franklin New York Tax-Exempt Money Fund
Franklin New York Intermediate-Term Tax-Free
Income Fund
Franklin New York Insured Tax-Free Income Fund
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 Global Utilities Fund
Franklin Small Cap Growth Fund
Franklin Global Health Care Fund
Franklin Natural Resources Fund
Franklin Blue Chip Fund
Franklin Biotechnology Discovery Fund
Franklin Tax-Exempt Money Fund California Corporation
- ------------------------------------------- -------------------------------- -------------------------------------------------------
- ------------------------------------------- -------------------------------- -------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES---(IF APPLICABLE)
- ------------------------------------------- -------------------------------- -------------------------------------------------------
<S> <C> <C>
Franklin Tax-Free Trust Massachusetts Business Trust 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
Franklin North Carolina Tax-Free Income Fund
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 Michigan Tax-Free Income Fund
- ------------------------------------------- -------------------------------- -------------------------------------------------------
- ------------------------------------------- -------------------------------- -------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- ------------------------------------------- -------------------------------- -------------------------------------------------------
<S> <C> <C>
Franklin Templeton Fund Allocator Series Delaware Business Trust Franklin Templeton Conservative Target Fund
Franklin Templeton Moderate Target Fund
Franklin Templeton Growth Target Fund
Franklin Templeton Global Trust Delaware Business Trust Franklin Templeton German Government Bond Fund
Franklin Templeton Global Currency Fund
Franklin Templeton Hard Currency Fund
Franklin Templeton High Income Currency Fund
Franklin Templeton International Trust Delaware Business Trust Templeton Pacific Growth Fund
Templeton Foreign Smaller Companies Fund
Franklin Templeton Money Fund Trust Delaware Business Trust Franklin Templeton Money Fund II
Franklin Value Investors Trust Massachusetts Business Trust Franklin Balance Sheet Investment Fund
Franklin MicroCap Value Fund
Franklin Value Fund
Franklin Valuemark Funds Massachusetts Business Trust Money Market Fund
Growth and Income Fund
Natural Resources Securities Fund
Real Estate Securities Fund
Global Utilities Securities Fund
High Income Fund
Templeton Global Income Securities Fund
Income Securities Fund
U.S. Government Securities Fund
Zero Coupon Fund - 2000
Zero Coupon Fund - 2005
Zero Coupon Fund - 2010
Rising Dividends Fund
- ------------------------------------------- -------------------------------- -------------------------------------------------------
- ------------------------------------------- -------------------------------- -------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- ------------------------------------------- -------------------------------- -------------------------------------------------------
<S> <C> <C>
Franklin Valuemark Funds (cont.) Massachusetts Business Trust 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
Capital Growth Fund
Templeton International Smaller Companies Fund
Mutual Discovery Securities Fund
Mutual Shares Securities Fund
Global Health Care Securities Fund
Value Securities Fund
- ------------------------------------------- -------------------------------- -------------------------------------------------------
Institutional Fiduciary Trust Massachusetts Business Trust 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
The Money Market Portfolios Delaware Business Trust The Money Market Portfolio
The U.S. Government Securities Money Market Portfolio
Templeton Variable Products Series Fund Mutual Shares Investments Fund
Mutual Discovery Investments Fund
Franklin Growth Investments Fund
- ------------------------------------------- -------------------------------- -------------------------------------------------------
- ------------------------------------------- -------------------------------- -------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES---(IF APPLICABLE)
- ------------------------------------------- -------------------------------- -------------------------------------------------------
<S> <C> <C>
CLOSED END FUNDS:
Franklin Multi-Income Trust Massachusetts Business Trust
Franklin Principal Maturity Trust Massachusetts Business Trust
Franklin Universal Trust Massachusetts Business Trust
INTERVAL FUND
Franklin Floating Rate Trust Delaware Business Trust
- ------------------------------------------- -------------------------------- -------------------------------------------------------
</TABLE>
FOREIGN CUSTODY MANAGER AGREEMENT
AGREEMENT made as of July 30, 1998, effective as of February 27, 1998
(the "Effective Date"), between Each of the Investment Companies Listed on
Schedule I attached hereto (each a "Fund") and The Bank of New York ("BNY").
WITNESSETH:
WHEREAS, the Fund desires to appoint BNY as a Foreign Custody Manager
on the terms and conditions contained herein;
WHEREAS, BNY desires to serve as a Foreign Custody Manager and perform
the duties set forth herein on the terms and condition contained herein;
NOW THEREFORE, in consideration of the mutual promises hereinafter
contained in this Agreement, the Fund and BNY hereby agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
1. "BOARD" shall mean the board of directors or board of trustees,
as the case may be, of the Fund.
2. "ELIGIBLE FOREIGN CUSTODIAN" shall have the meaning provided in
the Rule.
3. "MONITORING SYSTEM" shall mean a system established by BNY to
fulfill the Responsibilities specified in clauses l(b)(i) and l(b)(ii) and
l(d) of Article III of this Agreement.
4. "QUALIFIED FOREIGN BANK" shall have the meaning provided in the
Rule.
5. "RESPONSIBILITIES" shall mean the responsibilities delegated to
BNY as a Foreign Custody Manager with respect to each Specified Country and
each Eligible Foreign Custodian selected by BNY, as such responsibilities are
more fully described in Article III of this Agreement.
6. "RULE" shall mean Rule 17f-5 under the Investment Company Act of
1940, as amended, as such Rule became effective on June 16, 1997.
7. "SECURITIES DEPOSITORY" shall mean any securities depository or
clearing agency within the meaning of Section (a)(1)(ii) or (a)(1)(iii) of
the Rule.
8. "COMPULSORY DEPOSITORY" shall mean a Securities Depository the
use of which is mandatory by law or regulation or because securities cannot
be withdrawn from such Securities Depository, or because maintaining
securities outside the Securities Depository would not permit purchases and
sales of these securities to occur in accordance with routine settlement
timing and procedures in the relevant market.
9. "SPECIFIED COUNTRY" shall mean each country listed on Schedule 2
attached hereto and each country, other than the United States, constituting
the primary market for a security with respect to which the Fund has given
settlement instructions to The Bank of New York as custodian (the
"Custodian") under its Custody Agreement with the Fund.
ARTICLE II
BNY AS A FOREIGN CUSTODY MANAGER
1. The Fund on behalf of its Board hereby delegates to BNY with
respect to each Specified Country the Responsibilities.
2. BNY accepts the Board's delegation of Responsibilities with
respect to each Specified Country and agrees in performing the
Responsibilities as a Foreign Custody Manager to exercise reasonable care,
prudence and diligence such as a person having responsibility for the
safekeeping of the Fund's assets would exercise.
3. BNY shall provide to the Board at such times as the Board deems
reasonable and appropriate based on the circumstances of the Fund's foreign
custody arrangements written reports notifying the Board of the placement of
assets of the Fund with a particular Eligible Foreign Custodian within a
Specified Country and of any material change in the arrangements (including,
in the case of Qualified Foreign Banks, any material change in any contract
governing such arrangements and in the case of Securities Depositories, any
material change in the established practices or procedures of such Securities
Depositories) with respect to assets of the Fund with any such Eligible
Foreign Custodian.
ARTICLE III
RESPONSIBILITIES
1 . (a) Subject to the provisions of this Agreement, BNY shall with
respect to each Specified Country select an Eligible Foreign Custodian (other
than a Compulsory Depository) which is not functioning as the Fund's Eligible
Foreign Custodian as of the Effective Date. In connection therewith, BNY
shall: (i) determine that assets of the Fund held by such Eligible Foreign
Custodian will be subject to reasonable care, based on the standards
applicable to custodians in the relevant market in which such Eligible
Foreign Custodian operates, after considering all factors relevant to the
safekeeping of such assets, including, without limitation, those contained in
Section (c)(1) of the Rule; (ii) determine that the Fund's foreign custody
arrangements with each Qualified Foreign Bank are governed by a written
contract with the Custodian (or, in the case of a Securities Depository other
than a Compulsory Depository, by such a contract, by the rules or established
practices or procedures of the Securities Depository, or by any combination
of the foregoing) which will provide reasonable care for the Fund's assets
based on the standards specified in paragraph (c)(1) of the Rule; and (ii)
determine that each contract with a Qualified Foreign Bank shall include the
provisions specified in paragraph (c)(2)(i)(A) through (F) of the Rule or,
alternatively, in lieu of any or all of such (c)(2)(i)(A) through (F)
provisions, such other provisions as BNY determines will provide, in their
entirety, the same or a greater level of care and protection for the assets
of the Fund as such specified provisions.
(b) In addition, subject to the provisions of this Agreement, BNY
shall with respect to each Eligible Foreign Custodian (other than a
Compulsory Depository), regardless of when and by whom selected, (i)
monitor pursuant to the Monitoring System the appropriateness of
maintaining the assets of the Fund with a particular Eligible Foreign
Custodian pursuant to paragraph (c)(1) of the Rule and in the case of a
Qualified Foreign Bank, any material change in the contract governing such
arrangement and in the case of a Securities Depository, any material change
in the established practices or procedures of such Securities Depository;
and (ii) advise the Fund whenever an arrangement (including, in the case of
a Qualified Foreign Bank, any material change in the contract governing
such arrangement and in the case of a Securities Depository, any material
change in the established practices or procedures of such Securities
Depository) described in preceding clause (b)(i) no longer meets the
requirements of the Rule, it being understood that BNY shall provide such
advice promptly upon learning of such noncompliance.
(c) Subject to the provisions of this Agreement, after execution of
this Agreement with respect to each Compulsory Depository which has been
established, as of the Effective Date, in countries in which BNY has
appointed a Subcustodian and thereafter in connection with each new or
additional Compulsory Depository established in countries in which BNY
appoints, or has appointed, as the case may be, a Subcustodian, BNY shall
determine, with respect to each such Compulsory Depository, that:
(i) the Eligible Foreign Custodian which is utilizing the services of
the Compulsory Depository has undertaken to adhere to the rules,
practices and procedures of such Compulsory Depository;
(ii)no regulatory authority with oversight responsibility for the
Compulsory Depository has issued a public notice that the Compulsory
Depository is not in compliance with any material capital, solvency,
insurance or other similar financial strength requirements imposed by
such authority or, in the case of such notice having been issued,
that such notice has been withdrawn or the remedy of such
noncompliance has been publicly announced by the Compulsory
Depository;
(iii) no regulatory authority with oversight responsibility over
the Compulsory Depository has issued a public notice that the
Compulsory Depository is not in compliance with any material internal
controls requirement imposed by such authority or, in the case such
notice having been issued, that such notice has been withdrawn or the
remedy of such noncompliance has been publicly announced by the
Compulsory Depository;
(iv)the Compulsory Depository maintains the assets of the Fund's
Eligible Foreign Custodian which is utilizing the services of the
Compulsory Depository under no less favorable safekeeping conditions
than those that apply generally to other participants in the
Compulsory Depository;
(v) the Compulsory Depository maintains records that segregate the
Compulsory Depository's own assets from the assets of participants in
the Compulsory Depository;
(vi)the Compulsory Depository maintains records that identify the
assets of each of its participants;
(vii) the Compulsory Depository provides periodic reports to its
participants with respect to the safekeeping of assets maintained by
the Compulsory Depository, including, by way of example, notification
of any transfer to or from a participant's account; and
(viii) the Compulsory Depository is subject to periodic review,
such as audits by independent accountants or inspections by
regulatory authorities.
BNY shall make the foregoing determinations (i) with respect to each
Compulsory Depository which has been established as of the Effective Date in
countries in which BNY has appointed a Subcustodian by September 30, 1998 and
(ii) with respect to each new or additional Compulsory Depository established
in countries in which BNY appoints, or has appointed, as the case may be, a
Subcustodian, to the extent feasible in light of the circumstances then
prevailing within ninety (90) days of the date such Compulsory Depository
commences operations; and, in each case, shall advise the Fund and its
investment advisor promptly after each such determination is made.
In the event that the US Securities and Exchange Commission ("SEC")
adopts standards or criteria different from those set forth above, the
above provisions shall be deemed to be amended to conform to the standards
or criteria adopted by the SEC.
(d) Subject to the provisions of this Agreement, with respect to each
Compulsory Depository in which Fund's assets are maintained at any time
during the term of this Agreement, BNY shall monitor, pursuant to the
Monitoring System, each such Compulsory Depository's compliance with the
criteria set forth in clause l(c) of this Article III and, upon determining
that any Compulsory Depository is not in compliance with any of such
criteria, shall promptly advise the Fund and its investment advisor of such
non-compliance.
2. (a) For purposes of clauses (a)(i), (a)(ii) and (c) of preceding
Section I of this Article, BNY's determination with respect to each
Securities Depository will be based upon publicly available information,
which may be limited, plus any other information which is made available by
each such Securities Depository to BNY or its Qualified Foreign Bank.
