As filed with the Securities and Exchange Commission on June 30, 1995.
File Nos.
33-69048
811-8034
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. 4 (X)
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 6 (X)
FRANKLIN REAL ESTATE SECURITIES TRUST
(Exact Name of Registrant as Specified in Charter)
777 MARINERS ISLAND BLVD., SAN MATEO, CA 94404
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (415) 312-2000
Harmon E. Burns, 777 Mariners Island Blvd., San Mateo, CA 94404
(Name and Address of Agent for Service of Process)
Approximate Date of Proposed Public offering:
It is proposed that this filing will become effective (check
appropriate box)
[ ] immediately upon filing pursuant to paragraph (b) [ ] on (date) pursuant to
paragraph (b) [ ] 60 days after filing pursuant to paragraph (a)(i) [x] on
September 1, 1995 pursuant to paragraph (a)(i) [ ] 75 days after filing
pursuant to paragraph (a)(ii) [ ] on (date) pursuant to paragraph (a)(ii) of
rule 485
If appropriate, check the following box:
[X] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Declaration Pursuant to Rule 24f-2. The issuer has registered an indefinite
number or amount of securities under the Securities Act of 1933 pursuant to
Rule 24(f)(2) under the Investment Company Act of 1940. The Rule 24f-2 Notice
for the issuer's most recent fiscal year was filed on June 27, 1995.
<PAGE>
FRANKLIN REAL ESTATE SECURITIES TRUST
CROSS REFERENCE SHEET
FORM N-1A
Part A: Information Required in Prospectus
(Franklin Real Estate Securities Fund)
<TABLE>
<CAPTION>
N-1A Location in
Item No. Item Registration Statement
<S> <C> <C>
1. Cover Page Cover Page
2. Synopsis Expense Table
3. Condensed Financial Information "Financial Highlights"; "Performance"
4. General Description of the Registrant "About the Fund"; "Investment Objective and
Policies Followed by the Fund"; "General
Information"
5. Management of the Fund "Management of the Fund", "Portfolio
Operations"
5A. Management's Discussion of Fund Performance The response to this item is contained in
Registrant's Annual Report to Shareholders
6. Capital Stock and Other Securities "Distributions to Shareholders"; "General
Information"; "Taxation of the Fund and Its
Shareholders"
7. Purchase of Securities Being Offered "How to Buy Shares of the Fund"; "Purchasing
Shares of the Fund in Connection with
Retirement Plans Involving Tax-Deferred
Investments"; "Other Programs and Privileges
Available to Fund Shareholders"; "Exchange
Privilege"; "Valuation of Fund Shares"
8. Redemption or Repurchase "Exchange Privilege"; "How to Sell Shares of
the Fund"; "How to Get Information Regarding
an Investment in the Fund"
9. Legal Proceedings Not Applicable
FRANKLIN REAL ESTATE SECURITIES TRUST
CROSS REFERENCE SHEET
FORM N-1A
Part B: Information Required in
Statement of Additional Information
(Franklin Real Estate Securities Fund)
N-1A Location in
Item No. Item Registration Statement
10. Cover Page Cover Page
11. Table of Contents Contents
12. General Information and History Cover Page; About the Fund(see also the
Prospectus "About the Fund" and "General
Information")
13. Investment Objectives and Policies "The Fund's Investment Objective and
Restrictions"(See also the Prospectus
"Investment Objective and Policies Followed by
the Fund")
14. Management of the Registrant "Officers and Trustees"
15. Control Persons and Principal Holders of "Officers and Trustees"
Securities
16. Investment Advisory and Other Services "Investment Management and Other Services"
(See also the Prospectus "Management of the
Fund")
17. Brokerage Allocation "The Fund's Policies Regarding Brokers Used on
Portfolio Transactions"
18. Capital Stock and Other Securities (See also the Prospectus "General Information"
and "About the Fund")
<PAGE>
19. Purchase, Redemption and Pricing of Securities "Additional Information Regarding Fund
Being Offered Shares"(See also the Prospectus "How to Buy
Shares of the Fund", "How to Sell Shares of
the Fund", "Valuation of Fund Shares")
20. Tax Status "Additional Information Regarding Taxation"
21. Underwriters "The Fund's Underwriter"
22. Calculation of Performance Data "General Information"
23. Financial Statements "Financial Statements"
</TABLE>
FRANKLIN REAL ESTATE SECURITIES FUND
FRANKLIN REAL ESTATE SECURITIES TRUST
PROSPECTUS SEPTEMBER 1, 1995
777 MARINERS ISLAND BLVD., P.O. BOX 7777
SAN MATEO, CA 94403-7777 1-800/DIAL BEN
Franklin Real Estate Securities Fund (the "Fund") is a non-diversified series of
Franklin Real Estate Securities Trust ("Trust"), an open-end management
investment company, with the investment objective of maximizing total return. In
connection with this objective, the Fund will invest primarily in securities of
companies operating in the real estate industry. Under normal circumstances at
least 65% of the Fund's total assets will be invested in real estate securities,
primarily equity real estate investment trusts ("REITs"). The Fund may also
invest in equity securities issued by home builders and developers and in debt
and convertible securities issued by REITs, home builders and developers.
This Prospectus is intended to set forth in a clear and concise manner
information about the Fund that a prospective investor should know before
investing. After reading the Prospectus, it should be retained for future
reference; it contains information about the purchase and sale of shares and
other items which a prospective investor will find useful to have.
The Fund
offers two classes to its investors: Franklin Real Estate Securities Fund -
Class I ("Class I") and Franklin Real Estate Securities Fund - Class II ("Class
II"). Investors can choose between Class I shares, which generally bear a higher
front-end sales charge and lower ongoing Rule 12b-1 distribution fees ("Rule
12b-1 fees"), and Class II shares, which generally have a lower front-end sales
charge and higher ongoing Rule 12b-1 fees. Investors should consider the
differences between the two classes, including the impact of sales charges and
distribution fees, in choosing the more suitable class given their anticipated
investment amount and time horizon. See "How to Buy Shares of the Fund -
Differences Between Class I and Class II."
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK; FURTHER, SUCH SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
A Statement of Additional Information ("SAI") concerning the Fund, dated
September 1, 1995, as may be amended from time to time, provides a further
discussion of certain areas in this Prospectus and other matters which may be of
interest to some investors. It has been filed with the Securities and Exchange
Commission ("SEC") and is incorporated herein by reference. A copy is available
without charge from the Fund or the Fund's principal underwriter,
Franklin/Templeton Distributors, Inc. ("Distributors"), at the address or
telephone number shown above.
THIS PROSPECTUS IS NOT AN OFFERING OF THE SECURITIES HEREIN DESCRIBED IN ANY
STATE IN WHICH THE OFFERING IS NOT AUTHORIZED. NO SALES REPRESENTATIVE, DEALER,
OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS. FURTHER
INFORMATION MAY BE OBTAINED FROM THE UNDERWRITER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
CONTENTS PAGE
Expense Table
Financial Highlights
About the Fund
Investment Objective
and Policies Followed by the Fund
Management of the Fund
Distributions to Shareholders
Taxation of the Fund and Its Shareholders
How to Buy Shares of the Fund
Purchasing Shares of the Fund in
Connection with Retirement Plans
Involving Tax-Deferred Investments
Other Programs and Privileges
Available to Fund Shareholders
Exchange Privilege
How to Sell Shares of the Fund
Telephone Transactions
Valuation of Fund Shares
How to Get Information Regarding
an Investment in the Fund
Performance
General Information
Account Registrations
Important Notice Regarding
Taxpayer IRS Certifications
Portfolio Operations
Appendix
EXPENSE TABLE
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder will bear directly or indirectly in
connection with an investment in the Fund. These figures are based on aggregate
operating expenses of Class I shares before fee waivers and expense reductions
for the fiscal year ended April 30, 1995.
CLASS I CLASS II
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) 4.50% 1.00%+
Deferred Sales Charge NONE++ 1.00%+++
Exchange Fee (per transaction) $ 5.00++++ $ 5.00++++
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees 0.63% 0.63%
Rule 12b-1 Fees 0.20%* 1.00%*
Other Expenses 0.57% 0.57%
Total Fund Operating Expenses 1.40%** 2.20%**
===== =====
+Although Class II has a lower front-end sales charge than Class I, over time
the higher Rule 12b-1 fee for Class II may cause shareholders to pay more for
Class II shares than for Class I shares. Given the maximum front-end sales
charge and the rate of Rule 12b-1 fees of each class, it is estimated that this
will take less than six years for shareholders who maintain total shares valued
at less than $100,000 in the Franklin Templeton Funds. Shareholders with larger
investments in the Franklin Templeton Funds will reach the crossover point more
quickly. (See "How to Buy Shares of the Fund - Purchase Price of Fund Shares"
for the definition of Franklin Templeton Funds and similar references.) ++Class
I investments of $1 million or more are not subject to a front-end sales charge;
however, a contingent deferred sales charge of 1% is generally imposed on
certain redemptions within a "contingency period" of 12 months of the calendar
month following such investments. See "How to Sell Shares of the Fund -
Contingent Deferred Sales Charge." +++Class II shares redeemed within a
"contingency period" of 18 months of the calendar month following such
investments are subject to a 1% contingent deferred sales charge. See "How to
Sell Shares of the Fund - Contingent Deferred Sales Charge." ++++$5.00 fee
imposed only on Timing Accounts as described under "Exchange Privilege." All
other exchanges are processed without a fee. *Consistent with National
Association of Securities Dealers, Inc.'s rules, it is possible that the
combination of front-end sales charges and Rule 12b-1 fees could cause long-term
shareholders to pay more than the economic equivalent of the maximum front-end
sales charges permitted under those same rules. **Represents the management fee
before any fee waiver by the investment manager. The investment manager has
agreed in advance, however, to waive all of its management fees and to make
certain payments to reduce expenses. With this waiver and expense reduction,
management fees and total operating expenses represented 0.00% and 0.25%,
respectively, of the average net assets of the Class I shares. "Other Expenses"
for Class II shares are estimates based on the actual expenses incurred by Class
I shares for the fiscal year ended April 30, 1995.
Investors should be aware that the above table is not intended to reflect in
precise detail the fees and expenses associated with an individual's own
investment in the Fund. Rather the table has been provided only to assist
investors in gaining a more complete understanding of fees, charges and
expenses. For a more detailed discussion of these matters, investors should
refer to the appropriate sections of this Prospectus.
EXAMPLE
As required by SEC regulations, the following example illustrates the expenses,
including the maximum front-end sales charge and applicable contingent deferred
sales charges, that apply to a $1,000 investment in the Fund over various time
periods assuming (1) a 5% annual rate of return and (2) redemption at the end of
each time period.
ONE YEAR THREE YEAR FIVE YEARS TEN YEARS
CLASS I* $ 59 $ 87 $118 $205
CLASS II $ 42 $ 78 $127 $261
*assumes that a contingent deferred sales charge will not apply to Class I
shares.
A shareholder would pay the following expenses on the same investment, assuming
no redemption.
ONE YEAR THREE YEAR FIVE YEARS TEN YEARS
CLASS II $ 32 $ 78 $127 $261
THIS EXAMPLE IS BASED ON THE AGGREGATE ANNUAL OPERATING EXPENSES, BEFORE FEE
WAIVERS OR EXPENSE REDUCTIONS, SHOWN ABOVE AND SHOULD NOT BE CONSIDERED A
REPRESENTATION OF FUTURE EXPENSES, WHICH MAY BE MORE OR LESS THAN THOSE SHOWN.
The operating expenses are borne by the Fund and only indirectly by shareholders
as a result of their investment in the Fund. In addition, federal securities
regulations require the example to assume an annual return of 5%, but the Fund's
actual return may be more or less than 5%.
FINANCIAL HIGHLIGHTS
Set forth below is a table containing financial highlights for a Class I share
of the Fund. The information for the period January 3, 1994 (effective date of
registration) through April 30, 1994, and the fiscal year ended April 30, 1995,
has been audited by Coopers & Lybrand L.L.P., independent auditors, whose audit
report appears in the financial statements in the Fund's SAI. The remaining
figures, which are audited, are not covered by the auditors' current report.
Information regarding Class II shares will be included in this table after they
have been offered to the public for a reasonable period of time. See the
discussion "Reports to Shareholders" under "General Information."
<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------------------------------------
NET ASSET NET REALIZED NET ASSET
YEAR VALUE AT NET & UNREALIZED TOTAL FROM DISTRIBUTIONS VALUE
ENDED BEGINNING INVESTMENT GAINS ON INVESTMENT FROM NET AT END TOTAL
APRIL 30 OF YEAR INCOME SECURITIES OPERATIONS INVESTMENT INCOME OF YEAR RETURN**
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1994* $10.00 $0.06 $0.86 $0.92 - - $10.92 9.20%
1995 10.92 0.39 (0.45) (0.06) (0.28) 10.58 (0.48%)
</TABLE>
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------
RATIO OF EXPENSES RATIO OF NET
NET ASSETS RATIO OF TO AVERAGE NET ASSETS INVESTMENT
YEAR AT END EXPENSES (EXCLUDING WAIVER INCOME PORTFOLIO
ENDED OF YEAR TO AVERAGE AND PAYMENT TO AVERAGE TURNOVER
APRIL 30 (IN 000s) NET ASSETS BY MANAGER)++ NET ASSETS RATE
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1994* $5,634 0.25%+ 2.91%+ 3.19%+ --%
1995 16,694 0.25% 1.40% 4.86% 3.74%
</TABLE>
*January 3, 1994 (effective date of registration) to April 30, 1995.