(b) For purposes of clause (b)(i) of preceding Section I of
this Article, BNY's determination of appropriateness shall not include, nor
be deemed to include, any evaluation of Country Risks associated with
investment in a particular country. For purposes hereof, "Country Risks"
shall mean systemic risks of holding assets in a particular country
including, but not limited to, (i) the use of Compulsory Depositories, (ii)
such country's financial infrastructure, (iii) such country's prevailing
custody and settlement practices, (iv) nationalization, expropriation or
other governmental actions, (v) regulation of the banking or securities
industry, (vi) currency controls, restrictions, devaluations or
fluctuations, and (vii) market conditions which affect the orderly
execution of securities transactions or affect the value of securities.
ARTICLE IV
REPRESENTATIONS
1. The Fund hereby represents that: (a) this Agreement has been duly
authorized, executed and delivered by the Fund, constitutes a valid and
legally binding obligation of the Fund enforceable in accordance with its
terms, and no statute, regulation, rule, order, judgment or contract binding
on the Fund prohibits the Fund's execution or performance of this Agreement;
(b) this Agreement has been approved and ratified by the Board at a meeting
duly called and at which a quorum was at all times present; and (c) the Board
or its investment advisor has considered the Country Risks associated with
investment in each Specified Country and will have considered such risks
prior to any settlement instructions being given to the Custodian with
respect to any other Specified Country.
2. BNY hereby represents that: (a) BNY is duly organized and
existing under the laws of the State of New York, with full power to carry on
its businesses as now conducted, and to enter into this Agreement and to
perform its obligations hereunder; (b) this Agreement has been duly
authorized, executed and delivered by BNY, constitutes a valid and legally
binding obligation of BNY enforceable in accordance with its terms, and no
statute, regulation, rule, order, judgment or contract binding on BNY
prohibits BNY's execution or performance of this Agreement; and (c) BNY has
established the Monitoring System.
ARTICLE V
CONCERNING BNY
1 . BNY shall not be liable for any costs, expenses, damages,
liabilities or claims, including attorneys' and accountants' fees, sustained
or incurred by, or asserted against, the Fund except to the extent the same
arises out of the failure of BNY to exercise the care, prudence and diligence
required by Section 2 of Article II hereof. In no event shall BNY be liable
to the Fund, the Board, or any third party for special, indirect or
consequential damages, or for lost profits or loss of business, arising in
connection with this Agreement.
2. The Fund shall indemnify BNY and hold it harmless from and
against any and all costs, expenses, damages, liabilities or claims,
including attorneys' and accountants' fees, sustained or incurred by, or
asserted against, BNY by reason or as a result of any action or inaction, or
arising out of BNY's performance hereunder, provided that the Fund shall not
indemnify BNY to the extent any such costs, expenses, damages, liabilities or
claims arises out of BNY's failure to exercise the reasonable care, prudence
and diligence required by Section 2 of Article II hereof.
3. For its services hereunder, the Fund agrees to pay to BNY such
compensation and out-of-pocket expenses as shall be mutually agreed.
4. BNY shall have only such duties as are expressly set forth
herein. In no event shall BNY be liable for any Country Risks associated
with investments in a particular country.
ARTICLE VI
MISCELLANEOUS
1 This Agreement constitutes the entire agreement between the Fund
and BNY, and no provision in the Custody Agreement between the Fund and the
Custodian shall affect the duties and obligations of BNY hereunder, nor shall
any provision in this Agreement affect the duties or obligations of the
Custodian under the Custody Agreement.
2. Any notice or other instrument in writing, authorized or required
by this Agreement to be given to BNY, shall be sufficiently given if received
by it at its offices at 90 Washington Street, New York, New York 10286, or at
such other place as BNY may from time to time designate in writing.
3. Any notice or other instrument in writing, authorized or required
by this Agreement to be given to the Fund shall be sufficiently given if
received by it at its offices at Franklin Resources, 777 Mariners Island
Boulevard, San Mateo, California, 94404, Attn: Deborah R. Gatzek, General
Counsel and Senior Vice President, or at such other place as the Fund may
from time to time designate in writing.
4. In case any provision in or obligation under this Agreement shall
be invalid, illegal or unenforceable in any jurisdiction, the validity,
legality and enforceability of the remaining provisions shall not in any way
be affected thereby. This Agreement may not be amended or modified in any
manner except by a written agreement executed by both parties. This
Agreement shall extend to and shall be binding upon the parties hereto, and
their respective successors and assigns; provided however, that this
Agreement shall not be assignable by either party without the written consent
of the other.
5. This Agreement shall be construed in accordance with the
substantive laws of the State of New York, without regard to conflicts of
laws principles thereof
6. The parties hereto agree that in performing hereunder, BNY is
acting solely on behalf of the Fund and no contractual or service
relationship shall be deemed to be established hereby between BNY and any
other person.
7. This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original, but such counterparts shall,
together, constitute only one instrument.
8. This Agreement shall terminate simultaneously with the
termination of the Custody Agreement between the Fund and the Custodian, and
may otherwise be terminated by either party giving to the other party a
notice in writing specifying the date of such termination, which shall be not
less than thirty (30) days after the date of such notice.
IN WITNESS WHEREOF, the Fund and BNY have caused this Agreement to be
executed by their respective officers, thereunto duly authorized, as of the
date first above written.
EACH INVESTMENT COMPANY
LISTED ON SCHEDULE 1 ATTACHED
HERETO.
By: Deborah R. Gatzek
Title: Vice President
Of Each Such Investment Company
THE BANK OF NEW YORK
By: Stephen E. Grunston
Title: Vice President
SCHEDULE 1
<TABLE>
<CAPTION>
INVESTMENT COMPANY SERIES
<S> <C>
Franklin Gold Fund
Franklin Asset Allocation Fund
Franklin Equity Fund
Franklin High Income Trust AGE High Income Fund
Franklin Custodian Funds, Inc. Growth Series
Utilities Series
DynaTech Series
Income Series
Franklin Investors Securities Trust Franklin Global Government Income Fund
Franklin Convertible Securities Fund
Franklin Equity Income Fund
Franklin Bond Fund
Franklin Value Investors Trust Franklin Balance Sheet Investment
Franklin MicroCap Value Fund
Franklin Value Fund
Franklin Strategic Mortgage Portfolio
Franklin Managed Trust Franklin Rising Dividends Fund
Franklin Investment Grade Income Fund
Franklin Strategic Series Franklin Strategic Income Fund
Franklin MidCap Growth Fund
Franklin Global Utilities Fund
Franklin Small Cap Growth Fund
Franklin Global Health Care Fund
Franklin Natural Resources Fund
Franklin Blue Chip Fund
Franklin Biotechnology Discovery Fund
Franklin Templeton International Trust Templeton Pacific Growth Fund
Franklin Real Estate Securities Trust Franklin Real Estate Securities Fund
INVESTMENT COMPANY SERIES
Franklin Valuemark Funds Money Market Fund
Growth and Income Fund
Natural Resources Securities Fund
Real Estate Securities Fund
Global Utilities Securities Fund
High Income Fund
Templeton Global Income Securities Fund
Income Securities Fund
U.S. Government Securities Fund
Zero Coupon Fund - 2000
Zero Coupon Fund - 2005
Zero Coupon Fund - 20 1 0
Rising Dividends Fund
Templeton Pacific Growth Fund
Templeton International Equity Fund
Small Cap Fund
Capital Growth Fund
Mutual Discovery Securities Fund
Mutual Shares Securities Fund
Global Health Care Securities Fund
Value Securities Fund
Franklin Universal Trust
Franklin Multi-Income Trust
Franklin Floating Rate Trust
Franklin Templeton Fund Allocator Series Franklin Templeton Conservative Target Fund
Franklin Templeton Moderate Target Fund
Franklin Templeton Growth Target Fund
SCHEDULE 2
- ----------------------------------------------------------- ---------------------------------------------------------
Country/ Country/
Market Subcustodian(s) Market Subcustodian(s)
- ----------------------------------------------------------- ---------------------------------------------------------
- ----------------------------------------------------------- ---------------------------------------------------------
<S> <C> <C> <C>
Argentina BankBoston, N.A. Hungary Citibank Budapest Rt.
Australia Conunonwealth Bank of Australia/ Iceland Landsbanki Islands
National Australia Bank Limited
Austria Creditanstalt AG India The Hongkong and Shanghai Banking
Corporation Limited/Deutsche Bank AG
Bahrain The British Bank of the Middle East Indonesia The Hongkong and Shanghai
Banking
Bangladesh Standard Chartered Bank Corporation Limited
Belgium Banque Bruxelles Lambert Ireland Allied Irish Banks, plc
Bermuda Bank of Bermuda Limited Israel Bank Leumi LE - Israel B.M.
Italy Banca Commerciale Italiana/
Botswana Stanbic Bank Botswana Limited Banque Paribas S.A.
Brazil BankBoston, N.A. Ivory Coast Societe Geneale de Banque en Cete d'Ivoire
Bulgaria ING Bank-Sofia
Jamaica CIBC Trust & Merchant Bank Jamaica Litd
Canada Royal Bank of Canada
Chile BankBoston, N.A. Japan The Bank of Tokyo-Mitsubishi Limited/
China Standard Chartered Bank The Fuji Bank, Limited
Colombia Cititrust Colombia S.A. Jordan The British Bank of the Middle East
Costa Rica Banco BCT Kenya Stanbic Bank Kenya Limited
Croatia Pfivredna Banka Zagreb d.d. Latvia Societe Generale Riga
Cyprus Bank of Cyprus Lebanon The British Bank of the Middle East
Czech Republic Ceskoslovenska Obchodni Banka A.S. Lithuania Vilniaus Bankas
Denmark Den Danske Bank Luxembourg Banque Internationale a Luxembourg
Malaysia Hongkong Bank Malaysia Berhad
EASDAQ Banque Bruxelles Lambert Malta Mid-Med Bank Pic
Ecuador Citibank, N.A. Mauritius The Hongkong and Shanghai
Egypt Citibank, N.A. Banking
Estonia Hansabank Limited. Corporation Limited
Euromarket Cedel Bank Mexico Banco Nacional de Mexico
Euromarket Euroclear Morocco Banque Commerciale du Maroc
Finland MeTita Bank Ltd. Namibia Stanbic Bank Namibia Limited
France Banque Paribas S.A./ Netherlands Mees Pierson
Credit Commercial de France New Zealand Australia and New Zealand Banking Group
Germany Dresdner Bank AG
Ghana Merchant Bank (Ghana) Limited Nigeria Stanbic Merchant Bank Nigeria Limited
Greece National Bank of Greece SA Norway Den norske Bank ASA
Oman The British Bank of the Middle East
Hong Kong The Hongkong and Shanghai Banking
Corporation Limited Pakistan Standard Chartered Bank
Portugal Banco Comercial Portugues/ Peru Citibank, N.A.
Banco Espirito Santo Philippines The Hongkong and Shanghai Banking
Romania ING Bank Bucharest Branch Corporation Limited
Poland Bank Handlowy W Warszawie S.A
Russia Vneshtorgbank (Min Fin Bonds only)/
Credit Suisse First Boston Limited/ Switzerland Union Bank of Switzerland/
Unexim Bank Bank Leu Ltd.
Singapore United Overseas Bank Limited/ Taiwan The Hongkong and Shanghai Banking
The Development Bank of Singapore Ltd Corporation Limited
Slovakia Ceskoslovenska Obchodna Banka, a.s Thailand Standard Chartered Bank
Slovenia Banka Creditsanstalt D.D., Ljubljana Bangkok Bank Public Company Limited
South Africa The Standard Bank of South Africa Tunisia Banque Internationale Arabe de Tunisie
Limited
Turkey Osmanli Bankasi A.S. (Ottoman Bank)
South Korea Standard Chartered Bank Ukraine Bank Ukraina
Spain Banco Bilbao Vizcaya United Kingdom The Bank of New York, N.A./
SriLanka Standard Chartered Bank First Chicago Clearing Center
Swaziland Stanbic Bank Swaziland Limited United States The Bank of New York, N.A.
Sweden Skandinaviska Enskilda Banken Uruguay BankBoston, N.A.
Venezuela Citibank, N.A.
Zambia Stanbic Bank Zambia Limited
Zimbabwe Stanbic Bank Zimbabwe Limited
</TABLE>
SUBCONTRACT FOR FUND ADMINISTRATIVE SERVICES
This Subcontract for Fund Administrative Services ("Subcontract") is
made as of October 1, 1996 between FRANKLIN ADVISERS, INC., a California
corporation, hereinafter called the "Investment Manager," and FRANKLIN TEMPLETON
SERVICES, INC. (the "Administrator").