**Total return measures the change in value of an investment over the period
indicated and is not annualized. It does not include the maximum 4.5% initial
sales charge and assumes reinvestment of dividends and capital gains, if any, at
net asset value. +Annualized.
++During the periods indicated, the investment
manager, agreed in advance to waive its management fees and made payments of
other expenses incurred by the Trust.
ABOUT THE FUND
Franklin Real Estate Securities Trust is an open-end management investment
company, commonly called a "mutual fund," which is registered with the SEC under
the Investment Company Act of 1940 (the "1940 Act"). The Trust is a Delaware
business trust, organized on September 14, 1993. The Fund has two classes of
shares of beneficial interest with a par value of $.01 per share: Franklin Real
Estate Securities Fund - Class I and Franklin Real Estate Securities Fund -
Class II. All Fund shares outstanding before May 1, 1995, have been redesignated
as Class I shares, and will retain their previous rights and privileges, except
for legally required modifications to shareholder voting procedures, as
discussed in "General Information - Voting Rights."
Shares of the Fund may be purchased (minimum investment of $100 initially and
$25 thereafter) at the current public offering price. The current public
offering price of the Class I shares is equal to the net asset value (see
"Valuation of Fund Shares"), plus a variable sales charge not exceeding 4.50% of
the offering price depending upon the amount invested. The current public
offering price of the Class II shares is equal to the net asset value, plus a
sales charge of 1% of the amount invested. (See "How to Buy Shares of the
Fund.")
INVESTMENT OBJECTIVE AND
POLICIES OF THE FUND
The Fund's investment objective is to maximize total return. In connection with
this objective, the Fund will invest primarily in securities of companies
operating in the real estate industry. The Fund's objective is a fundamental
policy and may not be changed without shareholder approval. Under normal
circumstances at least 65% of the Fund's total assets will be invested in real
estate securities, primarily equity real estate investment trusts. The Fund may
also invest in equity securities issued by home builders and developers and in
debt and convertible securities issued by REITs, home builders and developers.
Under ordinary market conditions, the Fund will seek to achieve maximum total
return. The Fund will seek to accomplish this objective in the context of its
policy of investing primarily in the equity securities of companies operating in
the real estate industry.
"Real estate securities" include equity, convertible and debt securities of
companies having the following characteristics and will be subject to the
following limitations:
1. Companies qualifying as a REIT for federal income tax purposes. In order to
qualify as a REIT, a company must derive at least 75% of its gross income from
real estate sources (rents, mortgage interest, gains from the sale of real
estate assets), and at least 95% from real estate sources, plus dividends,
interest and gains from the sale of securities. Real property, mortgage loans,
cash and certain securities must comprise 75% of a company's assets. In order to
qualify as a REIT, a company must also make distributions to shareholders
aggregating annually at least 95% of its REIT taxable income.
2. Companies, such as home builders and developers, having at least 50% of their
assets related to, or deriving at least 50% of their revenues from, the
ownership, construction, management, or sale of residential, commercial or
industrial real estate.
The Fund will invest primarily in equity real estate securities of companies
listed on a securities exchange or over-the-counter markets. The Fund will
invest more than 25% of its total assets in the real estate industry as
described above.
The Fund may enter into repurchase agreements, loan its portfolio securities,
and engage in other activities which are discussed more fully below under "Some
of the Fund's Other Investment Policies."
RISK FACTORS/SPECIAL CONSIDERATIONS RELATING TO THE FUND'S INVESTMENTS IN REAL
ESTATE SECURITIES
An investment in the Fund will generally be subject to the risks associated with
real estate because of its policy of concentration in the securities of
companies in the real estate industry. These risks include declines in the value
of real estate, risks related to general and local economic conditions,
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. The value of securities
of companies which service the real estate industry will also be affected by
such risks.
In addition, equity REITs will be affected by changes in the value of the
underlying property owned by the trusts, while a mortgage real estate investment
trust will be affected by the quality of the properties to which it has extended
credit. Equity and mortgage real estate investment trusts are dependent upon the
REITs' management skill, may not be diversified and are subject to the risks of
financing projects. Because the Fund invests primarily in the real estate
industry, it could conceivably own real estate directly as a result of a default
on debt securities it may own. If the Fund has rental income or income from the
disposition of real property, the receipt of such income may adversely affect
its ability to retain its tax status as a regulated investment company. REITS
are also subject to heavy cash flow dependency, defaults by borrowers,
self-liquidation and the possibility of failing to qualify for tax-free
pass-through of income under the Internal Revenue Code and to maintain exemption
from the 1940 Act. Changes in prevailing interest rates also will inversely
affect the value of the debt securities in which the Fund will invest. By
investing in real estate investment trusts indirectly through the Fund, a
shareholder will bear not only his proportionate share of the expenses of the
Fund, but also, indirectly, similar expenses of the real estate investment
trusts.
The Fund is non-diversified under the federal securities laws. As a
non-diversified Fund, there is no restriction under the 1940 Act on the
percentage of assets that may be invested at any time in the securities of any
one issuer. To the extent the Fund is not fully diversified, it may be more
susceptible to adverse economic, political or regulatory developments affecting
a single issuer than would be the case if it were more broadly diversified.
However, the Fund intends to comply with the diversification and other
requirements of the Internal Revenue Code of 1986, as amended (the "Code"),
applicable to "regulated investment companies" so that it will not be subject to
U.S. federal income tax on income and capital gain distributions to
shareholders. Accordingly, the Fund will not purchase securities if, as a
result, more than 25% of its total assets would be invested in the securities of
a single issuer or, with respect to 50% of its total assets, more than 5% of
such assets would be invested in the securities of a single issuer.
SOME OF THE FUND'S OTHER INVESTMENT POLICIES
To maximize the return on uninvested cash, as well as for other specified
purposes, the Fund may invest up to 35% of its assets in a combination of the
following types of investments subject to the same limitations regarding ratings
previously discussed.
Real Estate Related Investments. In addition to the Fund's investments in real
estate securities, as defined above, the Fund may also invest a portion of its
assets in debt or equity securities of issuers engaged in businesses closely
related to the real estate industry and publicly traded on an exchange or in the
over-the-counter market, including companies whose products and services are
closely related to the real estate industry, such as manufacturers and
distributors of building supplies; financial institutions that issue or service
mortgages, such as savings and loan associations or mortgage bankers; and
companies whose principal business is unrelated to the real estate industry but
who have significant real estate holdings (at least 50% of their respective
assets) believed to be undervalued relative to the price of those companies'
securities.
Short-Term Investments. The Fund may invest its cash, including cash resulting
from purchases and sales of Fund shares, in short-term debt instruments,
including U.S. government securities, high grade commercial paper, repurchase
agreements and other money market equivalents and, subject to the terms of an
order of exemption from the SEC, the shares of affiliated money market funds
that invest primarily in short-term debt securities. Such temporary investments
may be made either for liquidity purposes, to meet shareholder redemption
requirements or as a temporary defensive measure.
Repurchase Agreements.
The Fund may engage in repurchase transactions, in which the Fund purchases a
U.S. government security subject to resale to a bank or dealer at an agreed-upon
price and date. The transaction requires the collateralization of the seller's
obligation by the transfer of securities with an initial market value, including
accrued interest, equal to at least 102% of the dollar amount invested by the
Fund in each agreement, with the value of the underlying security marked to
market daily to maintain coverage of at least 100%. A default by the seller
might cause the Fund to experience a loss or delay in the liquidation of the
collateral securing the repurchase agreement. The Fund might also incur
disposition costs in liquidating the collateral. The Fund, however, intends to
enter into repurchase agreements only with financial institutions such as
broker-dealers and banks which are deemed creditworthy by the Fund's investment
manager. A repurchase agreement is deemed to be a loan by the Fund under the
1940 Act. The U.S. government security subject to resale (the collateral) will
be held on behalf of the Fund by a custodian approved by the Fund's Board and
will be held pursuant to a written agreement.
Borrowing. As a fundamental policy, the Fund does not borrow money or mortgage
or pledge any of the assets of the Fund, except that the Fund may borrow up to
10% of its total asset value to meet redemption requests and for other temporary
or emergency purposes. While borrowings exceed 5% of the Fund's total assets,
the Fund will not make any additional investments.
Illiquid Investments. It is the policy of the Fund that illiquid securities
(securities that cannot be disposed of within seven days in the normal course of
business at approximately the amount at which the Fund has valued the
securities, and include illiquid equity securities, illiquid securities with
legal or contractual restriction on resale, repurchase agreements of more than
seven days duration, illiquid real estate investment trusts, and other
securities which are not readily marketable) may not constitute, at the time of
purchase, more than 10% of the value of the total net assets of the Fund. The
Trust's Board of Trustees has authorized the Fund to invest in restricted
securities (which might otherwise be considered illiquid) where such investment
is consistent with the Fund's investment objective and has authorized such
securities to be considered to be liquid (and thus not subject to the foregoing
10% limitation), to the extent the investment manager determines on a daily
basis that there is a liquid institutional or other market for such securities.
The Trust's Board of Trustees will review the investment manager's
determinations of liquidity, retain ultimate responsibility for such
determinations and will consider appropriate action, consistent with the Fund's
objective and policies, if a security should become illiquid subsequent to its
purchase. To the extent the Fund invests in restricted securities that are
deemed liquid, the general level of illiquidity in the Fund may be increased if
qualified institutional buyers are no longer interested in purchasing these
securities or the market for these securities contracts. See "The Fund's
Investment Objective and Restrictions - Short-term Investments," in the
Statement of Additional Information.
Loans of Portfolio Securities. Consistent with procedures approved by the Board
of Trustees and subject to the following conditions, the Fund may lend its
portfolio securities to qualified securities dealers or other institutional
investors, provided that such loans do not exceed 10% of the value of the Fund's
total assets at the time of the most recent loan. The borrower must deposit with
the Fund's custodian collateral with an initial market value of at least 102% of
the initial market value of the securities loaned, including any accrued
interest, with the value of the collateral and loaned securities
marked-to-market daily to maintain collateral coverage of at least 100%. Such
collateral shall consist of cash, securities issued by the U.S. Government, its
agencies or instrumentalities, or irrevocable letters of credit. The lending of
securities is a common practice in the securities industry. The Fund engages in
security loan arrangements with the primary objective of increasing the Fund's
income either through investing the cash collateral in short-term interest
bearing obligations or by receiving a loan premium from the borrower. Under the
securities loan agreement, the Fund continues to be entitled to all dividends or
interest on any loaned securities. As with any extension of credit, there are
risks of delay in recovery and loss of rights in the collateral should the
borrower of the security fail financially.
Options and Financial Futures. The Fund may write covered put and call options
and purchase put and call options which trade on securities exchanges and in the
over-the-counter market in order to hedge against the risk of market or
industry-wide stock price fluctuations or to increase income to the Fund.
Transactions in options are generally considered "derivative securities."
(Pending receipt of a waiver of applicable requirements from state securities
regulators, the Fund will not engage in options in the over-the-counter market.)
The Fund may purchase and sell futures and options on futures with respect to
securities and securities indices and purchase futures and options to
"close-out" futures and options it may have written. Additionally, the Fund may
sell futures and options to "close out" futures and options it may have
purchased. The Fund will not enter into any futures contract or related options
(except for closing transactions) if, immediately thereafter, the sum of the
amount of its initial deposits and premiums on open contracts and options would
exceed 5% of the Fund's total assets (taken at current value). The Fund will not
engage in any stock options or stock index options if the option premiums paid
regarding its open option positions exceed 5% of the value of the Fund's total
assets.
The Fund's options and futures investments involve certain risks. Such risks
include the risks that the effectiveness of an options and futures strategy
depends on the degree to which price movements in the underlying index or
securities correlate with price movements in the relevant portion of the Fund's
portfolio. The Fund bears the risk that the prices of its portfolio securities
will not move in the same amount as the option or future it has purchased, or
that there may be a negative correlation which would result in a loss on both
such securities and the option or future.
Positions in exchange traded options and futures may be closed out only on an
exchange which provides a secondary market. There may not always be a liquid
secondary market for a futures or option contract at a time when the Fund seeks
to "close out" its position. There can be no assurance that a liquid secondary
market will exist for any particular option or futures contract at any specific
time.
The Fund understands the current position of the staff of the SEC to be that
purchased over-the-counter options ("OTC" options) are illiquid securities and
that the assets used to cover the sale of an OTC option are considered illiquid.
The Fund disagrees with this position. Nevertheless, pending a change in the
staff's position, the Fund will treat OTC options and "cover" assets as subject
to the Fund's limitation on illiquid securities.
In addition, adverse market movements could cause the Fund to lose up to its
full investment in a call option contract and/or to experience substantial
losses on an investment in a futures contract. There is also the risk of loss by
the Fund of margin deposits in the event of bankruptcy of a broker with whom the
Fund has an open position in a futures contract or option.
The Fund's investment in options and futures contracts may be limited by the
requirements of the Code for qualification as a regulated investment company and
are subject to special tax rules that may affect the amount, timing and
character of distributions to shareholders. These securities also require the
application of complex and special tax rules and elections, more information
about which is included in the SAI.
Convertible and Debt Securities. A portion of the Fund's assets may be invested
in convertible and debt securities of issuers in any industry. A convertible
security is a security which may be converted at a stated price within a
specified period of time into a certain quantity of the common stock of the same
or a different issuer. Convertible and debt securities are senior to common
stocks in a corporation's capital structure, although convertible securities are
usually subordinated to similar nonconvertible securities. Convertible and debt
securities provide a fixed income stream and the opportunity, through its
conversion feature, to participate in the capital appreciation resulting from a
market price advance in the convertible security's underlying common stock. Just
as with debt securities, convertible securities tend to increase in market value
when interest rates decline and tend to decrease in value when interest rates
rise. However, the price of a convertible security is also influenced by the
market value of the security's underlying common stock and tends to increase as
the market value of the underlying stock rises, whereas it tends to decrease as
the market value of the underlying stock declines. Convertible and debt
securities within the top three categories (e.g., AAA, AA and A by Standard &
Poor's Corporation ["S&P"] or Aaa, Aa or A by Moody's Investors Service
["Moody's"]) comprise what are known as high-grade securities and are regarded
as having a strong capacity to pay dividends. Medium-grade convertible and debt
securities (e.g., BBB by S&P or Baa by Moody's) are regarded as having an
adequate capacity to pay dividends but with greater vulnerability to adverse
economic conditions and some speculative characteristics. See the Appendix to
this Prospectus for a description of these ratings. Convertible and debt
securities acquired by the Fund may be rated below investment grade, or unrated;
however, the Fund will not acquire such securities rated lower than B by Moody's
or S&P or that are not rated but determined by the investment manager to be of
comparable quality. Lower rated securities, those rated BB or lower by S&P or Ba
or lower by Moody's, are considered by S&P and Moody's, on balance, to be
predominantly speculative with respect to capacity to pay preferred stock
dividends or principal or interest, as the case may be, in accordance with the
terms of the obligation and will generally involve more credit risk than
securities in the higher rating categories. These lower rated convertible and
debt securities are subject to credit risk considerations substantially similar
to such considerations affecting high risk, high yield bonds, commonly referred
to as "junk bonds." The Fund does not intend to invest more than 10% of its
entire portfolio in such high risk, high yield bonds.
Generally, when interest rates rise, the value of the Fund's convertible and
debt investments will decline. Conversely, when rates fall, the value of such
investments may rise. As a result, the value of the Fund's shares and the
dividends per share paid by the Fund may fluctuate.
The Fund should not be considered suitable for investors who are unable or
unwilling to assume the risks of loss inherent in such a program, nor should
investment in the Fund be considered a balanced or complete investment program.
The Fund may invest in convertible preferred stocks that offer enhanced yield
features, such as Preferred Equity Redemption Cumulative Stock ("PERCS"), which
provide an investor, such as the Fund, with the opportunity to earn higher
dividend income than is available on a company's common stock. A PERCS is a
preferred stock which generally features a mandatory conversion date, as well as
a capital appreciation limit which is usually expressed in terms of a stated
price. Most PERCS expire three years from the date of issue, at which time they
are convertible into common stock of the issuer (PERCS are generally not
convertible into cash at maturity).Under a typical arrangement, if after three
years the issuer's common stock is trading at a price below that set by the
capital appreciation limit, each PERCS would convert to one share of common
stock. If, however, the issuer's common stock is trading at a price above that
set by the capital appreciation limit, the holder of the PERCS would receive
less than one full share of common stock. The amount of that fractional share of
common stock received by the PERCS holder is determined by dividing the price
set by the capital appreciation limit of the PERCS by the market price of the
issuer's common stock. PERCS can be called at any time prior to maturity, and
hence do not provide call protection. However if called early the issuer must
pay a call premium over the market price to the investor. This call premium
declines at a preset rate daily, up to the maturity date of the PERCS.
The Fund may also invest in other enhanced convertible securities. These include
but are not limited to ACES (Automatically Convertible Equity Securities), PEPS
(Participating Equity Preferred Stock), PRIDES (Preferred Redeemable Increased
Dividend Equity Securities), SAILS (Stock Appreciation Income Linked
Securities), TECONS (Term Convertible Notes), QICS (Quarterly Income Cumulative
Securities), and DECS (Dividend Enhanced Convertible Securities). ACES, PEPS,
PRIDES, SAILS, TECONS, QICS, and DECS all have the following features; they are
company issued convertible preferred stock, unlike PERCS they do not have a
capital appreciation limit, they seek to provide the investor with high current
income with some prospect of future capital appreciation, they are typically
issued with three to four-year maturities, they typically have some built-in
call protection for the first two to three years, investors have the right to
convert them into shares of common stock at a preset conversion ratio or hold
them until maturity, and upon maturity they will automatically convert to either
cash or a specified number of shares of common stock.
An investment in an enhanced convertible security or any other security may
involve additional risks to the Fund. The Fund may have difficulty disposing of
such securities because there may be a thin trading market for a particular
security at any given time. Reduced liquidity may have an adverse impact on
market price and the Fund's ability to dispose of particular securities, when
necessary, to meet the Fund's liquidity needs or in response to a specific
economic event, such as a deterioration in the credit worthiness of an issuer.
Reduced liquidity in the secondary market for certain securities may also make
it more difficult for the Fund to obtain market quotations based on actual
trades for purposes of valuing the Fund's portfolio. The Fund, however, intends
to acquire liquid securities, though there can be no assurances that this will
be achieved.
Portfolio Turnover. The Fund anticipates that its annual portfolio turnover rate
generally will not exceed 100%, but this rate should not be construed as a
limiting factor in the operation of the Fund's portfolio. High portfolio
turnover increases transaction costs which must be paid by the Fund. High
turnover may also result in the realization of net capital gain, which is
taxable when distributed to shareholders. (See "Taxation of the Fund and Its
Shareholders.")
RISK FACTORS RELATING TO THE FUND'S INVESTMENTS
IN LOWER-RATED CONVERTIBLE AND DEBT SECURITIES
The Fund's investments in convertible and debt securities rated below investment
grade and in unrated securities of comparable quality (referred to in this
discussion as "lower-rated" securities) have credit characteristics similar to
lower-rated bonds. The market values of lower-rated securities tend to reflect
individual corporate developments to a greater extent than do higher-rated
securities, which react primarily to fluctuations in the general level of
interest rates. Such lower-rated securities also tend to be more sensitive to
economic conditions than higher-rated securities. Even securities rated BBB or
Baa by S&P and Moody's, respectively, ratings which are considered investment
grade, possess some speculative characteristics.
Companies that issue lower-rated, convertible and debt securities are often
highly leveraged and may not have more traditional methods of financing
available to them. Therefore, the risk associated with acquiring the securities
of such issuers is generally greater than is the case with higher-rated
securities. For example, during an economic downturn or a sustained period of
rising interest rates, highly leveraged issuers of lower-rated securities may
experience financial stress. During these periods, such issuers may not have
sufficient cash flow to meet their interest payment obligations. The issuer's
ability to service its debt obligations may also be adversely affected by
specific corporate developments, or the issuer's inability to meet specific
projected business forecasts, or the unavailability of additional financing. An
economic downturn may disrupt the market for lower-rated securities and
adversely affect the value of outstanding convertible and debt securities and
the ability of issuers of such securities to pay dividends, or principal or
interest, as the case may be. Any one of these negative developments may cause
the market value of a lower-rated security to decline and such decline will be
reflected in the value of the Fund's shares. At the extreme, if an issuer is
unable to meet these obligations, the issue may go into default or bankruptcy
and the Fund may lose all, or a significant portion, of its investment.
The Fund may have difficulty disposing of certain lower-rated convertible and
debt securities because there may be a thin trading market for a particular
security at any given time. The market for lower-rated convertible and debt
securities generally tends to be concentrated among a smaller number of dealers
than is the case for securities which trade in a broader secondary retail
market. Generally, purchasers of these securities are predominantly dealers and
other institutional buyers, rather than individuals. To the extent a secondary
trading market for lower-rated, convertible and debt securities does exist, it
is generally not as liquid as the secondary market for higher-rated securities.
Reduced liquidity in the secondary market may have an adverse impact on market
price and the Fund's ability to dispose of particular issues, when necessary, to
meet the Fund's liquidity needs or in response to a specific economic event,
such as the deterioration in the creditworthiness of the issuer. Reduced
liquidity in the secondary market for certain securities may also make it more
difficult for the Fund to obtain market quotations based on actual trades for
purposes of valuing the Fund's portfolio. Current value for these high yield
issues are obtained from pricing services and/or a limited number of dealers and
may be based upon factors other than actual sales. (See "Valuation of Fund
Shares.")
The Fund is authorized to acquire lower-rated, convertible and debt securities
that are sold without registration under the federal securities laws and
therefore carry restrictions on resale. Many recently issued lower-rated
securities have been sold with registration rights, covenants and penalty
provisions for delayed registration. If the Fund is required to sell such
restricted securities before the securities have been registered, it may be
deemed an underwriter of such securities as defined in the Securities Act of
1933, which entails special responsibilities and liabilities. The Fund may incur
special costs in disposing of such securities; however, the Fund will generally
incur no costs when the issuer is responsible for registering the securities.
The Fund may acquire lower-rated convertible and debt securities during an
initial underwriting. Such securities involve special risks because they are new
issues. The Fund has no arrangement with its underwriters or any other person
concerning the acquisition of such securities, and the investment manager will
carefully review the credit and other characteristics pertinent to such new
issues.
Certain provisions of federal income tax law place limitations on the use of
high yielding securities by issuers in connection with leveraged buy-outs,
mergers and acquisitions, or limit the deductibility of interest payments on
such securities. This legislation could reduce the market for such securities
generally, could negatively affect the financial condition of issuers of high
yield securities by removing or reducing a source of future financing, and could
negatively affect the value of specific high yield issues and the high yield
market in general.
Factors adversely impacting the market value of lower-rated securities will
adversely impact the Fund's net asset value. For example, adverse publicity
regarding lower rated bonds, which appeared during 1989 and 1990, along with
highly publicized defaults of some high yield issuers, and concerns regarding a
sluggish economy which continued in 1993, depressed the prices for many such
securities. In addition, the Fund may incur additional expenses to the extent it
is required to seek recovery upon a default in the payment of principal or
interest on its portfolio holdings. The Fund will rely on the investment
manager's judgment, analysis and experience in evaluating the creditworthiness
of an issuer. In this evaluation, the investment manager will take into
consideration, among other things, the issuer's financial resources, its
sensitivity to economic conditions and trends, its operating history, the
quality of the issuer's management and regulatory matters.
CONVERSION TO MASTER/FEEDER FUND STRUCTURE
Currently, in seeking to accomplish its objective of maximizing total return,
the Fund invests directly in a portfolio of equity securities of companies
primarily engaged in the real estate industry, and in debt and convertible
securities issued by such companies. Certain funds administered by the
investment manager participate as feeder funds in master/feeder fund structures.
Under a master/ feeder structure, one or more feeder funds, such as the Fund,
invests its assets in a master fund which, in turn, invests its assets directly
in the securities. The Fund hereby reserves the right to convert to a
master/feeder fund structure at a future date. Various state governments have
adopted the North American Securities Administrators Association Guidelines for
registration of master/feeder funds. If required by those guidelines, as then in
effect, the Fund will seek shareholder approval prior to converting the Fund to
a master/feeder structure, subject to there not being adopted a superseding
contrary provision or ruling under federal law. If it is determined by the
requisite regulatory authorities that such approval is not required,
shareholders will be deemed to have consented to such conversion by their
purchase of Fund shares and no further shareholder approval will be sought or
needed. Shareholders will, however, be informed in writing in advance of the
conversion. The determination to convert the Fund to a master/feeder fund
structure will not result in an increase in the fees or expenses paid by the
Fund or its shareholders. The investment objective and other fundamental
policies of the Fund, which can be changed only with shareholder approval, are
structured so as to permit the Fund to invest directly in securities or
indirectly in securities through a master/ feeder fund structure.
HOW SHAREHOLDERS PARTICIPATE IN
THE RESULTS OF THE FUND'S ACTIVITIES
The assets of the Fund are invested in portfolio securities. If the securities
owned by the Fund increase in value, the value of the shares of the Fund which
the shareholder owns will increase. If the securities owned by the Fund decrease
in value, the value of the shareholder's shares will also decline. In this way,
shareholders participate in any change in the value of the securities owned by
the Fund. In addition to the factors which affect the value of individual
securities, as described in the preceding sections, a shareholder may anticipate
that the value of Fund shares will fluctuate with movements in the broader
equity and bond markets, as well.
To the extent the Fund's investments consist of debt securities, changes in
interest rates will affect the value of the Fund's portfolio and thus its share
price. Increased rates of interest which frequently accompany higher inflation
and/or a growing economy are likely to have a negative effect on the value of
Fund shares. To the extent the Fund's investments consist of common stocks, a
decline in the market, expressed for example by a drop in the Dow Jones
Industrials or the Standard & Poor's 500 average or any other equity based
index, may also be reflected in declines in the Fund's share price. History
reflects both increases and decreases in the prevailing rate of interest and in
the valuation of the market, and these may reoccur unpredictably in the future.
MANAGEMENT OF THE FUND
The Board of Trustees (the "Board") has the primary responsibility for the
overall management of the Fund and for electing the officers of the Trust who
are responsible for administering the Fund's day-to-day operations.
The Board has carefully reviewed the multiclass structure to ensure that no
material conflict exists between the two classes of shares. Although the Board
does not expect to encounter material conflicts in the future, the Board will
continue to monitor the Fund and will take appropriate action to resolve such
conflicts if any should later arise.