In consideration of the mutual agreements herein made, the
Administrator and the Investment Manager understand and agree as follows:
I. Prime Contract.
This Subcontract is made in order to assist the Investment Manager in fulfilling
certain of the Investment Manager's obligations under each investment management
and investment advisory agreement ("Agreement") between the Investment Manager
and each Investment Company listed on Exhibit A, ("Investment Company") for
itself or on behalf of each of its series listed on Exhibit A (each, a "Fund").
This Subcontract is subject to the terms of each Agreement, which is
incorporated herein by reference.
II. Subcontractual Provisions.
(1) The Administrator agrees, during the life of this Agreement, to provide
the following services to each Fund:
(a) providing office space, telephone, office equipment and supplies
for the Fund;
(b) providing trading desk facilities for the Fund, unless these
facilities are provided by the Fund's investment adviser;
(c) authorizing expenditures and approving bills for payment on behalf
of the Fund;
(d) supervising preparation of periodic reports to shareholders,
notices of dividends, capital gains distributions and tax credits; and attending
to routine correspondence and other communications with individual shareholders
when asked to do so by the Fund's shareholder servicing agent or other agents of
the Fund;
(e) coordinating the daily pricing of the Fund's investment portfolio,
including collecting quotations from pricing services engaged by the Fund;
providing fund accounting services, including preparing and supervising
publication of daily net asset value quotations, periodic earnings reports and
other financial data; and coordinating trade settlements;
(f) monitoring relationships with organizations serving the Fund,
including custodians, transfer agents, public accounting firms, law firms,
printers and other third party service providers;
(g) supervising compliance by the Fund with recordkeeping requirements
under the federal securities laws, including the 1940 Act and the rules and
regulations thereunder, and under other applicable state and federal laws; and
maintaining books and records for the Fund (other than those maintained by the
custodian and transfer agent);
(h) preparing and filing of tax reports including the Fund's income
tax returns, and monitoring the Fund's compliance with subchapter M of the
Internal Revenue Code, as amended, and other applicable tax laws and
regulations;
(i) monitoring the Fund's compliance with: 1940 Act and other federal
securities laws, and rules and regulations thereunder; state and foreign laws
and regulations applicable to the operation of investment companies; the Fund's
investment objectives, policies and restrictions; and the Code of Ethics and
other policies adopted by the Investment Company's Board of Trustees or
Directors ("Board") or by the Fund's investment adviser and applicable to the
Fund;
(j) providing executive, clerical and secretarial personnel needed to
carry out the above responsibilities;
(k) preparing and filing regulatory reports, including without
limitation Forms N-1A and NSAR, proxy statements, information statements and
U.S. and foreign ownership reports; and
(l) providing support services incidental to carrying out these
duties.
Nothing in this Agreement shall obligate the Investment Company or any Fund to
pay any compensation to the officers of the Investment Company. Nothing in this
Agreement shall obligate the Administrator to pay for the services of third
parties, including attorneys, auditors, printers, pricing services or others,
engaged directly by the Fund to perform services on behalf of the Fund.
(2) The Investment Manager agrees to pay to the Administrator as
compensation for such services a monthly fee equal on an annual basis to 0.15%
of the first $200 million of the average daily net assets of each Fund during
the month preceding each payment, reduced as follows: on such net assets in
excess of $200 million up to $700 million, a monthly fee equal on an annual
basis to 0.135%; on such net assets in excess of $700 million up to $1.2
billion, a monthly fee equal on an annual basis to 0.1%; and on such net assets
in excess of $1.2 billion, a monthly fee equal on an annual basis to 0.075%.
From time to time, the Administrator may waive all or a portion of its fees
provided for hereunder and such waiver shall be treated as a reduction in the
purchase price of its services. The Administrator shall be contractually bound
hereunder by the terms of any publicly announced waiver of its fee, or any
limitation of each affected Fund's expenses, as if such waiver or limitation
were fully set forth herein.
(3) This Subcontract shall become effective on the date written above and
shall continue in effect as to each Investment Company and each Fund so long as
(1) the Agreement applicable to the Investment Company or Fund is in effect and
(2) this Subcontract is not terminated. This Subcontract will terminate as to
any Investment Company or Fund immediately upon the termination of the Agreement
applicable to the Investment Company or Fund, and may in addition be terminated
by either party at any time, without the payment of any penalty, on sixty (60)
days' written notice to the other party.
(4) In the absence of willful misfeasance, bad faith or gross negligence on
the part of the Administrator, or of reckless disregard of its duties and
obligations hereunder, the Administrator shall not be subject to liability for
any act or omission in the course of, or connected with, rendering services
hereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Subcontract to be
executed by their duly authorized officers.
FRANKLIN ADVISERS, INC.
By: /s/ Deborah R. Gatzek
---------------------
Deborah R. Gatzek
Title: Vice President
& Assistant Secretary
FRANKLIN TEMPLETON SERVICES, INC.
By: /s/ Harmon E. Burns
---------------------
Harmon E. Burns
Title: Executive Vice President
TERMINATION OF AGREEMENT
- ------------------------
Franklin Advisers, Inc. and Templeton Global Investors, Inc., hereby agree that
the Subcontracts for Administrative Services between them dated: (1) August 28,
1996 for the Franklin Templeton Global Trust on behalf of all series of the
Trust; (2) July 24, 1995 for the Franklin Templeton International Trust on
behalf of its series Templeton Foreign Smaller Companies Fund (formerly known as
Franklin International Equity Fund); (3) July 18, 1995 for the Franklin
Templeton International Trust on behalf of its series Templeton Pacific Growth
Fund; and (4) July 14, 1995 for the Franklin Investors Securities Trust on
behalf of its series Franklin Global Government Income Fund are terminated
effective as of the date of the Subcontract for Fund Administrative Services
above.
FRANKLIN ADVISERS, INC.
By /s/ Harmon E. Burns
----------------------
Harmon E. Burns
Executive Vice President
Templeton Global Investors, Inc.
By /s/ Martin L. Flanagan
----------------------
Martin L. Flanagan
President, CEO
AMENDMENT TO SUBCONTRACT FOR
FUND ADMINISTRATIVE SERVICES
The Subcontract for Fund Administrative Services dated October 1, 1996
between FRANKLIN ADVISERS, INC. and FRANKLIN TEMPLETON SERVICES, INC. is hereby
amended, to replace Exhibit A with the attached Exhibit A.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed by their duly authorized officers.
FRANKLIN ADVISERS, INC.
By: /s/ Deborah R. Gatzek
---------------------
Deborah R. Gatzek
Vice President & Assistant Secretary
FRANKLIN TEMPLETON SERVICES, INC.
By: /s/ Harmon E. Burns
---------------------
Harmon E. Burns
Executive Vice President
Date: April 30, 1998
<TABLE>
<CAPTION>
SUBCONTRACT FOR FUND ADMINISTRATIVE SERVICES
BETWEEN
FRANKLIN ADVISERS, INC.
AND
FRANKLIN TEMPLETON SERVICES, INC.
EXHIBIT A
- ----------------------------------------------------- ---------------------------------------------------------------------
INVESTMENT COMPANY SERIES ---(IF APPLICABLE)
- ----------------------------------------------------- ---------------------------------------------------------------------
<S> <C>
Franklin High Income Trust AGE High Income Fund
Franklin Asset Allocation Fund
Franklin California Tax-Free Income
Fund, Inc.
Franklin California Tax-Free Trust Franklin California Insured Tax-Free Income Fund
Franklin California Tax-Exempt Money Fund
Franklin California Intermediate-Term Tax-Free
Income Fund
Franklin Custodian Funds, Inc. Utilities Series
Dynatech Series
Income Series
U.S. Government Securities Series
Franklin Equity Fund
Franklin Federal Tax- Free Income Fund
Franklin Gold Fund
Franklin Investors Securities Trust Franklin Short-Intermediate U.S. Government Securities Fund
Franklin Convertible Securities Fund
Franklin Equity Income Fund
Franklin Municipal Securities 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 Trust Franklin New York Tax-Exempt Money Fund
Franklin New York Insured Tax-Free Income Fund
Franklin New York Intermediate-Term Tax-Free
Income Fund*
- ----------------------------------------------------- ---------------------------------------------------------------------
- ----------------------------------------------------- ---------------------------------------------------------------------
INVESTMENT COMPANY SERIES ---(IF APPLICABLE)
- ----------------------------------------------------- ---------------------------------------------------------------------
<S> <C>
Franklin Real Estate Securities Trust Franklin Real Estate Securities Fund
Franklin Strategic Mortgage Portfolio**
Franklin Strategic Series Franklin California Growth Fund
Franklin Strategic Income Fund
Franklin MidCap Growth Fund
Franklin Global Utilities Fund
Franklin Small Cap Growth Fund
Franklin Global Health Care Fund
Franklin Natural Resources Fund
Franklin Blue Chip Fund
Franklin Tax-Exempt Money Fund
Franklin Tax-Free Trust 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 Indiana Tax-Free Income Fund
Franklin Louisiana Tax-Free Income Fund
Franklin Maryland Tax-Free Income Fund
Franklin North Carolina Tax-Free Income Fund
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 Michigan Tax-Free Income Fund
- ----------------------------------------------------- ---------------------------------------------------------------------
- ----------------------------------------------------- ---------------------------------------------------------------------
INVESTMENT COMPANY SERIES ---(IF APPLICABLE)
- ----------------------------------------------------- ---------------------------------------------------------------------
<S> <C>
Franklin Templeton International Trust Templeton Pacific Growth Fund
Templeton Foreign Smaller Companies Fund
Franklin Templeton Global Trust Franklin Templeton German Government Bond Fund
Franklin Templeton Global Currency Fund
Franklin Templeton Hard Currency Fund
Franklin Templeton High Income Currency Fund
CLOSED END FUNDS:
Franklin Multi-Income Trust
Franklin Principal Maturity Trust
Franklin Universal Trust
- ----------------------------------------------------- ---------------------------------------------------------------------
- -----------------------------------
* Effective as of March 19, 1998
**Effective as of February 26, 1998
</TABLE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Post-Effective Amendment No. 30
to the Registration Statement of Franklin Strategic Series on Form N-1A File No.
33-39088 of our report dated June 4, 1998 on our audit of the financial
statements and financial highlights of Franklin Strategic Series, which report
is included in the Annual Report to Shareholders for the year ended April 30,
1998, which is incorporated by reference in the Registration Statement.
PricewaterhouseCoopers LLP
/s/ PricewaterhouseCoopers LLP
San Francisco, California
December 23, 1998
CLASS B DISTRIBUTION PLAN
I. Investment Company: FRANKLIN STATEGIC SERIES
II. Fund: FRANKLIN CALIFORNIA GROWTH FUND - CLASS B
III. Maximum Per Annum Rule 12b-1 Fees for Class B Shares
(as a percentage of average daily net assets of the class)
A. Distribution Fee: 0.75%
B. Service Fee: 0.25%
PREAMBLE TO CLASS B DISTRIBUTION PLAN
The following Distribution Plan (the "Plan") has been adopted pursuant to
Rule 12b-1 under the Investment Company Act of 1940 (the "Act") by the
Investment Company named above ("Investment Company") for the class B shares
(the "Class") of the Fund named above ("Fund"), which Plan shall take effect as
of the date Class B shares are first offered (the "Effective Date of the Plan").
The Plan has been approved by a majority of the Board of Trustees of the
Investment Company (the "Board"), including a majority of the Board members who
are not interested persons of the Investment Company and who have no direct, or
indirect financial interest in the operation of the Plan (the "non-interested
Board members"), cast in person at a meeting called for the purpose of voting on
such Plan.
In reviewing the Plan, the Board considered the schedule and nature of
payments and terms of the Management Agreement between the Investment Company
and Franklin Advisers, Inc. and the terms of the Underwriting Agreement between
the Investment Company and Franklin/Templeton Distributors, Inc.
("Distributors"). The Board concluded that the compensation of Advisers, under
the Management Agreement, and of Distributors, under the Underwriting Agreement,
was fair and not excessive. The approval of the Plan included a determination
that in the exercise of their reasonable business judgment and in light of their
fiduciary duties, there is a reasonable likelihood that the Plan will benefit
the Fund and its shareholders.
The Board recognizes that Distributors has entered into an arrangement with
a third party in order to finance the distribution activities of the Class
pursuant to which Distributors may assign its rights to the fees payable
hereunder to such third party. The Board further recognizes that it has an
obligation to act in good faith and in the best interests of the Fund and its
shareholders when considering the continuation or termination of the Plan and
any payments to be made thereunder.
DISTRIBUTION PLAN
1. (a) The Fund shall pay to Distributors a monthly fee not to exceed the
above-stated maximum distribution fee per annum of the Class' average daily net
assets represented by shares of the Class, as may be determined by the Board
from time to time.