In developing the multiclass structure the Fund has retained the authority to
establish additional classes of shares. It is the Fund's present intention to
offer only two classes of shares, but new classes may be offered in the future.
Franklin Advisers, Inc. ("Advisers" or "Manager"), serves as the Fund's
investment manager. Advisers is a wholly-owned subsidiary of Franklin Resources,
Inc. ("Resources"), a publicly owned holding company, the principal shareholders
of which are Charles B. Johnson and Rupert H. Johnson, Jr., who own
approximately 20% and 16%, respectively, of Resources' outstanding shares.
Resources is engaged in various aspects of the financial services industry
through its various subsidiaries (the "Franklin Templeton Group"). Advisers acts
as investment manager or administrator to 34 U.S. registered investment
companies (112 separate series) with aggregate assets of over $75 billion.
Pursuant to the management agreement, the Manager supervises and implements the
Fund's investment activities and provides certain administrative services and
facilities which are necessary to conduct the Fund's business.
During the fiscal year ended April 30, 1995, fees totaling 0.625% of average net
assets of the Fund would have accrued to Advisers. Total operating expenses,
including management fees, would have represented 1.40% of the average net
assets of the Fund. Pursuant to an agreement by Advisers to limit its fees, the
Fund paid no management fees and paid operating expenses totaling 0.25% of the
average net assets of the Fund. This arrangement may be terminated by the
investment manager at any time.
Among the responsibilities of the Manager under the management agreement is the
selection of brokers and dealers through whom transactions in the Fund's
portfolio securities will be effected. The Manager tries to obtain the best
execution on all such transactions. If it is felt that more than one broker is
able to provide the best execution, the Manager will consider the furnishing of
quotations and of other market services, research, statistical and other data
for the Manager and its affiliates, as well as the sale of shares of the Fund,
as factors in selecting a broker. Further information is included under "The
Fund's Policies Regarding Brokers Used on Portfolio Transactions" in the SAI.
Shareholder accounting and many of the clerical functions for the Fund are
performed by Franklin/ Templeton Investor Services, Inc. ("Investor Services" or
"Shareholder Services Agent") in its capacity as transfer agent and
dividend-paying agent. Investor Services is a wholly-owned subsidiary of
Resources.
PLAN OF DISTRIBUTION
A separate Plan of Distribution has been approved and adopted for each class
("Class I Plan" and "Class II Plan," respectively, or "Plans") pursuant to Rule
12b-1 under the 1940 Act. The Rule 12b-1 fees charged to each class will be
based solely on the distribution and servicing fees attributable to that
particular class. Any portion of fees remaining from either Plan after
distribution to securities dealers of up to the maximum amount permitted under
each Plan may be used by the class to reimburse Distributors for routine ongoing
promotion and distribution expenses incurred with respect to such class. Such
expenses may include, but are not limited to, the printing of prospectuses and
reports used for sales purposes, expenses of preparing and distributing sales
literature and related expenses, advertisements, and other distribution-related
expenses, including a prorated portion of Distributors' overhead expenses
attributable to the distribution of Fund shares, as well as any distribution or
service fees paid to securities dealers or their firms or others who have
executed a servicing agreement with the Fund, Distributors or its affiliates.
The maximum amount which the Fund may pay to Distributors or others under the
Class I Plan for such distribution expenses is 0.25% per annum of Class I's
average daily net assets payable on a quarterly basis. All expenses of
distribution and marketing in excess of 0.25% per annum will be borne by
Distributors, or others who have incurred them, without reimbursement from the
Fund.
Under the Class II Plan, the Fund is permitted to pay to Distributors or others
for distribution expenses and related expenses up to 0.75% per annum of Class
II's daily net assets, payable quarterly. All expenses of distribution,
marketing and related services over that amount will be borne by Distributors or
others who have incurred them, without reimbursement by the Fund. In addition,
the Class II Plan provides for an additional payment by the Fund of up to 0.25%
per annum of Class II's average daily net assets as a servicing fee, payable
quarterly. This fee will be used to pay securities dealers or others for, among
other things, assisting in establishing and maintaining customer accounts and
records; assisting with purchase and redemption requests; receiving and
answering correspondence; monitoring dividend payments from the Fund on behalf
of customers, or similar activities related to furnishing personal services
and/or maintaining shareholder accounts.
During the first year following the purchase of Class II shares, Distributors
will retain 0.75% per annum of Class II's average daily net assets to partially
recoup fees Distributors pays to securities dealers. Distributors, or its
affiliates, may pay, from its own resources, a commission of up to 1% of the
amount invested to securities dealers who initiate and are responsible for
purchases of Class II shares.
Both Plans also cover any payments to or by the Fund, Advisers, Distributors, or
other parties on behalf of the Fund, Advisers or Distributors, to the extent
such payments are deemed to be for the financing of any activity primarily
intended to result in the sale of shares issued by the Fund within the context
of Rule 12b-1. The payments under the Plans are included in the maximum
operating expenses which may be borne by each class of the Fund. For more
information, including a discussion of the Board's policies with regard to the
amount of each Plan's fees, please see the SAI.
DISTRIBUTIONS TO SHAREHOLDERS
There are two types of distributions which the Fund may make to its
shareholders:
1. Income dividends. The Fund receives income in the form of dividends, interest
and other income derived from its investments. This income, less the expenses
incurred in the Fund's operations, is its net investment income from which
income dividends may be distributed. Thus, the amount of dividends paid per
share may vary with each distribution.
The Fund invests primarily in REITs, which generally pay ordinary income
dividends and return of capital distributions to the Fund. Consistent with the
investment objectives and policies of the Fund, the Fund will generally
distribute the ordinary income dividends to its shareholders and retain the
return of capital distributions received from its investments.
2. Capital gain distributions. The Fund may derive capital gains or losses in
connection with sales or other dispositions of its portfolio securities.
Distributions by the Fund derived from net short-term and net long-term capital
gains (after taking into account any net capital loss carryovers) may generally
be made once a year in December to reflect any net short-term and net long-term
capital gains realized by the Fund as of October 31 of the current fiscal year
and any undistributed net capital gains from the prior fiscal year. These
distributions, when made, will generally be fully taxable to the Fund's
shareholders. The Fund may make more than one distribution derived from net
short-term and net long-term capital gains in any year or adjust the timing of
these distributions for operational or other reasons.
DISTRIBUTIONS TO EACH CLASS OF SHARES
According to the requirements of the Code, dividends and capital gains will be
calculated and distributed in the same manner for Class I and Class II shares.
The per share amount of any income dividends will generally differ only to the
extent that each class is subject to different Rule 12b-1 fees.
DISTRIBUTION DATE
Although subject to change by the Board of Trustees, without prior notice to or
approval by shareholders, the Fund's current policy is to declare income
dividends annually in December for shareholders of record on the first business
day preceding the 15th of the month, payable on or about the last business day
of December. The amount of income dividend payments by the Fund is dependent
upon the amount of net income received by the Fund from its portfolio holdings,
is not guaranteed and is subject to the discretion of the Board of Trustees.
Fund shares are quoted ex-dividend on the first business day following the
record date. THE FUND DOES NOT PAY "INTEREST" OR GUARANTEE ANY FIXED RATE OF
RETURN ON AN INVESTMENT IN ITS SHARES.
In order to be entitled to a dividend, an investor must have acquired Fund
shares prior to the close of business on the record date. An investor
considering purchasing Fund shares shortly before the record date of a
distribution should be aware that because the value of the Fund's shares is
based directly on the amount of its net assets rather than on the principle of
supply and demand, any distribution of income or capital gain will result in a
decrease in the value of the Fund's shares equal to the amount of the
distribution. While a dividend or capital gain distribution received shortly
after purchasing shares represents, in effect, a return of a portion of the
shareholder's investment, it may be taxable as dividend income or capital gain.
DIVIDEND REINVESTMENT
Unless otherwise requested, income dividends and capital gain distributions, if
any, will be automatically reinvested in the shareholder's account in the form
of additional shares, valued at the closing net asset value (without a sales
charge) on the dividend reinvestment date. Dividend and capital gain
distributions are only eligible for reinvestment at net asset value in the same
class of shares of the Fund or the same class of another of the Franklin
Templeton Funds. Shareholders have the right to change their election with
respect to the receipt of distributions by notifying the Fund, but any such
change will be effective only as to distributions for which the record date is
seven or more business days after the Fund has been notified. See the SAI for
more information.
Many of the Fund's shareholders receive their distributions in the form of
additional shares. This is a convenient way to accumulate additional shares and
maintain or increase the shareholder's earnings base. Of
course, any shares so acquired remain at market risk.
DISTRIBUTIONS IN CASH
A shareholder may elect to receive income dividends, or both income dividends
and capital gain distributions, in cash. By completing the "Special Payment
Instructions for Distributions" section of the Shareholder Application included
with this Prospectus, a shareholder may direct the selected distributions to the
same class of another fund in the Franklin Templeton Funds, to another person,
or directly to a checking account. If the bank at which the account is
maintained is a member of the Automated Clearing House, the payments may be made
automatically by electronic funds transfer. If this last option is requested,
the shareholder should allow at least 15 days for initial processing. Dividends
which may be paid in the interim will be sent to the address of record.
Additional information regarding automated fund transfers may be obtained from
Franklin's Shareholder Services Department.
See "Purchases at Net Asset Value" under "How to Buy Shares of the Fund."
TAXATION OF THE FUND AND ITS SHAREHOLDERS
The following discussion reflects some of the tax considerations that affect
mutual funds and their shareholders. Additional information on tax matters
relating to the Fund and its shareholders is included in the section entitled
"Additional Information Regarding Taxation" in the SAI.
The Fund intends to continue to qualify for treatment as a regulated investment
company under Subchapter M of the Code. By distributing all of its net income
and by meeting certain other requirements relating to the sources of its income
and diversification of its assets, the Fund will not be liable for federal
income or excise taxes.
For federal income tax purposes, any income dividends which the shareholder
receives from the Fund, as well as any distributions derived from the excess of
net short-term capital gain over net long-term capital loss, are treated as
ordinary income whether the shareholder has elected to receive them in cash or
in additional shares.
Distributions derived from the excess of net long-term capital gain over net
short-term capital loss are treated as long-term capital gain regardless of the
length of time the shareholder has owned Fund shares and regardless of whether
such distributions are received in cash or in additional shares.
Pursuant to the Code, certain distributions which are declared in October,
November or December but which, for operational reasons, may not be paid to the
shareholder until the following January, will be treated for tax purposes as if
paid by the Fund and received by the shareholder on December 31 of the calendar
year in which they are declared.
For corporate shareholders, only a small portion, if any, of the distributions
received by the Fund will generally qualify for the corporate dividends-received
deduction due to the Fund's primary investment in equity securities of REITs and
debt obligations.
Redemptions and exchanges of Fund shares are taxable events on which a
shareholder may realize a gain or loss. Any loss incurred on sale or exchange of
the Fund's shares, held for six months or less, will be treated as a long-term
capital loss to the extent of capital gain dividends received with respect to
such shares.
The Fund will inform shareholders of the source of their dividends and
distributions at the time they are paid and will, promptly after the close of
each calendar year, advise them of the tax status for federal income tax
purposes of such dividends and distributions. As previously stated, the Fund
will generally retain the return of capital distributions received from its
investments; however, if these distributions are in turn paid to Fund
shareholders, then such shareholders will receive nontaxable return of capital
distributions, which reduce the cost basis of Fund shares for purposes of
computing gain or loss on the redemption or other disposition of Fund shares.
Shareholders who are not U.S. persons for purposes of federal income taxation
should consult with their financial or tax advisors regarding the applicability
of U.S. withholding or other taxes to distributions received by them from the
Fund and the application of foreign tax laws to these distributions.
Shareholders should also consult their tax advisors with respect to the
applicability of any state and local intangible property or income taxes to
their shares of the Fund and distributions and redemption proceeds received from
the Fund.
HOW TO BUY SHARES OF THE FUND
Shares of the Fund are continuously offered through securities dealers which
execute an agreement with Distributors, the principal underwriter of the Fund's
shares. The use of the term "securities dealer" shall include other financial
institutions which, pursuant to an agreement with Distributors (directly or
through affiliates), handle customer orders and accounts with the Fund. Such
reference however is for convenience only and does not indicate a legal
conclusion of capacity. The minimum initial investment is $100 and subsequent
investments must be $25 or more. These minimums may be waived when the shares
are purchased through plans established by the Franklin Templeton Group. The
Fund and Distributors reserve the right to refuse any order for the purchase of
shares.
DIFFERENCES BETWEEN CLASS I AND CLASS II. The difference between Class I and
Class II shares lies primarily in their front-end and contingent deferred sales
charges and Rule 12b-1 fees as described below.
CLASS I. All Fund shares outstanding before the implementation of the multiclass
structure have been redesignated as Class I shares, and will retain their
previous rights, and privileges. Voting rights of each class will be the same on
matters affecting the Fund as a whole, but each will vote separately on matters
affecting its class. Class I shares are generally subject to a variable sales
charge upon purchase and not subject to any sales charge upon redemption. Class
I shares are subject to Rule 12b-1 fees of up to an annual maximum of 0.25% of
average daily net assets of such shares. With this multiclass structure, Class I
shares have higher front-end sales charges than Class II shares and
comparatively lower Rule 12b-1 fees. Class I shares may be purchased at a
reduced front-end sales charges or at net asset value if certain conditions are
met. In most circumstances, contingent deferred sales charges will not be
assessed against redemptions of Class I shares. See "Management of the Fund,"
and "How to Sell Shares of the Fund" for more information.
CLASS II. The current public offering price of Class II shares is equal to the
net asset value, plus a front-end sales charge of 1% of the amount invested.
Class II shares are also subject to a contingent deferred sales charge of 1% if
shares are redeemed within 18 months of the calendar month following purchase.
In addition, Class II shares are subject to Rule 12b-1 fees of up to a maximum
of 1.0% per annum of average daily net assets of such shares, 0.75% of which
will be retained by Distributors during the first year of investment. Class II
shares have lower front-end sales charges than Class I shares and comparatively
higher Rule 12b-1 fees. See "Contingent Deferred Sales Charge" under "How to
Sell Shares of the Fund".
Purchases of Class II shares are limited to purchases below $1 million. Any
purchases of $1 million or more will automatically be invested in Class I
shares, since that is more beneficial to investors. Such purchases, however, may
be subject to a contingent deferred sales charge. Investors may exceed $1
million in Class II shares by cumulative purchases over a period of time.
Investors who intend to make investments exceeding $1 million, however, should
consider purchasing Class I shares through a Letter of Intent instead of
purchasing Class II shares.
DECIDING WHICH CLASS TO PURCHASE. Investors should carefully evaluate their
anticipated investment amount and time horizon prior to determining which class
of shares to purchase. Generally, an investor who expects to invest less than
$100,000 in the Franklin Templeton Funds and who expects to make substantial
redemptions within approximately six years or less of investment should consider
purchasing Class II shares. However, the higher annual Rule 12b-1 fees on the
Class II shares will result in slightly higher operating expenses and lower
income dividends for Class II shares, which will accumulate over time to
outweigh the difference in initial sales charges. For this reason, Class I
shares may be more attractive to long-term investors even if no sales charge
reductions are available to them.
Investors who qualify to purchase Class I shares at reduced sales charges
definitely should consider purchasing Class I shares, especially if they intend
to hold their shares approximately six years or more. Investors who qualify to
purchase Class I shares at reduced sales charges but who intend to hold their
shares less than approximately six years should evaluate whether it is more
economical to purchase Class I shares through a Letter of Intent or under Rights
of Accumulation or other means, rather than purchasing Class II shares.
INVESTORS INVESTING $1 MILLION OR MORE IN A SINGLE PAYMENT AND OTHER INVESTORS
WHO QUALIFY TO PURCHASE CLASS I SHARES AT NET ASSET VALUE WILL BE PRECLUDED FROM
PURCHASING CLASS II SHARES.
Each class represents the same interest in the investment portfolio of the Fund
and has the same rights, except that each class has a different sales charge,
bears the separate expenses of its Rule 12b-1 distribution plan, and has
exclusive voting rights with respect to such plan. The two classes also have
separate exchange privileges.
PURCHASE PRICE OF FUND SHARES
Shares of both classes of the Fund are offered at their respective public
offering prices, which are determined by adding the net asset value per share
plus a front-end sales charge, next computed (1) after the shareholder's
securities dealer receives the order which is promptly transmitted to the Fund
or (2) after receipt of an order by mail from the shareholder directly in proper
form (which generally means a completed Shareholder Application accompanied by a
negotiable check).
CLASS I. The sales charge for Class I shares is a variable percentage of the
offering price depending upon the amount of the sale. The offering price will be
calculated to two decimal places using standard rounding criteria. A description
of the method of calculating net asset value per share is included under the
caption "Valuation of Fund Shares."
Set forth below is a table of total front-end sales charges or underwriting
commissions and dealer concessions for Class I shares.
<TABLE>
<CAPTION>
TOTAL SALES CHARGE
SIZE OF TRANSACTION AT AS A PERCENTAGE OF OFFERING AS A PERCENTAGE OF NET DEALER CONCESSION AS A
OFFERING PRICE PRICE AMOUNT INVESTED PERCENTAGE OF OFFERING
PRICE*, ***
<S> <C> <C> <C>
Less than $100,000 4.50% 4.71% 4.00%
$100,000 but less than 3.75% 3.90% 3.25%
$250,000
$250,000 but less than 2.75% 2.83% 2.50%
$500,000
$500,000 but less than 2.25% 2.30% 2.00%
$1,000,000
$1,000,000 or more none none (see below)**
</TABLE>
*Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages set forth above.
**The following commissions will be paid by Distributors, out of its own
resources, to securities dealers who initiate and are responsible for purchases
of $1 million or more: 1.00% on sales of $1 million but less $2 million, plus
0.80% on sales of $2 million but less than $3 million, plus 0.50% on sales of $3
million but less than $50 million, plus 0.25% on sales of $50 million but less
than $100 million, plus 0.15% on sales of $100 million or more. Dealer
concession breakpoints are reset every 12 months for purposes of additional
purchases.
***At the discretion of Distributors, all sales charges may at times be allowed
to the securities dealer. If 90% or more of the sales commission is allowed,
such securities dealer may be deemed to be an underwriter as that term is
defined in the Securities Act of 1933, as amended.
No front-end sales charge applies on investments of $1 million or more, but a
contingent deferred sales charge of 1% is imposed on certain redemptions of all
or a portion of investments of $1 million or more within the contingency period.
See "How to Sell Shares of the Fund - Contingent Deferred Sales Charge."
The size of a transaction which determines the applicable sales charge on the
purchase of Fund shares is determined by adding the amount of the shareholder's
current purchase plus the cost or current value (whichever is higher) of a
shareholder's existing investment in one or more of the funds in the Franklin
Group of Funds(Registered Trademark) and the Templeton Group of Funds. Included
for these aggregation purposes are (a) the mutual funds in the Franklin Group of
Funds except Franklin Valuemark Funds and Franklin Government Securities Trust
(the "Franklin Funds"), (b) other investment products underwritten by
Distributors or its affiliates (although certain investments may not have the
same schedule of sales charges and/or may not be subject to reduction) and (c)
the U.S. registered mutual funds in the Templeton Group of Funds except
Templeton Capital Accumulator Fund, Inc., Templeton Variable Annuity Fund, and
Templeton Variable Products Series Fund (the "Templeton Funds"). (Franklin Funds
and Templeton Funds are collectively referred to as the "Franklin Templeton
Funds.") Sales charge reductions based upon aggregate holdings of (a), (b) and
(c) above ("Franklin Templeton Investments") may be effective only after
notification to Distributors that the investment qualifies for a discount.
Other Payments to Securities Dealers. Distributors, or one of its affiliates,
may make payments, out of its own resources, of up to 1% of the amount purchased
to securities dealers who initiate and are responsible for purchases made at net
asset value by certain designated retirement plans (excluding IRA and IRA
rollovers), certain non-designated plans, certain trust companies and trust
departments of banks and certain retirement plans of organizations with
collective retirement plan assets of $10 million or more. See definitions under
"Description of Special Net Asset Value Purchases" and as set forth in the SAI.
CLASS II. Unlike Class I shares, the front-end sales charges and dealer
concessions for Class II shares do not vary depending on the amount of purchase.
See table below:
<TABLE>
<CAPTION>
TOTAL SALES CHARGE
SIZE OF TRANSACTION AT AS A PERCENTAGE OF AS A PERCENTAGE OF NET DEALER CONCESSION AS A
OFFERING PRICE OFFERING PRICE AMOUNT INVESTED PERCENTAGE OF OFFERING
PRICE*
<S> <C> <C> <C>
any amount (less than $1 1.00% 1.01% 1.00%
million)
</TABLE>
*Distributors, or one of its affiliates, may make additional payments to
securities dealers, from its own resources, of up to 1% of the amount invested.
During the first year following a purchase of Class II shares, Distributors will
keep a portion of the Rule 12b-1 fees assessed to those shares to partially
recoup fees Distributors pays to securities dealers.
Class II shares redeemed within 18 months of their purchase will be assessed a
contingent deferred sales charge of 1% on the lesser of the then-current net
asset value or the net asset value of such shares at the time of purchase,
unless such charge is waived as described under "How To Sell Shares of the Fund
- - Contingent Deferred Sales Charge."
Distributors, or one of its affiliates, out of its own resources, may also
provide additional compensation to securities dealers in connection with sales
of shares of the Franklin Templeton Funds. Compensation may include financial
assistance to securities dealers in connection with conferences, sales or
training programs for their employees, seminars for the public, advertising,
sales campaigns and/or shareholder services and programs regarding one or more
of the Franklin Templeton Funds and other dealer-sponsored programs or events.
In some instances, this compensation may be made available only to certain
securities dealers whose representatives have sold or are expected to sell
significant amounts of shares of the Franklin Templeton Funds. Compensation may
include payment for travel expenses, including lodging, incurred in connection
with trips taken by invited registered representatives and members of their
families to locations within or outside of the United States for meetings or
seminars of a business nature. Securities dealers may not use sales of the
Fund's shares to qualify for this compensation to the extent such may be
prohibited by the laws of any state or any self-regulatory agency, such as the
National Association of Securities Dealers, Inc. None of the aforementioned
additional compensation is paid for by the Fund or its shareholders.
Additional terms concerning the offering of the Fund's shares are included in
the SAI.
Certain officers and trustees of the Fund are also affiliated with Distributors.
A detailed description is included in the SAI.
QUANTITY DISCOUNTS IN SALES CHARGES - CLASS I SHARES ONLY
Class I shares may be purchased under a variety of plans which provide for a
reduced sales charge. To be certain to obtain the reduction of the sales charge,
the investor or the securities dealer should notify Distributors at the time of
each purchase of shares which qualifies for the reduction. In determining
whether a purchase qualifies for a discount, an investment in any of the
Franklin Templeton Investments may be combined with those of the investor's
spouse and children under the age of 21. In addition, the aggregate investments
of a trustee or other fiduciary account (for an account under exclusive
investment authority) may be considered in determining whether a reduced sales
charge is available, even though there may be a number of beneficiaries of the
account. The value of Class II shares owned by the investor may also be included
for this purpose.
In addition, an investment in Class I shares may qualify for a reduction in the
sales charge under the following programs:
1. RIGHTS OF ACCUMULATION. The cost or current value (whichever is higher) of
existing investments in the Franklin Templeton Investments may be combined with
the amount of the current purchase in determining the sales charge to be paid.
2. LETTER OF INTENT. An investor may immediately qualify for a reduced sales
charge on a purchase of Class I shares by completing the Letter of Intent
section of the Shareholder Application (the "Letter of Intent" or "Letter"). By
completing the Letter, the investor expresses an intention to invest during the
next 13 months a specified amount which, if made at one time, would qualify for
a reduced sales charge and grants to Distributors a security interest in the
reserved shares and irrevocably appoints Distributors as attorney-in-fact with
full power of substitution to surrender for redemption any or all shares for the
purpose of paying any additional sales charge due. Purchases under the Letter
will conform with the requirements of Rule 22d-1 under the 1940 Act. The
investor or the investor's securities dealer must inform Investor Services or
Distributors that this Letter is in effect each time a purchase is made.
AN INVESTOR (EXCEPT FOR CERTAIN EMPLOYEE BENEFIT PLANS WHICH ARE LISTED UNDER
"DESCRIPTION OF SPECIAL NET ASSET VALUE PURCHASES") ACKNOWLEDGES AND AGREES TO
THE FOLLOWING PROVISIONS BY COMPLETING THE LETTER OF INTENT SECTION OF THE
SHAREHOLDER APPLICATION: Five percent (5%) of the amount of the total intended
purchase will be reserved in Class I shares registered in the investor's name,
to assure that the full applicable sales charge will be paid if the intended
purchase is not completed. The reserved shares will be included in the total
shares owned as reflected on periodic statements; income and capital gain
distributions on the reserved shares will be paid as directed by the investor.
The reserved shares will not be available for disposal by the investor until the
Letter of Intent has been completed or the higher sales charge paid. For more
information, see "Additional Information Regarding Purchases" in the SAI.
Although the sales charges on Class II shares cannot be reduced through these
programs, the value of Class II shares owned by the investor may be included in
determining a reduced sales charge to be paid on Class I shares pursuant to the
Letter of Intent and Rights of Accumulation programs.
GROUP PURCHASES OF CLASS I SHARES
An individual who is a member of a qualified group may also purchase Class I
shares of the Fund at the reduced sales charge applicable to the group as a
whole. The sales charge is based upon the aggregate dollar value of shares
previously purchased and still owned by the members of the group, plus the
amount of the current purchase. For example, if members of the group had
previously invested and still held $80,000 of Fund shares and now were investing
$25,000, the sales charge would be 3.75%. Information concerning the current
sales charge applicable to a group may be obtained by contacting Distributors.
A "qualified group" is one which (i) has been in existence for more than six
months, (ii) has a purpose other than acquiring Fund shares at a discount and
(iii) satisfies uniform criteria which enable Distributors to realize economies
of scale in its costs of distributing shares. A qualified group must have more
than 10 members, be available to arrange for group meetings between
representatives of the Fund or Distributors and the members, agree to include
sales and other materials related to the Fund in its publications and mailings
to members at reduced or no cost to Distributors, and seek to arrange for
payroll deduction or other bulk transmission of investments to the Fund.
If an investor selects a payroll deduction plan, subsequent investments will be
automatic and will continue until such time as the investor notifies the Fund
and the investor's employer to discontinue further investments. Due to the
varying procedures used to prepare, process and forward the payroll deduction
information to the Fund, there may be a delay between the time of the payroll
deduction and the time the money reaches the Fund. The investment in the Fund
will be made at the offering price per share determined on the day that both the
check and payroll deduction data are received in required form by the Fund.