(b) In addition to the amounts described in (a) above, the Fund shall
pay (i) to Distributors for payment to dealers or others, or (ii) directly
to others, an amount not to exceed the above-stated maximum service fee per
annum of the Class' average daily net assets represented by shares of the
Class, as may be determined by the Investment Company's Board from time to
time, as a service fee pursuant to servicing agreements which have been
approved from time to time by the Board, including the non-interested Board
members.
2. (a) The monies paid to Distributors pursuant to Paragraph 1(a) above
shall be treated as compensation for Distributors' distribution-related services
including compensation for amounts advanced to securities dealers or their firms
or others selling shares of the Class who have executed an agreement with the
Investment Company, Distributors or its affiliates, which form of agreement has
been approved from time to time by the Board, including the non-interested Board
members, with respect to the sale of Class shares. In addition, such monies may
be used to compensate Distributors for other expenses incurred to assist in the
distribution and promotion of shares of the Class. Payments made to Distributors
under the Plan may be used for, among other things, the printing of prospectuses
and reports used for sales purposes, expenses of preparing and distributing
sales literature and related expenses, advertisements, and other
distribution-related expenses, including a pro-rated portion of Distributors'
overhead expenses attributable to the distribution of Class shares, as well as
for additional distribution fees paid to securities dealers or their firms or
others who have executed agreements with the Investment Company, Distributors or
its affiliates, or for certain promotional distribution charges paid to
broker-dealer firms or others, or for participation in certain distribution
channels. None of such payments are the legal obligation of Distributors or its
designee.
(b) The monies to be paid pursuant to paragraph 1(b) above shall be
used to pay dealers or others for, among other things, furnishing personal
services and maintaining shareholder accounts, which services include,
among other things, assisting in establishing and maintaining customer
accounts and records; assisting with purchase and redemption requests;
arranging for bank wires; monitoring dividend payments from the Fund on
behalf of customers; forwarding certain shareholder communications from the
Fund to customers; receiving and answering correspondence; and aiding in
maintaining the investment of their respective customers in the Class. Any
amounts paid under this paragraph 2(b) shall be paid pursuant to a
servicing or other agreement, which form of agreement has been approved
from time to time by the Board. None of such payments are the legal
obligation of Distributors or its designee.
3. In addition to the payments which the Fund is authorized to make
pursuant to paragraphs 1 and 2 hereof, to the extent that the Fund, Advisers,
Distributors or other parties on behalf of the Fund, Advisers or Distributors
make payments that are deemed to be payments by the Fund for the financing of
any activity primarily intended to result in the sale of Class shares issued by
the Fund within the context of Rule 12b-1 under the Act, then such payments
shall be deemed to have been made pursuant to the Plan.
In no event shall the aggregate asset-based sales charges which include
payments specified in paragraphs 1 and 2, plus any other payments deemed to be
made pursuant to the Plan under this paragraph, exceed the amount permitted to
be paid pursuant to Rule 2830(d) of the Conduct Rules of the National
Association of Securities Dealers, Inc.
4. Distributors shall furnish to the Board, for its review, on a quarterly
basis, a written report of the monies paid to it and to others under the Plan,
and shall furnish the Board with such other information as the Board may
reasonably request in connection with the payments made under the Plan in order
to enable the Board to make an informed determination of whether the Plan should
be continued.
5. (a) Distributors may assign, transfer or pledge ("Transfer") to one or
more designees (each an "Assignee"), its rights to all or a designated portion
of the fees to which it is entitled under paragraph 1 of this Plan from time to
time (but not Distributors' duties and obligations pursuant hereto or pursuant
to any distribution agreement in effect from time to time, if any, between
Distributors and the Fund), free and clear of any offsets or claims the Fund may
have against Distributors. Each such Assignee's ownership interest in a Transfer
of a specific designated portion of the fees to which Distributors is entitled
is hereafter referred to as an "Assignee's 12b-1 Portion." A Transfer pursuant
to this Section 5(a) shall not reduce or extinguish any claims of the Fund
against Distributors.
(b) Distributors shall promptly notify the Fund in writing of each
such Transfer by providing the Fund with the name and address of each such
Assignee.
(c) Distributors may direct the Fund to pay any Assignee's 12b-1
Portion directly to each Assignee. In such event, Distributors shall
provide the Fund with a monthly calculation of the amount to which each
Assignee is entitled (the "Monthly Calculation"). In such event, the Fund
shall, upon receipt of such notice and Monthly Calculation from
Distributors, make all payments required directly to the Assignee in
accordance with the information provided in such notice and Monthly
Calculation upon the same terms and conditions as if such payments were to
be paid to Distributors.
(d) Alternatively, in connection with a Transfer, Distributors may
direct the Fund to pay all or a portion of the fees to which Distributors
is entitled from time to time to a depository or collection agent
designated by any Assignee, which depository or collection agent may be
delegated the duty of dividing such fees between the Assignee's 12b-1
Portion and the balance (such balance, when distributed to Distributors by
the depository or collection agent, the "Distributors' 12b-1 Portion"), in
which case only Distributors' 12b-1 Portion may be subject to offsets or
claims the Fund may have against Distributors.
6. The Plan shall continue in effect for a period of more than one year
only so long as such continuance is specifically approved at least annually by
the Board, including the non-interested Board members, cast in person at a
meeting called for the purpose of voting on the Plan. In determining whether
there is a reasonable likelihood that the continuation of the Plan will benefit
the Fund and its shareholders, the Board may, but is not obligated to, consider
that Distributors has incurred substantial cost and has entered into an
arrangement with a third party in order to finance the distribution activities
for the Class.
7. This Plan and any agreements entered into pursuant to this Plan may be
terminated with respect to the shares of the Class, without penalty, at any time
by vote of a majority of the non-interested Board members of the Investment
Company, or by vote of a majority of outstanding Shares of such Class. Upon
termination of this Plan with respect to the Class, the obligation of the Fund
to make payments pursuant to this Plan with respect to such Class shall
terminate, and the Fund shall not be required to make payments hereunder beyond
such termination date with respect to expenses incurred in connection with Class
shares sold prior to such termination date, provided, in each case that each of
the requirements of a Complete Termination of this Plan in respect of such
Class, as defined below, are met. For purposes of this Section 7, a "Complete
Termination" of this Plan in respect of the Class shall mean a termination of
this Plan in respect of such Class, provided that: (i) the non-interested Board
members of the Investment Company shall have acted in good faith and shall have
determined that such termination is in the best interest of the Investment
Company and the shareholders of the Fund and the Class; (ii) and the Investment
Company does not alter the terms of the contingent deferred sales charges
applicable to Class shares outstanding at the time of such termination; and
(iii) unless Distributors at the time of such termination was in material breach
under the distribution agreement in respect of the Fund, the Fund shall not, in
respect of such Fund, pay to any person or entity, other than Distributors or
its designee, either the payments described in paragraph 1(a) or 1(b) or in
respect of the Class shares sold by Distributors prior to such termination.
8. The Plan, and any agreements entered into pursuant to this Plan, may not
be amended to increase materially the amount to be spent for distribution
pursuant to Paragraph 1 hereof without approval by a majority of the outstanding
voting securities of the Class of the Fund.
9. All material amendments to the Plan, or any agreements entered into
pursuant to this Plan, shall be approved by the non-interested Board members
cast in person at a meeting called for the purpose of voting on any such
amendment.
10. So long as the Plan is in effect, the selection and nomination of the
Fund's non-interested Board members shall be committed to the discretion of such
non-interested Board members.
This Plan and the terms and provisions thereof are hereby accepted and
agreed to by the Investment Company and Distributors as evidenced by their
execution hereof.
Date: October 16, 1998
FRANKLIN STRATEGIC SERIES
By:__________________________
Deborah R. Gatzek
Vice President & Secretary
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
By:__________________________
Harmon E. Burns
Executive Vice President
CLASS B DISTRIBUTION PLAN
I. Investment Company: FRANKLIN STATEGIC SERIES
II. Fund: FRANKLIN GLOBAL HEALTH CARE FUND - CLASS B
III. Maximum Per Annum Rule 12b-1 Fees for Class B Shares
(as a percentage of average daily net assets of the class)
A. Distribution Fee: 0.75%
B. Service Fee: 0.25%
PREAMBLE TO CLASS B DISTRIBUTION PLAN
The following Distribution Plan (the "Plan") has been adopted pursuant to
Rule 12b-1 under the Investment Company Act of 1940 (the "Act") by the
Investment Company named above ("Investment Company") for the class B shares
(the "Class") of the Fund named above ("Fund"), which Plan shall take effect as
of the date Class B shares are first offered (the "Effective Date of the Plan").
The Plan has been approved by a majority of the Board of Trustees of the
Investment Company (the "Board"), including a majority of the Board members who
are not interested persons of the Investment Company and who have no direct, or
indirect financial interest in the operation of the Plan (the "non-interested
Board members"), cast in person at a meeting called for the purpose of voting on
such Plan.
In reviewing the Plan, the Board considered the schedule and nature of
payments and terms of the Management Agreement between the Investment Company
and Franklin Advisers, Inc. and the terms of the Underwriting Agreement between
the Investment Company and Franklin/Templeton Distributors, Inc.
("Distributors"). The Board concluded that the compensation of Advisers, under
the Management Agreement, and of Distributors, under the Underwriting Agreement,
was fair and not excessive. The approval of the Plan included a determination
that in the exercise of their reasonable business judgment and in light of their
fiduciary duties, there is a reasonable likelihood that the Plan will benefit
the Fund and its shareholders.
The Board recognizes that Distributors has entered into an arrangement with
a third party in order to finance the distribution activities of the Class
pursuant to which Distributors may assign its rights to the fees payable
hereunder to such third party. The Board further recognizes that it has an
obligation to act in good faith and in the best interests of the Fund and its
shareholders when considering the continuation or termination of the Plan and
any payments to be made thereunder.
DISTRIBUTION PLAN
1. (a) The Fund shall pay to Distributors a monthly fee not to exceed the
above-stated maximum distribution fee per annum of the Class' average daily net
assets represented by shares of the Class, as may be determined by the Board
from time to time.
(b) In addition to the amounts described in (a) above, the Fund shall
pay (i) to Distributors for payment to dealers or others, or (ii) directly to
others, an amount not to exceed the above-stated maximum service fee per annum
of the Class' average daily net assets represented by shares of the Class, as
may be determined by the Investment Company's Board from time to time, as a
service fee pursuant to servicing agreements which have been approved from time
to time by the Board, including the non-interested Board members.
2. (a) The monies paid to Distributors pursuant to Paragraph 1(a) above
shall be treated as compensation for Distributors' distribution-related services
including compensation for amounts advanced to securities dealers or their firms
or others selling shares of the Class who have executed an agreement with the
Investment Company, Distributors or its affiliates, which form of agreement has
been approved from time to time by the Board, including the non-interested Board
members, with respect to the sale of Class shares. In addition, such monies may
be used to compensate Distributors for other expenses incurred to assist in the
distribution and promotion of shares of the Class. Payments made to Distributors
under the Plan may be used for, among other things, the printing of prospectuses
and reports used for sales purposes, expenses of preparing and distributing
sales literature and related expenses, advertisements, and other
distribution-related expenses, including a pro-rated portion of Distributors'
overhead expenses attributable to the distribution of Class shares, as well as
for additional distribution fees paid to securities dealers or their firms or
others who have executed agreements with the Investment Company, Distributors or
its affiliates, or for certain promotional distribution charges paid to
broker-dealer firms or others, or for participation in certain distribution
channels. None of such payments are the legal obligation of Distributors or its
designee.
(b) The monies to be paid pursuant to paragraph 1(b) above shall be
used to pay dealers or others for, among other things, furnishing personal
services and maintaining shareholder accounts, which services include,
among other things, assisting in establishing and maintaining customer
accounts and records; assisting with purchase and redemption requests;
arranging for bank wires; monitoring dividend payments from the Fund on
behalf of customers; forwarding certain shareholder communications from the
Fund to customers; receiving and answering correspondence; and aiding in
maintaining the investment of their respective customers in the Class. Any
amounts paid under this paragraph 2(b) shall be paid pursuant to a
servicing or other agreement, which form of agreement has been approved
from time to time by the Board. None of such payments are the legal
obligation of Distributors or its designee.
3. In addition to the payments which the Fund is authorized to make
pursuant to paragraphs 1 and 2 hereof, to the extent that the Fund, Advisers,
Distributors or other parties on behalf of the Fund, Advisers or Distributors
make payments that are deemed to be payments by the Fund for the financing of
any activity primarily intended to result in the sale of Class shares issued by
the Fund within the context of Rule 12b-1 under the Act, then such payments
shall be deemed to have been made pursuant to the Plan.
In no event shall the aggregate asset-based sales charges which include
payments specified in paragraphs 1 and 2, plus any other payments deemed to be
made pursuant to the Plan under this paragraph, exceed the amount permitted to
be paid pursuant to Rule 2830(d) of the Conduct Rules of the National
Association of Securities Dealers, Inc.