PURCHASES AT NET ASSET VALUE
Class I shares may be purchased without the imposition of a front-end sales
charge ("net asset value") or a contingent deferred sales charge by (1)
officers, trustees, directors, and full-time employees of the Fund, any of the
Franklin Templeton Funds, or of the Franklin Templeton Group, and by their
spouses and family members, including any subsequent payments made by such
parties after cessation of employment; (2) companies exchanging shares with or
selling assets pursuant to a merger, acquisition or exchange offer; (3)
insurance company separate accounts for pension plan contracts; (4) accounts
managed by the Franklin Templeton Group; (5) shareholders of Templeton
Institutional Funds, Inc. reinvesting redemption proceeds from that fund under
an employee benefit plan qualified under Section 401 of the Code, in shares of
the Fund; (6) certain unit investment trusts and unit holders of such trusts
reinvesting their distributions from the trusts in the Fund; (7) registered
securities dealers and their affiliates, for their investment account only, and
(8) registered personnel and employees of securities dealers and by their
spouses and family members, in accordance with the internal policies and
procedures of the employing securities dealer.
For either Class I or Class II, the same class of shares of the Fund may be
purchased at net asset value by persons who have redeemed, within the previous
120 days, their shares of the Fund or another of the Franklin Templeton Funds
which were purchased with a front-end sales charge or assessed a contingent
deferred sales charge on redemption. If a different class of shares is
purchased, the full front-end sales charge must be paid at the time of purchase
of the new shares. An investor may reinvest an amount not exceeding the
redemption proceeds. While credit will be given for any contingent deferred
sales charge paid on the shares redeemed and subsequently repurchased, a new
contingency period will begin. Matured shares will be reinvested at net asset
value and will not be subject to a new contingent deferred sales charge. Shares
of the Fund redeemed in connection with an exchange into another fund (see
"Exchange Privilege") are not considered "redeemed" for this privilege. In order
to exercise this privilege, a written order for the purchase of shares of the
Fund must be received by the Fund or the Fund's Shareholder Services Agent
within 120 days after the redemption. The 120 days, however, do not begin to run
on redemption proceeds placed immediately after redemption in a Franklin Bank
Certificate of Deposit ("CD") until the CD (including any rollover) matures.
Reinvestment at net asset value may also be handled by a securities dealer or
other financial institution, who may charge the shareholder a fee for this
service. The redemption is a taxable transaction but reinvestment without a
sales charge may affect the amount of gain or loss recognized and the tax basis
of the shares reinvested. If there has been a loss on the redemption, the loss
may be disallowed if a reinvestment in the same fund is made within a 30-day
period. Information regarding the possible tax consequences of such a
reinvestment is included in the tax section of this Prospectus and the SAI.
For either Class I or Class II, the same class of shares of the Fund or of
another of the Franklin Templeton Funds may be purchased at net asset value and
without a contingent deferred sales charge by persons who have received
dividends and capital gains distributions in cash from investments in that class
of shares of the Fund within 120 days of the payment date of such distribution.
To exercise this privilege, a written request to reinvest the distribution must
accompany the purchase order. Additional information may be obtained from
Shareholder Services at 1-800/632-2301. See "Distributions in Cash" under
"Distributions to Shareholders."
Class I shares may be purchased at net asset value and without the imposition of
a contingent deferred sales charge by investors who have, within the past 60
days, redeemed an investment in a mutual fund which is not part of the Franklin
Templeton Funds, and which was subject to a front-end sales charge or a
contingent deferred sales charge and which has investment objectives similar to
those of the Fund.
Class I shares may be purchased at net asset value and without the imposition of
a contingent deferred sales charge by broker dealers who have entered into a
supplemental agreement with Distributors, or by registered investment advisors
affiliated with such broker-dealers, on behalf of their clients who are
participating in a comprehensive fee program (sometimes known as a wrap fee
program).
Class I shares may be purchased at net asset value and without the imposition of
a contingent deferred sales charge by anyone who has taken a distribution from
an existing retirement plan already invested in the Franklin Templeton Funds
(including former participants of the Franklin Templeton Profit Sharing 401(k)
plan, to the extent of such distribution. In order to exercise this privilege a
written order for the purchase of shares of the Fund must be received by
Franklin Templeton Trust Company (the "Trust Company"), the Fund or Investor
Services, within 120 days after the plan distribution.
Class I shares may also be purchased at net asset value and without the
imposition of a contingent deferred sales charge by any state, county, or city,
or any instrumentality, department, authority or agency thereof which has
determined that the Fund is a legally permissible investment and which is
prohibited by applicable investment laws from paying a sales charge or
commission in connection with the purchase of shares of any registered
management investment company ("an eligible governmental authority"). SUCH
INVESTORS SHOULD CONSULT THEIR OWN LEGAL ADVISORS TO DETERMINE WHETHER AND TO
WHAT EXTENT THE SHARES OF THE FUND CONSTITUTE LEGAL INVESTMENTS FOR THEM.
Municipal investors considering investment of proceeds of bond offerings into
the Fund should consult with expert counsel to determine the effect, if any, of
various payments made by the Fund or its investment manager on arbitrage rebate
calculations. If an investment by an eligible governmental authority at net
asset value is made through a securities dealer who has executed a dealer
agreement with Distributors, Distributors or one of its affiliates may make a
payment, out of their own resources, to such securities dealer in an amount not
to exceed 0.25% of the amount invested. Contact Franklin's Institutional Sales
Department for additional information.
DESCRIPTION OF SPECIAL NET ASSET VALUE PURCHASES
Class I shares may also be purchased at net asset value and without the
imposition of a contingent deferred sales charge by certain designated
retirement plans, including profit sharing, pension, 401(k) and simplified
employee pension plans ("designated plans"), subject to minimum requirements
with respect to number of employees or amount of purchase, which may be
established by Distributors. Currently those criteria require that the employer
establishing the plan have 200 or more employees or that the amount invested or
to be invested during the subsequent 13-month period in the Fund or in any of
the Franklin Templeton Investments totals at least $1,000,000. Employee benefit
plans not designated above or qualified under Section 401 of the Code
("non-designated plans") may be afforded the same privilege if they meet the
above requirements as well as the uniform criteria for qualified groups
previously described under "Group Purchases" which enable Distributors to
realize economies of scale in its sales efforts and sales related expenses.
Class I shares may be purchased at net asset value and without the imposition of
a contingent deferred sales charge by trust companies and bank trust departments
for funds over which they exercise exclusive discretionary investment authority
and which are held in a fiduciary, agency, advisory, custodial or similar
capacity. Such purchases are subject to minimum requirements with respect to
amount of purchase, which may be established by Distributors. Currently, those
criteria require that the amount invested or to be invested during the
subsequent 13-month period in this Fund or any of the Franklin Templeton
Investments must total at least $1,000,000. Orders for such accounts will be
accepted by mail accompanied by a check or by telephone or other means of
electronic data transfer directly from the bank or trust company, with payment
by federal funds received by the close of business on the next business day
following such order.
Class I shares may be purchased at net asset value and without the imposition of
a contingent deferred sales charge by trustees or other fiduciaries purchasing
securities for certain retirement plans of organizations with collective
retirement plan assets of $10 million or more, without regard to where such
assets are currently invested.
Refer to the SAI for further information regarding net asset value purchases of
Class I shares.
PURCHASING CLASS I AND CLASS II SHARES
When placing purchase orders, investors should clearly indicate which class of
shares they intend to purchase. A purchase order that fails to specify a class
will automatically be invested in Class I shares. Purchases of $1 million or
more in a single payment will be invested in Class I shares. There are no
conversion features attached to either class of shares.
Investors who qualify to purchase Class I shares at net asset value should
purchase Class I rather than Class II shares. See the section "Purchases at Net
Asset Value" and "Description of Special Net Asset Value Purchases" above for a
discussion of when shares may be purchased at net asset value.
GENERAL
Securities laws of states in which the Fund's shares are offered for sale may
differ from the interpretations of federal law, and banks and financial
institutions selling Fund shares may be required to register as dealers pursuant
to state law.
PURCHASING SHARES OF THE FUND IN CONNECTION WITH RETIREMENT PLANS INVOLVING
TAX-DEFERRED INVESTMENTS
Shares of the Fund may be used for individual or employer-sponsored retirement
plans involving tax-deferred investments. The Fund may be used as an investment
vehicle for an existing retirement plan, or Franklin Templeton Trust Company (
the "Trust Company") may provide the plan documents and serve as custodian or
trustee. A plan document must be adopted in order for a retirement plan to be in
existence.
The Trust Company, an affiliate of Distributors, can serve as custodian or
trustee for retirement plans. Brochures for the Trust Company plans contain
important information regarding eligibility, contribution and deferral limits
and distribution requirements. Please note that an application other than the
one contained in this Prospectus must be used to establish a retirement plan
account with the Trust Company. To obtain a retirement plan brochure or
application, call 1-800/DIAL BEN (1-800/342-5236).
Please see "How to Sell Shares of the Fund" for specific information regarding
redemptions from retirement plan accounts. Specific forms are required to be
completed for distributions from Franklin Templeton Trust Company retirement
plans.
Individuals and plan sponsors should consult with legal, tax or benefits and
pension plan consultants before choosing a retirement plan. In addition,
retirement plan investors should consider consulting their investment
representatives or advisers concerning investment decisions within their plans.
OTHER PROGRAMS AND PRIVILEGES
AVAILABLE TO FUND SHAREHOLDERS
CERTAIN OF THE PROGRAMS AND PRIVILEGES DESCRIBED IN THIS SECTION MAY NOT BE
AVAILABLE DIRECTLY FROM THE FUND TO SHAREHOLDERS WHOSE SHARES ARE HELD, OF
RECORD, BY A FINANCIAL INSTITUTION OR IN A "STREET NAME" ACCOUNT OR NETWORKED
ACCOUNT THROUGH THE NATIONAL SECURITIES CLEARING CORPORATION ("NSCC") (SEE THE
SECTION CAPTIONED "ACCOUNT REGISTRATIONS" IN THIS PROSPECTUS).
SHARE CERTIFICATES
Shares for an initial investment, as well as subsequent investments, including
the reinvestment of dividends and capital gain distributions, are generally
credited to an account in the name of an investor on the books of the Fund,
without the issuance of a share certificate. Maintaining shares in
uncertificated form (also known as "plan balance") minimizes the risk of loss or
theft of a share certificate. A lost, stolen or destroyed certificate cannot be
replaced without obtaining a sufficient indemnity bond. The cost of such a bond,
which is generally borne by the shareholder, can be 2% or more of the value of
the lost, stolen or destroyed certificate. A certificate will be issued if
requested by the shareholder or by the securities dealer.
CONFIRMATIONS
A confirmation statement will be sent to each shareholder annually to reflect
the dividends reinvested during that period and after each other transaction
which affects the shareholder's account. This statement will also show the total
number of shares owned by the shareholder, including the number of shares in
"plan balance" for the account of the shareholder.
AUTOMATIC INVESTMENT PLAN
Under the Automatic Investment Plan, a shareholder may be able to arrange to
make additional purchases of shares automatically on a monthly basis by
electronic funds transfer from a checking account, if the bank which maintains
the account is a member of the Automated Clearing House, or by preauthorized
checks drawn on the shareholder's bank account. A shareholder may, of course,
terminate the program at any time. The Automatic Investment Plan Application
included with this Prospectus contains the requirements applicable to this
program. In addition, shareholders may obtain more information concerning this
program from their securities dealers or from Distributors.
The market value of each class of the Fund's shares is subject to fluctuation.
Before undertaking any plan for systematic investment, the investor should keep
in mind that such a program does not assure a profit or protect against a loss.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder may establish a Systematic Withdrawal Plan and receive regular
periodic payments from the account, provided that the net asset value of the
shares held by the shareholder is at least $5,000. There are no service charges
for establishing or maintaining a Systematic Withdrawal Plan. The minimum amount
which the shareholder may withdraw is $50 per withdrawal transaction, although
this is merely the minimum amount allowed under the plan and should not be
mistaken for a recommended amount. Retirement plans subject to mandatory
distribution requirements are not subject to the $50 minimum. The plan may be
established on a monthly, quarterly, semiannual or annual basis. If the
shareholder establishes a plan, any capital gain distributions and income
dividends paid by the Fund will be reinvested for the shareholder's account in
additional shares at net asset value. Payments will then be made from the
liquidation of shares at net asset value on the day of the transaction (which is
generally the first business day of the month in which the payment is scheduled)
with payment generally received by the shareholder three to five days after the
date of liquidation. By completing the "Special Payment Instructions for
Distributions" section of the Shareholder Application included with this
Prospectus, a shareholder may direct the selected withdrawals to another of the
Franklin Templeton Funds, to another person, or directly to a checking account.
If the bank at which the account is maintained is a member of the Automated
Clearing House, the payments may be made automatically by electronic funds
transfer. If this last option is requested, the shareholder should allow at
least 15 days for initial processing. Payments which may be paid in the interim
will be sent to the address of record. Liquidation of shares may reduce or
possibly exhaust the shares in the shareholder's account, to the extent
withdrawals exceed shares earned through dividends and distributions,
particularly in the event of a market decline. If the withdrawal amount exceeds
the total plan balance, the account will be closed and the remaining balance
will be sent to the shareholder. As with other redemptions, a liquidation to
make a withdrawal payment is a sale for federal income tax purposes. Because the
amount withdrawn under the plan may be more than the shareholder's actual yield
or income, part of the payment may be a return of the shareholder's investment.