4. Distributors shall furnish to the Board, for its review, on a quarterly
basis, a written report of the monies paid to it and to others under the Plan,
and shall furnish the Board with such other information as the Board may
reasonably request in connection with the payments made under the Plan in order
to enable the Board to make an informed determination of whether the Plan should
be continued.
5. (a) Distributors may assign, transfer or pledge ("Transfer") to one or
more designees (each an "Assignee"), its rights to all or a designated portion
of the fees to which it is entitled under paragraph 1 of this Plan from time to
time (but not Distributors' duties and obligations pursuant hereto or pursuant
to any distribution agreement in effect from time to time, if any, between
Distributors and the Fund), free and clear of any offsets or claims the Fund may
have against Distributors. Each such Assignee's ownership interest in a Transfer
of a specific designated portion of the fees to which Distributors is entitled
is hereafter referred to as an "Assignee's 12b-1 Portion." A Transfer pursuant
to this Section 5(a) shall not reduce or extinguish any claims of the Fund
against Distributors.
(b) Distributors shall promptly notify the Fund in writing of each such
Transfer by providing the Fund with the name and address of each such Assignee.
(c) Distributors may direct the Fund to pay any Assignee's 12b-1
Portion directly to each Assignee. In such event, Distributors shall
provide the Fund with a monthly calculation of the amount to which each
Assignee is entitled (the "Monthly Calculation"). In such event, the Fund
shall, upon receipt of such notice and Monthly Calculation from
Distributors, make all payments required directly to the Assignee in
accordance with the information provided in such notice and Monthly
Calculation upon the same terms and conditions as if such payments were to
be paid to Distributors.
(d) Alternatively, in connection with a Transfer, Distributors may
direct the Fund to pay all or a portion of the fees to which Distributors
is entitled from time to time to a depository or collection agent
designated by any Assignee, which depository or collection agent may be
delegated the duty of dividing such fees between the Assignee's 12b-1
Portion and the balance (such balance, when distributed to Distributors by
the depository or collection agent, the "Distributors' 12b-1 Portion"), in
which case only Distributors' 12b-1 Portion may be subject to offsets or
claims the Fund may have against Distributors.
6. The Plan shall continue in effect for a period of more than one year
only so long as such continuance is specifically approved at least annually by
the Board, including the non-interested Board members, cast in person at a
meeting called for the purpose of voting on the Plan. In determining whether
there is a reasonable likelihood that the continuation of the Plan will benefit
the Fund and its shareholders, the Board may, but is not obligated to, consider
that Distributors has incurred substantial cost and has entered into an
arrangement with a third party in order to finance the distribution activities
for the Class.
7. This Plan and any agreements entered into pursuant to this Plan may be
terminated with respect to the shares of the Class, without penalty, at any time
by vote of a majority of the non-interested Board members of the Investment
Company, or by vote of a majority of outstanding Shares of such Class. Upon
termination of this Plan with respect to the Class, the obligation of the Fund
to make payments pursuant to this Plan with respect to such Class shall
terminate, and the Fund shall not be required to make payments hereunder beyond
such termination date with respect to expenses incurred in connection with Class
shares sold prior to such termination date, provided, in each case that each of
the requirements of a Complete Termination of this Plan in respect of such
Class, as defined below, are met. For purposes of this Section 7, a "Complete
Termination" of this Plan in respect of the Class shall mean a termination of
this Plan in respect of such Class, provided that: (i) the non-interested Board
members of the Investment Company shall have acted in good faith and shall have
determined that such termination is in the best interest of the Investment
Company and the shareholders of the Fund and the Class; (ii) and the Investment
Company does not alter the terms of the contingent deferred sales charges
applicable to Class shares outstanding at the time of such termination; and
(iii) unless Distributors at the time of such termination was in material breach
under the distribution agreement in respect of the Fund, the Fund shall not, in
respect of such Fund, pay to any person or entity, other than Distributors or
its designee, either the payments described in paragraph 1(a) or 1(b) or in
respect of the Class shares sold by Distributors prior to such termination.
8. The Plan, and any agreements entered into pursuant to this Plan, may not
be amended to increase materially the amount to be spent for distribution
pursuant to Paragraph 1 hereof without approval by a majority of the outstanding
voting securities of the Class of the Fund.
9. All material amendments to the Plan, or any agreements entered into
pursuant to this Plan, shall be approved by the non-interested Board members
cast in person at a meeting called for the purpose of voting on any such
amendment.
10. So long as the Plan is in effect, the selection and nomination of the
Fund's non-interested Board members shall be committed to the discretion of such
non-interested Board members.
This Plan and the terms and provisions thereof are hereby accepted and
agreed to by the Investment Company and Distributors as evidenced by their
execution hereof.
Date: October 16, 1998
FRANKLIN STRATEGIC SERIES
By:__________________________
Deborah R. Gatzek
Vice President & Secretary
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
By:__________________________
Harmon E. Burns
Executive Vice President
CLASS B DISTRIBUTION PLAN
I. Investment Company: FRANKLIN STATEGIC SERIES
II. Fund: FRANKLIN GLOBAL UTILITIES FUND - CLASS B
III. Maximum Per Annum Rule 12b-1 Fees for Class B Shares
(as a percentage of average daily net assets of the class)
A. Distribution Fee: 0.75%
B. Service Fee: 0.25%
PREAMBLE TO CLASS B DISTRIBUTION PLAN
The following Distribution Plan (the "Plan") has been adopted pursuant to
Rule 12b-1 under the Investment Company Act of 1940 (the "Act") by the
Investment Company named above ("Investment Company") for the class B shares
(the "Class") of the Fund named above ("Fund"), which Plan shall take effect as
of the date Class B shares are first offered (the "Effective Date of the Plan").
The Plan has been approved by a majority of the Board of Trustees of the
Investment Company (the "Board"), including a majority of the Board members who
are not interested persons of the Investment Company and who have no direct, or
indirect financial interest in the operation of the Plan (the "non-interested
Board members"), cast in person at a meeting called for the purpose of voting on
such Plan.
In reviewing the Plan, the Board considered the schedule and nature of
payments and terms of the Management Agreement between the Investment Company
and Franklin Advisers, Inc. and the terms of the Underwriting Agreement between
the Investment Company and Franklin/Templeton Distributors, Inc.
("Distributors"). The Board concluded that the compensation of Advisers, under
the Management Agreement, and of Distributors, under the Underwriting Agreement,
was fair and not excessive. The approval of the Plan included a determination
that in the exercise of their reasonable business judgment and in light of their
fiduciary duties, there is a reasonable likelihood that the Plan will benefit
the Fund and its shareholders.
The Board recognizes that Distributors has entered into an arrangement with
a third party in order to finance the distribution activities of the Class
pursuant to which Distributors may assign its rights to the fees payable
hereunder to such third party. The Board further recognizes that it has an
obligation to act in good faith and in the best interests of the Fund and its
shareholders when considering the continuation or termination of the Plan and
any payments to be made thereunder.
DISTRIBUTION PLAN
1. (a) The Fund shall pay to Distributors a monthly fee not to exceed the
above-stated maximum distribution fee per annum of the Class' average daily net
assets represented by shares of the Class, as may be determined by the Board
from time to time.
(b) In addition to the amounts described in (a) above, the Fund shall
pay (i) to Distributors for payment to dealers or others, or (ii) directly to
others, an amount not to exceed the above-stated maximum service fee per annum
of the Class' average daily net assets represented by shares of the Class, as
may be determined by the Investment Company's Board from time to time, as a
service fee pursuant to servicing agreements which have been approved from time
to time by the Board, including the non-interested Board members.
2. (a) The monies paid to Distributors pursuant to Paragraph 1(a) above
shall be treated as compensation for Distributors' distribution-related services
including compensation for amounts advanced to securities dealers or their firms
or others selling shares of the Class who have executed an agreement with the
Investment Company, Distributors or its affiliates, which form of agreement has
been approved from time to time by the Board, including the non-interested Board
members, with respect to the sale of Class shares. In addition, such monies may
be used to compensate Distributors for other expenses incurred to assist in the
distribution and promotion of shares of the Class. Payments made to Distributors
under the Plan may be used for, among other things, the printing of prospectuses
and reports used for sales purposes, expenses of preparing and distributing
sales literature and related expenses, advertisements, and other
distribution-related expenses, including a pro-rated portion of Distributors'
overhead expenses attributable to the distribution of Class shares, as well as
for additional distribution fees paid to securities dealers or their firms or
others who have executed agreements with the Investment Company, Distributors or
its affiliates, or for certain promotional distribution charges paid to
broker-dealer firms or others, or for participation in certain distribution
channels. None of such payments are the legal obligation of Distributors or its
designee.
(b) The monies to be paid pursuant to paragraph 1(b) above shall be used
to pay dealers or others for, among other things, furnishing personal services
and maintaining shareholder accounts, which services include, among other
things, assisting in establishing and maintaining customer accounts and
records; assisting with purchase and redemption requests; arranging for bank
wires; monitoring dividend payments from the Fund on behalf of customers;
forwarding certain shareholder communications from the Fund to customers;
receiving and answering correspondence; and aiding in maintaining the investment
of their respective customers in the Class. Any amounts paid under this
paragraph 2(b) shall be paid pursuant to a servicing or other agreement, which
form of agreement has been approved from time to time by the Board. None of
such payments are the legal obligation of Distributors or its designee.
3. In addition to the payments which the Fund is authorized to make
pursuant to paragraphs 1 and 2 hereof, to the extent that the Fund, Advisers,
Distributors or other parties on behalf of the Fund, Advisers or Distributors
make payments that are deemed to be payments by the Fund for the financing of
any activity primarily intended to result in the sale of Class shares issued by
the Fund within the context of Rule 12b-1 under the Act, then such payments
shall be deemed to have been made pursuant to the Plan.
In no event shall the aggregate asset-based sales charges which include
payments specified in paragraphs 1 and 2, plus any other payments deemed to be
made pursuant to the Plan under this paragraph, exceed the amount permitted to
be paid pursuant to Rule 2830(d) of the Conduct Rules of the National
Association of Securities Dealers, Inc.
4. Distributors shall furnish to the Board, for its review, on a quarterly
basis, a written report of the monies paid to it and to others under the Plan,
and shall furnish the Board with such other information as the Board may
reasonably request in connection with the payments made under the Plan in order
to enable the Board to make an informed determination of whether the Plan should
be continued.
5. (a) Distributors may assign, transfer or pledge ("Transfer") to one or
more designees (each an "Assignee"), its rights to all or a designated portion
of the fees to which it is entitled under paragraph 1 of this Plan from time to
time (but not Distributors' duties and obligations pursuant hereto or pursuant
to any distribution agreement in effect from time to time, if any, between
Distributors and the Fund), free and clear of any offsets or claims the Fund may
have against Distributors. Each such Assignee's ownership interest in a Transfer
of a specific designated portion of the fees to which Distributors is entitled
is hereafter referred to as an "Assignee's 12b-1 Portion." A Transfer pursuant
to this Section 5(a) shall not reduce or extinguish any claims of the Fund
against Distributors.
(b) Distributors shall promptly notify the Fund in writing of each
such Transfer by providing the Fund with the name and address of each such
Assignee.
(c) Distributors may direct the Fund to pay any Assignee's 12b-1
Portion directly to each Assignee. In such event, Distributors shall provide
the Fund with a monthly calculation of the amount to which each Assignee is
entitled (the "Monthly Calculation"). In such event, the Fund shall, upon
receipt of such notice and Monthly Calculation from Distributors, make all
payments required directly to the Assignee in accordance with the information
provided in such notice and Monthly Calculation upon the same terms and
conditions as if such payments were to be paid to Distributors.
(d) Alternatively, in connection with a Transfer, Distributors may
direct the Fund to pay all or a portion of the fees to which Distributors is
entitled from time to time to a depository or collection agent designated by
any Assignee, which depository or collection agent may be delegated the duty of
dividing such fees between the Assignee's 12b-1 Portion and the balance (such
balance, when distributed to Distributors by the depository or collection agent,
the "Distributors' 12b-1 Portion"), in which case only Distributors' 12b-1
Portion may be subject to offsets or claims the Fund may have against
Distributors.
6. The Plan shall continue in effect for a period of more than one year
only so long as such continuance is specifically approved at least annually by
the Board, including the non-interested Board members, cast in person at a
meeting called for the purpose of voting on the Plan. In determining whether
there is a reasonable likelihood that the continuation of the Plan will benefit
the Fund and its shareholders, the Board may, but is not obligated to, consider
that Distributors has incurred substantial cost and has entered into an
arrangement with a third party in order to finance the distribution activities
for the Class.