The maintenance of a Systematic Withdrawal Plan concurrently with purchases of
additional shares of the Fund would be disadvantageous because of the sales
charge on the additional purchases. Also, redemptions of Class I shares and
Class II shares may be subject to a contingent deferred sales charge if the
shares are redeemed within 12 months (Class I shares) or 18 months (Class II
shares) of the calendar month of the original purchase date. The shareholder
should ordinarily not make additional investments of less than $5,000 or three
times the annual withdrawals under the plan during the time such a plan is in
effect.
With respect to Class I shares, the contingent deferred sales charge is waived
for redemptions through a Systematic Withdrawal Plan set up prior to February 1,
1995. With respect to Systematic Withdrawal Plans set up on or after February 1,
1995, however, the applicable contingent deferred sales charge is waived for
Class I and Class II share redemptions of up to 1% monthly of an account's net
asset value (12% annually, 6% semiannually, 3% quarterly). For example, if a
Class I account maintained an annual balance of $1,000,000, only $120,000 could
be withdrawn through a once-yearly Systematic Withdrawal Plan free of charge;
any amount over that $120,000 would be assessed a 1% (or applicable) contingent
deferred sales charge. Likewise, if a Class II account maintained an annual
balance of $10,000, only $1,200 could be withdrawn through a once-yearly
Systematic Withdrawal Plan free of charge.
A Systematic Withdrawal Plan may be terminated on written notice by the
shareholder or the Fund, and it will terminate automatically if all shares are
liquidated or withdrawn from the account, or upon the Fund's receipt of
notification of the death or incapacity of the shareholder. Shareholders may
change the amount (but not below the specified minimum) and schedule of
withdrawal payments, or suspend one such payment by giving written notice to
Investor Services at least seven business days prior to the end of the month
preceding a scheduled payment. Share certificates may not be issued while a
Systematic Withdrawal Plan is in effect.
INSTITUTIONAL ACCOUNTS
THERE MAY BE ADDITIONAL METHODS OF PURCHASING, REDEEMING OR EXCHANGING SHARES OF
THE FUND AVAILABLE TO INSTITUTIONAL ACCOUNTS. FOR FURTHER INFORMATION, CONTACT
THE FRANKLIN TEMPLETON INSTITUTIONAL SERVICES
DEPARTMENT AT 1-800/321-8563.
EXCHANGE PRIVILEGE
The Franklin Templeton Funds consist of a number of mutual funds with various
investment objectives or policies. The shares of most of these mutual funds are
offered to the public with a sales charge. If a shareholder's investment
objective or outlook for the securities markets changes, the Fund shares may be
exchanged for the same class of shares of other Franklin Templeton Funds which
are eligible for sale in the shareholder's state of residence and in conformity
with such fund's stated eligibility requirements and investment minimums. Some
funds, however, may not offer Class II shares. Class I shares may be exchanged
for Class I shares of any Franklin Templeton Funds. Class II shares may be
exchanged for Class II shares of any Franklin Templeton Funds. No exchanges
between different classes of shares will be allowed. A contingent deferred sales
charge will not be imposed on exchanges. If, however, the exchanged shares were
subject to a contingent deferred sales charge in the original fund purchased and
shares are subsequently redeemed within 12 months (Class I shares) or 18 months
(Class II shares) of the calendar month following the original purchase date, a
contingent deferred sales charge will be imposed. Investors should review the
prospectus of the fund they wish to exchange from and the fund they wish to
exchange into for all specific requirements or limitations on exercising the
exchange privilege, for example, minimum holding periods or applicable sales
charges.
Exchanges may be made in any of the following ways:
EXCHANGES BY MAIL
Send written instructions signed by all account owners and accompanied by any
outstanding share certificates properly endorsed. The transaction will be
effective upon receipt of the written instructions together with any outstanding
share certificates.
EXCHANGES BY TELEPHONE
SHAREHOLDERS, OR THEIR INVESTMENT REPRESENTATIVE OF RECORD, IF ANY, MAY EXCHANGE
SHARES OF THE FUND BY TELEPHONE BY CALLING INVESTOR SERVICES AT 1-800/632-2301
OR THE AUTOMATED FRANKLIN TELEFACTS(R) SYSTEM (DAY OR NIGHT) AT 1-800/247-1753.
IF THE SHAREHOLDER DOES NOT WISH THIS PRIVILEGE EXTENDED TO A PARTICULAR
ACCOUNT, THE FUND OR INVESTOR SERVICES SHOULD BE NOTIFIED.
The Telephone Exchange Privilege allows a shareholder to effect exchanges from
the Fund into an identically registered account of the same class of shares in
one of the other available Franklin Templeton Funds. The Telephone Exchange
Privilege is available only for uncertificated shares or those which have
previously been deposited in the shareholder's account. The Fund and Investor
Services will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. Please refer to "Telephone Transactions -
Verification Procedures."
During periods of drastic economic or market changes, it is possible that the
Telephone Exchange Privilege may be difficult to implement and the TeleFACTS
option may not be available. In this event, shareholders should follow the other
exchange procedures discussed in this section, including the procedures for
processing exchanges through securities dealers.
EXCHANGES THROUGH SECURITIES DEALERS
As is the case with all purchases and redemptions of the Fund's shares, Investor
Services will accept exchange orders from securities dealers who execute a
dealer or similar agreement with Distributors. See also "Exchanges By Telephone"
above. Such a dealer-ordered exchange will be effective only for uncertificated
shares on deposit in the shareholder's account or for which certificates have
previously been deposited. A securities dealer may charge a fee for handling an
exchange.
ADDITIONAL INFORMATION REGARDING EXCHANGES
Exchanges of the same class of shares are made on the basis of the net asset
values of the class involved, except as set forth below. Exchanges of shares of
a class which were originally purchased without a sales charge will be charged a
sales charge in accordance with the terms of the prospectus of the fund and the
class of shares being purchased, unless the original investment on which no
sales charge was paid was transferred in from a fund on which the investor paid
a sales charge. Exchanges of Class I shares of the Fund which were purchased
with a lower sales charge into a fund which has a higher sales charge will be
charged the difference in sales charges, unless the shares were held in the Fund
for at least six months prior to executing the exchange.
When an investor requests the exchange of the total value of the Fund account,
declared but unpaid income dividends and capital gain distributions will be
transferred to the fund being exchanged into and will be invested at net asset
value. Because the exchange is considered a redemption and purchase of shares,
the shareholder may realize a gain or loss for federal income tax purposes.
Backup withholding and information reporting may also apply. Information
regarding the possible tax consequences of such an exchange is included in the
tax section in this Prospectus and in the SAI.
There are differences among the many Franklin Templeton Funds. Before making an
exchange, a shareholder should obtain and review a current prospectus of the
fund into which the shareholder wishes to transfer.
If a substantial portion of the Fund's shareholders should, within a short
period, elect to redeem their shares of the Fund pursuant to the exchange
privilege, the Fund might have to liquidate portfolio securities it might
otherwise hold and incur the additional costs related to such transactions. On
the other hand, increased use of the exchange privilege may result in periodic
large inflows of money. If this should occur, it is the general policy of the
Fund to initially invest this money in short-term, interest-bearing money market
instruments, unless it is felt that attractive investment opportunities
consistent with the Fund's investment objectives exist immediately.
Subsequently, this money will be withdrawn from such short-term money market
instruments and invested in portfolio securities in as orderly a manner as is
possible when attractive investment opportunities arise.
The Exchange Privilege may be modified or discontinued by the Fund at any time
upon 60 days' written notice to shareholders.
EXCHANGES OF CLASS I SHARES
The contingency period of Class I shares will be tolled (or stopped) for the
period such shares are exchanged into and held in a Franklin or Templeton Class
I money market fund. If a Class I account has shares subject to a contingent
deferred sales charge, Class I shares will be exchanged into the new account on
a "first-in, first-out" basis. See also "How to Sell Shares of the Fund -
Contingent Deferred Sales Charge."
EXCHANGES OF CLASS II SHARES
When an account is composed of Class II shares subject to the contingent
deferred sales charge, and Class II shares that are not, the shares will be
transferred proportionately into the new fund. Shares received from reinvestment
of dividends and capital gains are referred to as "free shares," shares which
were originally subject to a contingent deferred sales charge but to which the
contingent deferred sales charge no longer applies are called "matured shares,"
and shares still subject to the contingent deferred sales charge are referred to
as "CDSC liable shares." CDSC liable shares held for different periods of time
are considered different types of CDSC liable shares. For instance, if a
shareholder has $1,000 in free shares, $2,000 in matured shares, and $3,000 in
CDSC liable shares, and the shareholder exchanges $3,000 into a new fund, $500
will be exchanged from free shares, $1,000 from matured shares, and $1,500 from
CDSC liable shares. Similarly, if CDSC liable shares have been purchased at
different periods, a proportionate amount will be taken from shares held for
each period. If, for example, a shareholder holds $1,000 in shares bought 3
months ago, $1,000 bought 6 months ago, and $1,000 bought 9 months ago, and the
shareholder exchanges $1,500 into the new fund, $500 from each of these shares
will be deemed exchanged into the new fund.
The only money market fund exchange option available to Class II shareholders is
the Franklin Templeton Money Fund II ("Money Fund II"), a series of the Franklin
Templeton Money Fund Trust. No drafts (checks) may be written on Money Fund II
accounts, nor may shareholders purchase shares of Money Fund II directly. Class
II shares exchanged for shares of Money Fund II will continue to age and a
contingent deferred sales charge will be assessed if CDSC liable shares are
redeemed. No other money market funds are available for Class II shareholders
for exchange purposes. Class I shares may be exchanged for shares of any of the
money market funds in the Franklin Templeton Funds except Money Fund II. Draft
writing privileges and direct purchases are allowed on these other money market
funds as described in their respective prospectuses.
To the extent shares are exchanged proportionately, as opposed to another
method, such as first-in first-out, or free-shares followed by CDSC liable
shares, the exchanged shares may, in some instances, be CDSC liable even though
a redemption of such shares, as discussed elsewhere herein, may no longer be
subject to a CDSC. The proportional method is believed by management to more
closely meet and reflect the expectations of Class II shareholders in the event
shares are redeemed during the contingency period. For federal income tax
purposes, the cost basis of shares redeemed or exchanged is determined under the
Code without regard to the method of transferring shares chosen by the Fund.
TRANSFERS
Transfers between identically registered accounts in the same fund and class are
treated as non-monetary and non-taxable events, and are not subject to a
contingent deferred sales charge. The transferred shares will continue to age
from the date of original purchase. Shares of each class will be transferred on
the same basis as described above for exchanges.
CONVERSION RIGHTS
It is not presently anticipated that Class II shares will be convertible to
Class I shares. A shareholder may, however, sell his Class II shares and use the
proceeds to purchase Class I shares, subject to all applicable sales charges.
RETIREMENT PLAN ACCOUNTS
Franklin Templeton IRA and 403(b) retirement plan accounts may accomplish
exchanges directly. Certain restrictions may apply, however, to other types of
retirement plans. See "Restricted Accounts" under "Telephone Transactions."
TIMING ACCOUNTS
Accounts which are administered by allocation or market timing services to
purchase or redeem shares based on predetermined market indicators ("Timing
Accounts") will be charged a $5.00 administrative service fee per each such
exchange. All other exchanges are without charge.
RESTRICTIONS ON EXCHANGES
In accordance with the terms of their respective prospectuses, certain funds do
not accept or may place differing limitations than those below on exchanges by
Timing Accounts.
The Fund reserves the right to temporarily or permanently terminate the exchange
privilege or reject any specific purchase order for any Timing Account or any
person whose transactions seem to follow a timing pattern who: (i) makes an
exchange request out of the Fund within two weeks of an earlier exchange request
out of the Fund, or (ii) makes more than two exchanges out of the Fund per
calendar quarter, or (iii) exchanges shares equal in value to at least $5
million, or more than 1/4 of 1% of the Fund's net assets. Accounts under common
ownership or control, including accounts administered so as to redeem or
purchase shares based upon certain predetermined market indicators, will be
aggregated for purposes of the exchange limits.
The Fund also reserves the right to refuse the purchase side of an exchange
request by any Timing Account, person, or group if, in the Manager's judgment,
the Fund would be unable to invest effectively in accordance with its investment
objectives and policies, or would otherwise potentially be adversely affected. A
shareholder's purchase exchanges may be restricted or refused if the Fund
receives or anticipates simultaneous orders affecting significant portions of
the Fund's assets. In particular, a pattern of exchanges that coincide with a
"market timing" strategy may be disruptive to the Fund and therefore may be
refused.
THE FUND AND DISTRIBUTORS ALSO, AS INDICATED IN "HOW TO BUY SHARES OF THE FUND,"
RESERVE THE RIGHT TO REFUSE ANY ORDER FOR THE PURCHASE OF SHARES.
HOW TO SELL SHARES OF THE FUND
A shareholder may at any time liquidate shares owned and receive from the Fund
the value of the shares. Shares may be redeemed in any of the following ways:
REDEMPTIONS BY MAIL
Send a written request, signed by all registered owners, to Investor Services,
at the address shown on the back cover of this Prospectus, and any share
certificates which have been issued for the shares being redeemed, properly
endorsed and in order for transfer. The shareholder will then receive from the
Fund the value of the class of shares redeemed based upon the net asset value
per share (less a contingent deferred sales charge, if applicable) next computed
after the written request in proper form is received by Investor Services.