7. This Plan and any agreements entered into pursuant to this Plan may be
terminated with respect to the shares of the Class, without penalty, at any time
by vote of a majority of the non-interested Board members of the Investment
Company, or by vote of a majority of outstanding Shares of such Class. Upon
termination of this Plan with respect to the Class, the obligation of the Fund
to make payments pursuant to this Plan with respect to such Class shall
terminate, and the Fund shall not be required to make payments hereunder beyond
such termination date with respect to expenses incurred in connection with Class
shares sold prior to such termination date, provided, in each case that each of
the requirements of a Complete Termination of this Plan in respect of such
Class, as defined below, are met. For purposes of this Section 7, a "Complete
Termination" of this Plan in respect of the Class shall mean a termination of
this Plan in respect of such Class, provided that: (i) the non-interested Board
members of the Investment Company shall have acted in good faith and shall have
determined that such termination is in the best interest of the Investment
Company and the shareholders of the Fund and the Class; (ii) and the Investment
Company does not alter the terms of the contingent deferred sales charges
applicable to Class shares outstanding at the time of such termination; and
(iii) unless Distributors at the time of such termination was in material breach
under the distribution agreement in respect of the Fund, the Fund shall not, in
respect of such Fund, pay to any person or entity, other than Distributors or
its designee, either the payments described in paragraph 1(a) or 1(b) or in
respect of the Class shares sold by Distributors prior to such termination.
8. The Plan, and any agreements entered into pursuant to this Plan, may
not be amended to increase materially the amount to be spent for distribution
pursuant to Paragraph 1 hereof without approval by a majority of the outstanding
voting securities of the Class of the Fund.
9. All material amendments to the Plan, or any agreements entered into
pursuant to this Plan, shall be approved by the non-interested Board members
cast in person at a meeting called for the purpose of voting on any such
amendment.
10. So long as the Plan is in effect, the selection and nomination of the
Fund's non-interested Board members shall be committed to the discretion of such
non-interested Board members.
This Plan and the terms and provisions thereof are hereby accepted and
agreed to by the Investment Company and Distributors as evidenced by their
execution hereof.
Date: October 16, 1998
FRANKLIN STRATEGIC SERIES
By:__________________________
Deborah R. Gatzek
Vice President & Secretary
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
By:__________________________
Harmon E. Burns
Executive Vice President
CLASS B DISTRIBUTION PLAN
I. Investment Company: FRANKLIN STRATEGIC SERIES
II. Fund: FRANKLIN STRATEGIC INCOME FUND - CLASS B
III. Maximum Per Annum Rule 12b-1 Fees for Class B Shares
(as a percentage of average daily net assets of the class)
A. Distribution Fee: 0.50%
B. Service Fee: 0.15%
PREAMBLE TO CLASS B DISTRIBUTION PLAN
The following Distribution Plan (the "Plan") has been adopted pursuant to
Rule 12b-1 under the Investment Company Act of 1940 (the "Act") by the
Investment Company named above ("Investment Company") for the class B shares
(the "Class") of the Fund named above ("Fund"), which Plan shall take effect as
of the date Class B shares are first offered (the "Effective Date of the Plan").
The Plan has been approved by a majority of the Board of Trustees of the
Investment Company (the "Board"), including a majority of the Board members who
are not interested persons of the Investment Company and who have no direct, or
indirect financial interest in the operation of the Plan (the "non-interested
Board members"), cast in person at a meeting called for the purpose of voting on
such Plan.
In reviewing the Plan, the Board considered the schedule and nature of
payments and terms of the Management Agreement between the Investment Company
and Franklin Advisers, Inc. and the terms of the Underwriting Agreement between
the Investment Company and Franklin/Templeton Distributors, Inc.
("Distributors"). The Board concluded that the compensation of Advisers, under
the Management Agreement, and of Distributors, under the Underwriting Agreement,
was fair and not excessive. The approval of the Plan included a determination
that in the exercise of their reasonable business judgment and in light of their
fiduciary duties, there is a reasonable likelihood that the Plan will benefit
the Fund and its shareholders.
The Board recognizes that Distributors has entered into an arrangement with
a third party in order to finance the distribution activities of the Class
pursuant to which Distributors may assign its rights to the fees payable
hereunder to such third party. The Board further recognizes that it has an
obligation to act in good faith and in the best interests of the Fund and its
shareholders when considering the continuation or termination of the Plan and
any payments to be made thereunder.
DISTRIBUTION PLAN
1. (a) The Fund shall pay to Distributors a monthly fee not to exceed the
above-stated maximum distribution fee per annum of the Class' average daily net
assets represented by shares of the Class, as may be determined by the Board
from time to time.
(b) In addition to the amounts described in (a) above, the Fund shall
pay (i) to Distributors for payment to dealers or others, or (ii) directly to
others, an amount not to exceed the above-stated maximum service fee per annum
of the Class' average daily net assets represented by shares of the Class, as
may be determined by the Investment Company's Board from time to time, as a
service fee pursuant to servicing agreements which have been approved from time
to time by the Board, including the non-interested Board members.
2. (a) The monies paid to Distributors pursuant to Paragraph 1(a) above
shall be treated as compensation for Distributors' distribution-related services
including compensation for amounts advanced to securities dealers or their firms
or others selling shares of the Class who have executed an agreement with the
Investment Company, Distributors or its affiliates, which form of agreement has
been approved from time to time by the Board, including the non-interested Board
members, with respect to the sale of Class shares. In addition, such monies may
be used to compensate Distributors for other expenses incurred to assist in the
distribution and promotion of shares of the Class. Payments made to Distributors
under the Plan may be used for, among other things, the printing of prospectuses
and reports used for sales purposes, expenses of preparing and distributing
sales literature and related expenses, advertisements, and other
distribution-related expenses, including a pro-rated portion of Distributors'
overhead expenses attributable to the distribution of Class shares, as well as
for additional distribution fees paid to securities dealers or their firms or
others who have executed agreements with the Investment Company, Distributors or
its affiliates, or for certain promotional distribution charges paid to
broker-dealer firms or others, or for participation in certain distribution
channels. None of such payments are the legal obligation of Distributors or its
designee.
(b) The monies to be paid pursuant to paragraph 1(b) above shall be used
to pay dealers or others for, among other things, furnishing personal services
and maintaining shareholder accounts, which services include, among other
things, assisting in establishing and maintaining customer accounts and
records; assisting with purchase and redemption requests; arranging for
bank wires; monitoring dividend payments from the Fund on behalf of customers;
forwarding certain shareholder communications from the Fund to customers;
receiving and answering correspondence; and aiding in maintaining the
investment of their respective customers in the Class. Any amounts paid under
this paragraph 2(b) shall be paid pursuant to a servicing or other
agreement, which form of agreement has been approved from time to time
by the Board. None of such payments are the legal obligation of Distributors
or its designee.
3. In addition to the payments which the Fund is authorized to make
pursuant to paragraphs 1 and 2 hereof, to the extent that the Fund, Advisers,
Distributors or other parties on behalf of the Fund, Advisers or Distributors
make payments that are deemed to be payments by the Fund for the financing of
any activity primarily intended to result in the sale of Class shares issued by
the Fund within the context of Rule 12b-1 under the Act, then such payments
shall be deemed to have been made pursuant to the Plan.
In no event shall the aggregate asset-based sales charges which include
payments specified in paragraphs 1 and 2, plus any other payments deemed to be
made pursuant to the Plan under this paragraph, exceed the amount permitted to
be paid pursuant to Rule 2830(d) of the Conduct Rules of the National
Association of Securities Dealers, Inc.
4. Distributors shall furnish to the Board, for its review, on a quarterly
basis, a written report of the monies paid to it and to others under the Plan,
and shall furnish the Board with such other information as the Board may
reasonably request in connection with the payments made under the Plan in order
to enable the Board to make an informed determination of whether the Plan should
be continued.
5. (a) Distributors may assign, transfer or pledge ("Transfer") to one or
more designees (each an "Assignee"), its rights to all or a designated portion
of the fees to which it is entitled under paragraph 1 of this Plan from time to
time (but not Distributors' duties and obligations pursuant hereto or pursuant
to any distribution agreement in effect from time to time, if any, between
Distributors and the Fund), free and clear of any offsets or claims the Fund may
have against Distributors. Each such Assignee's ownership interest in a Transfer
of a specific designated portion of the fees to which Distributors is entitled
is hereafter referred to as an "Assignee's 12b-1 Portion." A Transfer pursuant
to this Section 5(a) shall not reduce or extinguish any claims of the Fund
against Distributors.
(b) Distributors shall promptly notify the Fund in writing of each such
Transfer by providing the Fund with the name and address of each such Assignee.
(c) Distributors may direct the Fund to pay any Assignee's 12b-1
Portion directly to each Assignee. In such event, Distributors shall provide
the Fund with a monthly calculation of the amount to which each Assignee is
entitled (the "Monthly Calculation"). In such event, the Fund shall, upon
receipt of such notice and Monthly Calculation from Distributors, make all
payments required directly to the Assignee in accordance with the information
provided in such notice and Monthly Calculation upon the same terms and
conditions as if such payments were to be paid to Distributors.
(d) Alternatively, in connection with a Transfer, Distributors may direct
the Fund to pay all or a portion of the fees to which Distributors is entitled
from time to time to a depository or collection agent designated by any
Assignee, which depository or collection agent may be delegated the duty of
dividing such fees between the Assignee's 12b-1 Portion and the balance (such
balance, when distributed to Distributors by the depository or collection agent,
the "Distributors' 12b-1 Portion"), in which case only Distributors' 12b-1
Portion may be subject to offsets or claims the Fund may have against
Distributors.
6. The Plan shall continue in effect for a period of more than one year
only so long as such continuance is specifically approved at least annually by
the Board, including the non-interested Board members, cast in person at a
meeting called for the purpose of voting on the Plan. In determining whether
there is a reasonable likelihood that the continuation of the Plan will benefit
the Fund and its shareholders, the Board may, but is not obligated to, consider
that Distributors has incurred substantial cost and has entered into an
arrangement with a third party in order to finance the distribution activities
for the Class.
7. This Plan and any agreements entered into pursuant to this Plan may be
terminated with respect to the shares of the Class, without penalty, at any time
by vote of a majority of the non-interested Board members of the Investment
Company, or by vote of a majority of outstanding Shares of such Class. Upon
termination of this Plan with respect to the Class, the obligation of the Fund
to make payments pursuant to this Plan with respect to such Class shall
terminate, and the Fund shall not be required to make payments hereunder beyond
such termination date with respect to expenses incurred in connection with Class
shares sold prior to such termination date, provided, in each case that each of
the requirements of a Complete Termination of this Plan in respect of such
Class, as defined below, are met. For purposes of this Section 7, a "Complete
Termination" of this Plan in respect of the Class shall mean a termination of
this Plan in respect of such Class, provided that: (i) the non-interested Board
members of the Investment Company shall have acted in good faith and shall have
determined that such termination is in the best interest of the Investment
Company and the shareholders of the Fund and the Class; (ii) and the Investment
Company does not alter the terms of the contingent deferred sales charges
applicable to Class shares outstanding at the time of such termination; and
(iii) unless Distributors at the time of such termination was in material breach
under the distribution agreement in respect of the Fund, the Fund shall not, in
respect of such Fund, pay to any person or entity, other than Distributors or
its designee, either the payments described in paragraph 1(a) or 1(b) or in
respect of the Class shares sold by Distributors prior to such termination.
8. The Plan, and any agreements entered into pursuant to this Plan, may not
be amended to increase materially the amount to be spent for distribution
pursuant to Paragraph 1 hereof without approval by a majority of the outstanding
voting securities of the Class of the Fund.
9. All material amendments to the Plan, or any agreements entered into
pursuant to this Plan, shall be approved by the non-interested Board members
cast in person at a meeting called for the purpose of voting on any such
amendment.
10. So long as the Plan is in effect, the selection and nomination of the
Fund's non-interested Board members shall be committed to the discretion of such
non-interested Board members.
This Plan and the terms and provisions thereof are hereby accepted and
agreed to by the Investment Company and
Distributors as evidenced by their execution hereof.
Date: October 16, 1998
FRANKLIN STRATEGIC SERIES
By:___________________________
Deborah R. Gatzek
Vice President & Secretary
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
By:____________________________
Harmon E. Burns
Executive Vice President
MULTIPLE CLASS PLAN
ON BEHALF OF
FRANKLIN GLOBAL UTILITIES FUND
This Multiple Class Plan (the "Plan") has been adopted by a majority of the
Board of Trustees of FRANKLIN STRATEGIC SERIES (the "Investment Company") for
its series, FRANKLIN GLOBAL UTILITIES FUND (the "Fund"). The Board has
determined that the Plan, including the expense allocation, is in the best
interests of each class of the Fund and the Investment Company as a whole. The
Plan sets forth the provisions relating to the establishment of multiple classes
of shares of the Fund, and supersedes any Plan previously adopted for the Fund.
1. The Fund shall offer three classes of shares, to be known as Class A
Shares, Class B Shares and Class C Shares.
2. Class A Shares shall carry a front-end sales charge ranging from 0% -
5.75%, and Class C Shares shall carry a front-end sales charge of 1.00%. Class B
Shares shall not be subject to any front-end sales charges.
3. Class A Shares shall not be subject to a contingent deferred sales
charge ("CDSC"), except in the following limited circumstances. On investments
of $1 million or more, a contingent deferred sales charge of 1.00% of the lesser
of the then-current net asset value or the original net asset value at the time
of purchase applies to redemptions of those investments within the contingency
period of 12 months from the calendar month following their purchase. The CDSC
is waived in certain circumstances, as described in the Fund's prospectus.
Class B Shares shall be subject to a CDSC with the following CDSC schedule:
(a) Class B Shares redeemed within 2 years of their purchase shall be assessed a
CDSC of 4% on the lesser of the then-current net asset value or the original net
asset value at the time of purchase; (b) Class B Shares redeemed within the
third and fourth years of their purchase shall be assessed a CDSC of 3% on the
lesser of the then-current net asset value or the original net asset value at
the time of purchase; (c) Class B Shares redeemed within 5 years of their
purchase shall be assessed a CDSC of 2% on the lesser of the then-current net
asset value or the original net asset value at the time of purchase; and (d)
Class B Shares redeemed within 6 years of their purchase shall be assessed a
CDSC of 1% on the lesser of the then-current net asset value or the original net
asset value at the time of purchase. The CDSC is waived in certain circumstances
described in the Fund's prospectus.
Class C Shares redeemed within 18 months of their purchase shall be
assessed a CDSC of 1.00% on the lesser of the then-current net asset value or
the original net asset value at the time of purchase. The CDSC is waived in
certain circumstances as described in the Fund's prospectus.
4. The distribution plan adopted by the Investment Company pursuant to Rule
12b-1 under the Investment Company Act of 1940, as amended, (the "Rule 12b-1
Plan") associated with the Class A Shares may be used to reimburse
Franklin/Templeton Distributors, Inc. (the "Distributor") or others for expenses
incurred in the promotion and distribution of the Class A Shares. Such expenses
include, but are not limited to, the printing of prospectuses and reports used
for sales purposes, expenses of preparing and distributing sales literature and
related expenses, advertisements, and other distribution-related expenses,
including a prorated portion of the Distributor's overhead expenses attributable
to the distribution of the Class A 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 Investment Company for the Class A
Shares, the Distributor or its affiliates.
The Rule 12b-1 Plan associated with the Class B Shares has two components.
The first component is an asset-based sales charge to be retained by Distributor
to compensate Distributor for amounts advanced to securities dealers or their
firms or others with respect to the sale of Class B Shares. In addition, such
payments may be retained by the Distributor to be used in the promotion and
distribution of Class B Shares in a manner similar to that described above for
Class A Shares. The second component is a shareholder servicing fee to be paid
to securities dealers or others who provide personal assistance to shareholders
in servicing their accounts.
The Rule 12b-1 Plan associated with the Class C Shares has two components.
The first component is a shareholder servicing fee, to be paid to
broker-dealers, banks, trust companies and others who provide personal
assistance to shareholders in servicing their accounts. The second component is
an asset-based sales charge to be retained by the Distributor during the first
year after the sale of shares, and in subsequent years, to be paid to dealers or
retained by the Distributor to be used in the promotion and distribution of
Class C Shares, in a manner similar to that described above for Class A Shares.
The Rule 12b-1 Plans for the Class A, Class B and Class C Shares shall
operate in accordance with the Rules of Fair Practice of the National
Association of Securities Dealers, Inc., Article III, section 26(d).
5. The only difference in expenses as between Class A, Class B and Class C
Shares shall relate to differences in Rule 12b-1 plan expenses, as described in
the applicable Rule 12b-1 Plans; however, to the extent that the Rule 12b-1 Plan
expenses of one Class are the same as the Rule 12b-1 Plan expenses of another
Class, such classes shall be subject to the same expenses.
6. There shall be no conversion features associated with the Class A and
Class C Shares. Each Class B Share, however, shall be converted automatically,
and without any action or choice on the part of the holder of the Class B
Shares, into Class A Shares on the conversion date specified, and in accordance
with the terms and conditions approved by the Franklin Strategic Series' Board
of Trustees and as described, in each fund's prospectus relating to the Class B
Shares, as such prospectus may be amended from time to time; provided, however,
that the Class B Shares shall be converted automatically into Class A Shares to
the extent and on the terms permitted by the Investment Company Act of 1940 and
the rules and regulations adopted thereunder.
7. Shares of Class A, Class B and Class C may be exchanged for shares of
another investment company within the Franklin Templeton Group of Funds
according to the terms and conditions stated in each fund's prospectus, as it
may be amended from time to time, to the extent permitted by the Investment
Company Act of 1940 and the rules and regulations adopted thereunder.
8. Each class will vote separately with respect to any Rule 12b-1 Plan
related to, or which now or in the future may affect, that class.
9. On an ongoing basis, the Board members, pursuant to their fiduciary
responsibilities under the 1940 Act and otherwise, will monitor the Fund for the
existence of any material conflicts between the Board members interests of the
various classes of shares. The Board members, including a majority of the
independent Board members, shall take such action as is reasonably necessary to
eliminate any such conflict that may develop. Franklin Advisers, Inc. and
Franklin/Templeton Distributors, Inc. shall be responsible for alerting the
Board to any material conflicts that arise.
10. All material amendments to this Plan must be approved by a majority of
the Board members, including a majority of the Board members who are not
interested persons of the Investment Company.
11. I, Deborah R. Gatzek, Secretary of the Franklin Group of Funds, do
hereby certify that this Multiple Class Plan was adopted by FRANKLIN STRATEGIC
SERIES, on behalf of its series FRANKLIN GLOBAL UTILITIES FUND, by a majority of
the Trustees of the Trust on April 16, 1998.
----------------
Deborah R. Gatzek
Secretary
MULTIPLE CLASS PLAN
ON BEHALF OF
FRANKLIN CALIFORNIA GROWTH FUND
This Multiple Class Plan (the "Plan") has been adopted by a majority of the
Board of Trustees of FRANKLIN STRATEGIC SERIES (the "Investment Company") for
its series, FRANKLIN CALIFORNIA GROWTH FUND (the "Fund"). The Board has
determined that the Plan, including the expense allocation, is in the best
interests of each class of the Fund and the Investment Company as a whole. The
Plan sets forth the provisions relating to the establishment of multiple classes
of shares of the Fund, and supersedes any Plan previously adopted for the Fund.
1. The Fund shall offer three classes of shares, to be known as Class A
Shares, Class B Shares and Class C Shares.
2. Class A Shares shall carry a front-end sales charge ranging from 0% -
5.75%, and Class C Shares shall carry a front-end sales charge of 1.00%. Class B
Shares shall not be subject to any front-end sales charges.
3. Class A Shares shall not be subject to a contingent deferred sales
charge ("CDSC"), except in the following limited circumstances. On investments
of $1 million or more, a contingent deferred sales charge of 1.00% of the lesser
of the then-current net asset value or the original net asset value at the time
of purchase applies to redemptions of those investments within the contingency
period of 12 months from the calendar month following their purchase. The CDSC
is waived in certain circumstances, as described in the Fund's prospectus.
Class B Shares shall be subject to a CDSC with the following CDSC schedule:
(a) Class B Shares redeemed within 2 years of their purchase shall be assessed a
CDSC of 4% on the lesser of the then-current net asset value or the original net
asset value at the time of purchase; (b) Class B Shares redeemed within the
third and fourth years of their purchase shall be assessed a CDSC of 3% on the
lesser of the then-current net asset value or the original net asset value at
the time of purchase; (c) Class B Shares redeemed within 5 years of their
purchase shall be assessed a CDSC of 2% on the lesser of the then-current net
asset value or the original net asset value at the time of purchase; and (d)
Class B Shares redeemed within 6 years of their purchase shall be assessed a
CDSC of 1% on the lesser of the then-current net asset value or the original net
asset value at the time of purchase. The CDSC is waived in certain circumstances
described in the Fund's prospectus.
Class C Shares redeemed within 18 months of their purchase shall be
assessed a CDSC of 1.00% on the lesser of the then-current net asset value or
the original net asset value at the time of purchase. The CDSC is waived in
certain circumstances as described in the Fund's prospectus.
4. The distribution plan adopted by the Investment Company pursuant to Rule
12b-1 under the Investment Company Act of 1940, as amended, (the "Rule 12b-1
Plan") associated with the Class A Shares may be used to reimburse
Franklin/Templeton Distributors, Inc. (the "Distributor") or others for expenses
incurred in the promotion and distribution of the Class A Shares. Such expenses
include, but are not limited to, the printing of prospectuses and reports used
for sales purposes, expenses of preparing and distributing sales literature and
related expenses, advertisements, and other distribution-related expenses,
including a prorated portion of the Distributor's overhead expenses attributable
to the distribution of the Class A 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 Investment Company for the Class A
Shares, the Distributor or its affiliates.
The Rule 12b-1 Plan associated with the Class B Shares has two components.
The first component is an asset-based sales charge to be retained by Distributor
to compensate Distributor for amounts advanced to securities dealers or their
firms or others with respect to the sale of Class B Shares. In addition, such
payments may be retained by the Distributor to be used in the promotion and
distribution of Class B Shares in a manner similar to that described above for
Class A Shares. The second component is a shareholder servicing fee to be paid
to securities dealers or others who provide personal assistance to shareholders
in servicing their accounts.
The Rule 12b-1 Plan associated with the Class C Shares has two components.
The first component is a shareholder servicing fee, to be paid to
broker-dealers, banks, trust companies and others who provide personal
assistance to shareholders in servicing their accounts. The second component is
an asset-based sales charge to be retained by the Distributor during the first
year after the sale of shares, and in subsequent years, to be paid to dealers or
retained by the Distributor to be used in the promotion and distribution of
Class C Shares, in a manner similar to that described above for Class A Shares.
The Rule 12b-1 Plans for the Class A, Class B and Class C Shares shall
operate in accordance with the Rules of Fair Practice of the National
Association of Securities Dealers, Inc., Article III, section 26(d).
5. The only difference in expenses as between Class A, Class B and Class C
Shares shall relate to differences in Rule 12b-1 plan expenses, as described in
the applicable Rule 12b-1 Plans; however, to the extent that the Rule 12b-1 Plan
expenses of one Class are the same as the Rule 12b-1 Plan expenses of another
Class, such classes shall be subject to the same expenses.
6. There shall be no conversion features associated with the Class A and
Class C Shares. Each Class B Share, however, shall be converted automatically,
and without any action or choice on the part of the holder of the Class B
Shares, into Class A Shares on the conversion date specified, and in accordance
with the terms and conditions approved by the Franklin Strategic Series' Board
of Trustees and as described, in each fund's prospectus relating to the Class B
Shares, as such prospectus may be amended from time to time; provided, however,
that the Class B Shares shall be converted automatically into Class A Shares to
the extent and on the terms permitted by the Investment Company Act of 1940 and
the rules and regulations adopted thereunder.
7. Shares of Class A, Class B and Class C may be exchanged for shares of
another investment company within the Franklin Templeton Group of Funds
according to the terms and conditions stated in each fund's prospectus, as it
may be amended from time to time, to the extent permitted by the Investment
Company Act of 1940 and the rules and regulations adopted thereunder.
8. Each class will vote separately with respect to any Rule 12b-1 Plan
related to, or which now or in the future may affect, that class.
9. On an ongoing basis, the Board members, pursuant to their fiduciary
responsibilities under the 1940 Act and otherwise, will monitor the Fund for the
existence of any material conflicts between the Board members interests of the
various classes of shares. The Board members, including a majority of the
independent Board members, shall take such action as is reasonably necessary to
eliminate any such conflict that may develop. Franklin Advisers, Inc. and
Franklin/Templeton Distributors, Inc. shall be responsible for alerting the
Board to any material conflicts that arise.
10. All material amendments to this Plan must be approved by a majority of
the Board members, including a majority of the Board members who are not
interested persons of the Investment Company.
11. I, Deborah R. Gatzek, Secretary of the Franklin Group of Funds, do
hereby certify that this Multiple Class Plan was adopted by FRANKLIN STRATEGIC
SERIES, on behalf of its series FRANKLIN CALIFORNIA GROWTH FUND, by a majority
of the Trustees of the Trust on April 16, 1998
--------------------
Deborah R. Gatzek
Secretary
MULTIPLE CLASS PLAN
ON BEHALF OF
FRANKLIN GLOBAL HEALTH CARE FUND
This Multiple Class Plan (the "Plan") has been adopted by a majority of the
Board of Trustees of FRANKLIN STRATEGIC SERIES (the "Investment Company") for
its series, FRANKLIN GLOBAL HEALTH CARE FUND (the "Fund"). The Board has
determined that the Plan, including the expense allocation, is in the best
interests of each class of the Fund and the Investment Company as a whole. The
Plan sets forth the provisions relating to the establishment of multiple classes
of shares of the Fund, and supersedes any Plan previously adopted for the Fund.
1. The Fund shall offer three classes of shares, to be known as Class A
Shares, Class B Shares and Class C Shares.
2. Class A Shares shall carry a front-end sales charge ranging from 0% -
5.75%, and Class C Shares shall carry a front-end sales charge of 1.00%. Class B
Shares shall not be subject to any front-end sales charges.
3. Class A Shares shall not be subject to a contingent deferred sales
charge ("CDSC"), except in the following limited circumstances. On investments
of $1 million or more, a contingent deferred sales charge of 1.00% of the lesser
of the then-current net asset value or the original net asset value at the time
of purchase applies to redemptions of those investments within the contingency
period of 12 months from the calendar month following their purchase. The CDSC
is waived in certain circumstances, as described in the Fund's prospectus.
Class B Shares shall be subject to a CDSC with the following CDSC schedule:
(a) Class B Shares redeemed within 2 years of their purchase shall be assessed a
CDSC of 4% on the lesser of the then-current net asset value or the original net
asset value at the time of purchase; (b) Class B Shares redeemed within the
third and fourth years of their purchase shall be assessed a CDSC of 3% on the
lesser of the then-current net asset value or the original net asset value at
the time of purchase; (c) Class B Shares redeemed within 5 years of their
purchase shall be assessed a CDSC of 2% on the lesser of the then-current net
asset value or the original net asset value at the time of purchase; and (d)
Class B Shares redeemed within 6 years of their purchase shall be assessed a
CDSC of 1% on the lesser of the then-current net asset value or the original net
asset value at the time of purchase. The CDSC is waived in certain circumstances
described in the Fund's prospectus.
Class C Shares redeemed within 18 months of their purchase shall be
assessed a CDSC of 1.00% on the lesser of the then-current net asset value or
the original net asset value at the time of purchase. The CDSC is waived in
certain circumstances as described in the Fund's prospectus.
4. The distribution plan adopted by the Investment Company pursuant to Rule
12b-1 under the Investment Company Act of 1940, as amended, (the "Rule 12b-1
Plan") associated with the Class A Shares may be used to reimburse
Franklin/Templeton Distributors, Inc. (the "Distributor") or others for expenses
incurred in the promotion and distribution of the Class A Shares. Such expenses
include, but are not limited to, the printing of prospectuses and reports used
for sales purposes, expenses of preparing and distributing sales literature and
related expenses, advertisements, and other distribution-related expenses,
including a prorated portion of the Distributor's overhead expenses attributable
to the distribution of the Class A 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 Investment Company for the Class A
Shares, the Distributor or its affiliates.
The Rule 12b-1 Plan associated with the Class B Shares has two components.
The first component is an asset-based sales charge to be retained by Distributor
to compensate Distributor for amounts advanced to securities dealers or their
firms or others with respect to the sale of Class B Shares. In addition, such
payments may be retained by the Distributor to be used in the promotion and
distribution of Class B Shares in a manner similar to that described above for
Class A Shares. The second component is a shareholder servicing fee to be paid
to securities dealers or others who provide personal assistance to shareholders
in servicing their accounts.
The Rule 12b-1 Plan associated with the Class C Shares has two components.
The first component is a shareholder servicing fee, to be paid to
broker-dealers, banks, trust companies and others who provide personal
assistance to shareholders in servicing their accounts. The second component is
an asset-based sales charge to be retained by the Distributor during the first
year after the sale of shares, and in subsequent years, to be paid to dealers or
retained by the Distributor to be used in the promotion and distribution of
Class C Shares, in a manner similar to that described above for Class A Shares.
The Rule 12b-1 Plans for the Class A, Class B and Class C Shares shall
operate in accordance with the Rules of Fair Practice of the National
Association of Securities Dealers, Inc., Article III, section 26(d).
5. The only difference in expenses as between Class A, Class B and Class C
Shares shall relate to differences in Rule 12b-1 plan expenses, as described in
the applicable Rule 12b-1 Plans; however, to the extent that the Rule 12b-1 Plan
expenses of one Class are the same as the Rule 12b-1 Plan expenses of another
Class, such classes shall be subject to the same expenses.
6. There shall be no conversion features associated with the Class A and
Class C Shares. Each Class B Share, however, shall be converted automatically,
and without any action or choice on the part of the holder of the Class B
Shares, into Class A Shares on the conversion date specified, and in accordance
with the terms and conditions approved by the Franklin Strategic Series' Board
of Trustees and as described, in each fund's prospectus relating to the Class B
Shares, as such prospectus may be amended from time to time; provided, however,
that the Class B Shares shall be converted automatically into Class A Shares to
the extent and on the terms permitted by the Investment Company Act of 1940 and
the rules and regulations adopted thereunder.
7. Shares of Class A, Class B and Class C may be exchanged for shares of
another investment company within the Franklin Templeton Group of Funds
according to the terms and conditions stated in each fund's prospectus, as it
may be amended from time to time, to the extent permitted by the Investment
Company Act of 1940 and the rules and regulations adopted thereunder.
8. Each class will vote separately with respect to any Rule 12b-1 Plan
related to, or which now or in the future may affect, that class.
9. On an ongoing basis, the Board members, pursuant to their fiduciary
responsibilities under the 1940 Act and otherwise, will monitor the Fund for the
existence of any material conflicts between the Board members interests of the
various classes of shares. The Board members, including a majority of the
independent Board members, shall take such action as is reasonably necessary to
eliminate any such conflict that may develop. Franklin Advisers, Inc. and
Franklin/Templeton Distributors, Inc. shall be responsible for alerting the
Board to any material conflicts that arise.
10. All material amendments to this Plan must be approved by a majority of
the Board members, including a majority of the Board members who are not
interested persons of the Investment Company.
11. I, Deborah R. Gatzek, Secretary of the Franklin Group of Funds, do
hereby certify that this Multiple Class Plan was adopted by FRANKLIN STRATEGIC
SERIES, on behalf of its series FRANKLIN GLOBAL HEALTH CARE FUND, by a majority
of the Trustees of the Trust on April 16, 1998.
--------------------
Deborah R. Gatzek
Secretary
MULTIPLE CLASS PLAN
ON BEHALF OF
FRANKLIN STRATEGIC INCOME FUND
This Multiple Class Plan (the "Plan") has been adopted by a majority of the
Board of Trustees of FRANKLIN STRATEGIC SERIES (the "Investment Company") for
its series, FRANKLIN STRATEGIC INCOME FUND (the "Fund"). The Board has
determined that the Plan, including the expense allocation, is in the best
interests of each class of the Fund and the Investment Company as a whole. The
Plan sets forth the provisions relating to the establishment of multiple classes
of shares of the Fund, and supersedes any Plan previously adopted for the Fund.
1. The Fund shall offer three classes of shares, to be known as Class A
Shares, Class B Shares and Class C Shares.
2. Class A Shares shall carry a front-end sales charge ranging from 0% -
4.25%, and Class C Shares shall carry a front-end sales charge of 1.00%. Class B
Shares shall not be subject to any front-end sales charges.
3. Class A Shares shall not be subject to a contingent deferred sales
charge ("CDSC"), except in the following limited circumstances. On investments
of $1 million or more, a contingent deferred sales charge of 1.00% of the lesser
of the then-current net asset value or the original net asset value at the time
of purchase applies to redemptions of those investments within the contingency
period of 12 months from the calendar month following their purchase. The CDSC
is waived in certain circumstances, as described in the Fund's prospectus.
Class B Shares shall be subject to a CDSC with the following CDSC schedule:
(a) Class B Shares redeemed within 2 years of their purchase shall be assessed a
CDSC of 4% on the lesser of the then-current net asset value or the original net
asset value at the time of purchase; (b) Class B Shares redeemed within the
third and fourth years of their purchase shall be assessed a CDSC of 3% on the
lesser of the then-current net asset value or the original net asset value at
the time of purchase; (c) Class B Shares redeemed within 5 years of their
purchase shall be assessed a CDSC of 2% on the lesser of the then-current net
asset value or the original net asset value at the time of purchase; and (d)
Class B Shares redeemed within 6 years of their purchase shall be assessed a
CDSC of 1% on the lesser of the then-current net asset value or the original net
asset value at the time of purchase. The CDSC is waived in certain circumstances
described in the Fund's prospectus.
Class C Shares redeemed within 18 months of their purchase shall be
assessed a CDSC of 1.00% on the lesser of the then-current net asset value or
the original net asset value at the time of purchase. The CDSC is waived in
certain circumstances as described in the Fund's prospectus.
4. The distribution plan adopted by the Investment Company pursuant to Rule
12b-1 under the Investment Company Act of 1940, as amended, (the "Rule 12b-1
Plan") associated with the Class A Shares may be used to reimburse
Franklin/Templeton Distributors, Inc. (the "Distributor") or others for expenses
incurred in the promotion and distribution of the Class A Shares. Such expenses
include, but are not limited to, the printing of prospectuses and reports used
for sales purposes, expenses of preparing and distributing sales literature and
related expenses, advertisements, and other distribution-related expenses,
including a prorated portion of the Distributor's overhead expenses attributable
to the distribution of the Class A 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 Investment Company for the Class A
Shares, the Distributor or its affiliates.
The Rule 12b-1 Plan associated with the Class B Shares has two components.
The first component is an asset-based sales charge to be retained by Distributor
to compensate Distributor for amounts advanced to securities dealers or their
firms or others with respect to the sale of Class B Shares. In addition, such
payments may be retained by the Distributor to be used in the promotion and
distribution of Class B Shares in a manner similar to that described above for
Class A Shares. The second component is a shareholder servicing fee to be paid
to securities dealers or others who provide personal assistance to shareholders
in servicing their accounts.
The Rule 12b-1 Plan associated with the Class C Shares has two components.
The first component is a shareholder servicing fee, to be paid to
broker-dealers, banks, trust companies and others who provide personal
assistance to shareholders in servicing their accounts. The second component is
an asset-based sales charge to be retained by the Distributor during the first
year after the sale of shares, and in subsequent years, to be paid to dealers or
retained by the Distributor to be used in the promotion and distribution of
Class C Shares, in a manner similar to that described above for Class A Shares.
The Rule 12b-1 Plans for the Class A, Class B and Class C Shares shall
operate in accordance with the Rules of Fair Practice of the National
Association of Securities Dealers, Inc., Article III, section 26(d).
5. The only difference in expenses as between Class A, Class B and Class C
Shares shall relate to differences in Rule 12b-1 plan expenses, as described in
the applicable Rule 12b-1 Plans; however, to the extent that the Rule 12b-1 Plan
expenses of one Class are the same as the Rule 12b-1 Plan expenses of another
Class, such classes shall be subject to the same expenses.
6. There shall be no conversion features associated with the Class A and
Class C Shares. Each Class B Share, however, shall be converted automatically,
and without any action or choice on the part of the holder of the Class B
Shares, into Class A Shares on the conversion date specified, and in accordance
with the terms and conditions approved by the Franklin Strategic Series' Board
of Trustees and as described, in each fund's prospectus relating to the Class B
Shares, as such prospectus may be amended from time to time; provided, however,
that the Class B Shares shall be converted automatically into Class A Shares to
the extent and on the terms permitted by the Investment Company Act of 1940 and
the rules and regulations adopted thereunder.
7. Shares of Class A, Class B and Class C may be exchanged for shares of
another investment company within the Franklin Templeton Group of Funds
according to the terms and conditions stated in each fund's prospectus, as it
may be amended from time to time, to the extent permitted by the Investment
Company Act of 1940 and the rules and regulations adopted thereunder.
8. Each class will vote separately with respect to any Rule 12b-1 Plan
related to, or which now or in the future may affect, that class.
9. On an ongoing basis, the Board members, pursuant to their fiduciary
responsibilities under the 1940 Act and otherwise, will monitor the Fund for the
existence of any material conflicts between the Board members interests of the
various classes of shares. The Board members, including a majority of the
independent Board members, shall take such action as is reasonably necessary to
eliminate any such conflict that may develop. Franklin Advisers, Inc. and
Franklin/Templeton Distributors, Inc. shall be responsible for alerting the
Board to any material conflicts that arise.
10. All material amendments to this Plan must be approved by a majority of
the Board members, including a majority of the Board members who are not
interested persons of the Investment Company.
11. I, Deborah R. Gatzek, Secretary of the Franklin Group of Funds, do
hereby certify that this Multiple Class Plan was adopted by FRANKLIN STRATEGIC
SERIES, on behalf of its series FRANKLIN STRATEGIC INCOME FUND, by a majority of
the Trustees of the Trust on April 16, 1998
--------------------
Deborah R. Gatzek
Secretary