Redemption requests received after the time at which the net asset value is
calculated at the scheduled close of the New York Stock Exchange ("Exchange"),
which is generally 1:00 p.m. Pacific time, each day that the Exchange is open
for business will receive the price calculated on the following business day.
Shareholders are requested to provide a telephone number(s) where they may be
reached during business hours, or in the evening if preferred. Investor
Services' ability to contact a shareholder promptly when necessary will speed
the processing of the redemption.
TO BE CONSIDERED IN PROPER FORM, SIGNATURE(S) MUST BE GUARANTEED IF THE
REDEMPTION REQUEST INVOLVES ANY OF THE FOLLOWING:
(1) the proceeds of the redemption are over $50,000;
(2) the proceeds (in any amount) are to be paid to someone other than the
registered owner(s) of the account;
(3) the proceeds (in any amount) are to be sent to any address other than the
shareholder's address of record, preauthorized bank account or brokerage
firm account;
(4) share certificates, if the redemption proceeds are in excess of $50,000; or
(5) the Fund or Investor Services believes that a signature guarantee would
protect against potential claims based on the transfer instructions,
including, for example, when (a) the current address of one or more joint
owners of an account cannot be confirmed, (b) multiple owners have a
dispute or give inconsistent instructions to the Fund, (c) the Fund has
been notified of an adverse claim, (d) the instructions received by the
Fund are given by an agent, not the actual registered owner, (e) the Fund
determines that joint owners who are married to each other are separated or
may be the subject of divorce proceedings, or (f) the authority of a
representative of a corporation, partnership, association, or other entity
has not been established to the satisfaction of the Fund.
Signature(s) must be guaranteed by an "eligible guarantor institution" as
defined under Rule 17Ad-15 under the Securities Exchange Act of 1934. Generally,
eligible guarantor institutions include (1) national or state banks, savings
associations, savings and loan associations, trust companies, savings banks,
industrial loan companies and credit unions; (2) national securities exchanges,
registered securities associations and clearing agencies; (3) securities dealers
which are members of a national securities exchange or a clearing agency or
which have minimum net capital of $100,000; or (4) institutions that participate
in the Securities Transfer Agent Medallion Program ("STAMP") or other recognized
signature guarantee medallion program. A notarized signature will not be
sufficient for the request to be in proper form.
Share Certificates - Where shares to be redeemed are represented by share
certificates, the request for redemption must be accompanied by the share
certificate and a share assignment form signed by the registered shareholders
exactly as the account is registered, with the signature(s) guaranteed as
referenced above. Shareholders are advised, for their own protection, to send
the share certificate and assignment form in separate envelopes if they are
being mailed in for redemption.
Liquidation requests of corporate, partnership, trust and custodianship
accounts, and accounts under court jurisdiction require the following
documentation to be in proper form:
Corporation - (1) Signature guaranteed letter of instruction from the authorized
officer(s) of the corporation, and (2) a corporate resolution.
Partnership - (1) Signature guaranteed letter of instruction from a general
partner and (2) pertinent pages from the partnership agreement identifying the
general partners or a certification for a partnership agreement.
Trust - (1) Signature guaranteed letter of instruction from the trustee(s), and
(2) a copy of the pertinent pages of the trust document listing the trustee(s)
or a Certification for Trust if the trustee(s) are not listed on the account
registration.
Custodial (other than a retirement account) - Signature guaranteed letter of
instruction from the custodian.
Accounts under court jurisdiction - Check court documents and the applicable
state law since these accounts have varying requirements, depending upon the
state of residence.
Payment for redeemed shares will be sent to the shareholder within seven days
after receipt of the request in proper form.
REDEMPTIONS BY TELEPHONE
Shareholders who complete the Franklin Templeton Telephone Redemption
Authorization Agreement (the "Agreement"), included with this Prospectus, may
redeem shares of the Fund by telephone, subject to the Restricted Account
exception noted under "Telephone Transactions - Restricted Accounts."
INFORMATION MAY ALSO BE OBTAINED BY WRITING TO THE FUND OR INVESTOR SERVICES AT
THE ADDRESS SHOWN ON THE COVER OR BY CALLING 1-800/632-2301. THE FUND AND
INVESTOR SERVICES WILL EMPLOY REASONABLE PROCEDURES TO CONFIRM THAT INSTRUCTIONS
GIVEN BY TELEPHONE ARE GENUINE. SHAREHOLDERS, HOWEVER, BEAR THE RISK OF LOSS IN
CERTAIN CASES AS DESCRIBED UNDER "TELEPHONE TRANSACTIONS - VERIFICATION
PROCEDURES."
For shareholder accounts with the completed Agreement on file, redemptions of
uncertificated shares or shares which have previously been deposited with the
Fund or Investor Services may be made for up to $50,000 per day per Fund
account. Telephone redemption requests received before the scheduled close of
the Exchange (generally 1:00 p.m. Pacific time) on any business day will be
processed that same day. The redemption check will be sent within seven days,
made payable to all the registered owners on the account, and will be sent only
to the address of record. Redemption requests by telephone will not be accepted
within 30 days following an address change by telephone. In that case, a
shareholder should follow the other redemption procedures set forth in this
Prospectus. Institutional accounts (certain corporations, bank trust
departments, government entities, and qualified retirement plans which qualify
to purchase shares at net asset value pursuant to the terms of this Prospectus)
which wish to execute redemptions in excess of $50,000 must complete an
Institutional Telephone Privileges Agreement which is available from the
Franklin Templeton Institutional Services Department by telephoning
1-800/321-8563.
REDEEMING SHARES THROUGH SECURITIES DEALERS
The Fund will accept redemption orders from securities dealers who have entered
into an agreement with Distributors. This is known as a repurchase. The only
difference between a normal redemption and a repurchase is that if the
shareholder redeems shares through a dealer, the redemption price will be the
net asset value next calculated after the shareholder's dealer receives the
order which is promptly transmitted to the Fund, rather than on the day the Fund
receives the shareholder's written request in proper form. The documents, as
described in the preceding section, are required even if the shareholder's
securities dealer has placed the repurchase order. After receipt of a repurchase
order from the dealer, the Fund will still require a signed letter of
instruction and all other documents set forth above. A shareholder's letter
should reference the Fund and the class, the account number, the fact that the
repurchase was ordered by a dealer and the dealer's name. Details of the
dealer-ordered trade, such as trade date, confirmation number, and the amount of
shares or dollars, will help speed processing of the redemption. The seven-day
period within which the proceeds of the shareholder's redemption will be sent
will begin when the Fund receives all documents required to complete ("settle")
the repurchase in proper form. The redemption proceeds will not earn dividends
or interest during the time between receipt of the dealer's repurchase order and
the date the redemption is processed upon receipt of all documents necessary to
settle the repurchase. Thus, it is in a shareholder's best interest to have the
required documentation completed and forwarded to the Fund as soon as possible.
The shareholder's dealer may charge a fee for handling the order. The SAI
contains more information on the redemption of shares.
CONTINGENT DEFERRED SALES CHARGE
In order to recover commissions paid to securities dealers, Class I investments
of $1 million or more and any Class II investments redeemed within the
contingency period of 12 months (Class I) or 18 months (Class II) of the
calendar month following their purchase will be assessed a contingent deferred
sales charge, unless one of the exceptions described below applies. The charge
is 1% of the lesser of the value of the shares redeemed (exclusive of reinvested
dividends and capital gain distributions) or the net asset value at the time of
purchase of such shares, and is retained by Distributors. The contingent
deferred sales charge is waived in certain instances.
In determining if a contingent deferred sales charge applies, shares not subject
to a contingent deferred sales charge are deemed to be redeemed first, in the
following order: (i) A calculated number of shares representing amounts
attributable to capital appreciation of those shares held less than the
contingency period (12 months in the case of Class I shares and 18 months in the
case of Class II shares); (ii) shares purchased with reinvested dividends and
capital gain distributions; and (iii) other shares held longer than the
contingency period; and followed by any shares held less than the contingency
period, on a "first in, first out" basis. For tax purposes, a contingent
deferred sales charge is treated as either a reduction in redemption proceeds or
an adjustment to the cost basis of the shares redeemed.
The contingent deferred sales charge on each class of shares is waived, as
applicable, for: exchanges; any account fees; distributions to participants or
their beneficiaries in Trust Company individual retirement plan accounts due to
death, disability or attainment of age 59 1/2; tax-free returns of excess
contributions from employee benefit plans; distributions from employee benefit
plans, including those due to termination or plan transfer; redemptions through
a Systematic Withdrawal Plan set up for shares prior to February 1, 1995, and
for Systematic Withdrawal Plans set up thereafter, redemptions of up to 1%
monthly of an account's net asset value (3% quarterly, 6% semiannually or 12%
annually); redemptions initiated by the Fund due to a shareholder's account
falling below the minimum specified account size; and redemptions following the
death of the shareholder or the beneficial owner.
All investments made during a calendar month, regardless of when during the
month the investment occurred, will age one month on the last day of that month
and each subsequent month.
REQUESTS FOR REDEMPTIONS FOR A specified dollar AMOUNT, UNLESS OTHERWISE
SPECIFIED, WILL RESULT IN ADDITIONAL SHARES BEING REDEEMED TO COVER ANY
APPLICABLE CONTINGENT DEFERRED SALES CHARGE, WHILE REQUESTS FOR REDEMPTION OF A
specific number OF SHARES WILL RESULT IN THE APPLICABLE CONTINGENT DEFERRED
SALES CHARGE BEING DEDUCTED FROM THE TOTAL DOLLAR AMOUNT REDEEMED.
ADDITIONAL INFORMATION REGARDING REDEMPTIONS
The Fund may delay the mailing of the redemption check, or a portion thereof,
until the clearance of the check used to purchase Fund shares, which may take up
to 15 days or more. Although the use of a certified or cashier's check will
generally reduce this delay, shares purchased with these checks will also be
held pending clearance. Shares purchased by federal funds wire are available for
immediate redemption. In addition, the right of redemption may be suspended or
the date of payment postponed if the Exchange is closed (other than customary
closing) or upon the determination of the SEC that trading on the Exchange is
restricted or an emergency exists, or if the SEC permits it, by order, for the
protection of shareholders. Of course, the amount received may be more or less
than the amount invested by the shareholder, depending on fluctuations in the
market value of securities owned by the Fund.
RETIREMENT PLAN ACCOUNTS
Retirement plan account liquidations require the completion of certain
additional forms to ensure compliance with IRS regulations. To liquidate a
retirement plan account, a shareholder or securities dealer may call Franklin's
Retirement Plans Department to obtain the necessary forms.
Tax penalties will generally apply to any distribution from such plans to a
participant under age 59 1/2, unless the distribution meets one of the
exceptions set forth in the Code.
OTHER
For any information required about a proposed liquidation, a shareholder may
call Franklin's Shareholder Services Department or the securities dealer may
call Franklin's Dealer Services Department.
TELEPHONE TRANSACTIONS
Shareholders of the Fund and their investment representative of record, if any,
may be able to execute various transactions by calling Investor Services at
1-800/632-2301.
All shareholders will be able to: (i) effect a change in address, (ii) change a
dividend option (see "Restricted Accounts" below), (iii) transfer Fund shares in
one account to another identically registered account in the Fund, (iv) request
the issuance of certificates (to be sent to the address of record only) and (v)
exchange Fund shares as described in this Prospectus by telephone. In addition,
shareholders who complete and file an Agreement as described under "How to Sell
Shares of the Fund - Redemptions by Telephone" will be able to redeem shares of
the Fund.
VERIFICATION PROCEDURES
The Fund and Investor Services will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. These will include:
recording all telephone calls requesting account activity by telephone,
requiring that the caller provide certain personal and/or account information
requested by the telephone service agent at the time of the call for the purpose
of establishing the caller's identification, and by sending a confirmation
statement on redemptions to the address of record each time account activity is
initiated by telephone. So long as the Fund and Investor Services follow
instructions communicated by telephone which were reasonably believed to be
genuine at the time of their receipt, neither they nor their affiliates will be
liable for any loss to the shareholder caused by an unauthorized transaction.
The Fund and Investor Services may be liable for any losses due to unauthorized
or fraudulent instructions in the event such reasonable procedures are not
followed. Shareholders are, of course, under no obligation to apply for or
accept telephone transaction privileges. In any instance where the Fund or
Investor Services is not reasonably satisfied that instructions received by
telephone are genuine, the requested transaction will not be executed, and
neither the Fund nor Investor Services will be liable for any losses which may
occur because of a delay in implementing a transaction.
RESTRICTED ACCOUNTS
Telephone redemptions and dividend option changes may not be accepted on
Franklin Templeton retirement accounts. To assure compliance with all applicable
regulations, special forms are required for any distribution, redemption, or
dividend payment. While the telephone exchange privilege is extended to Franklin
Templeton IRA and 403(b) retirement accounts, certain restrictions may apply to
other types of retirement plans. Changes to dividend options and requests for
certificates must also be made in writing.
To obtain further information regarding distribution or transfer procedures,
including any required forms, retirement account shareholders may call to speak
to a Retirement Plan Specialist at 1-800/527-2020 for Franklin accounts, or
1-800/354-9191 (press "2" when prompted to do so) for Templeton accounts.
GENERAL
During periods of drastic economic or market changes, it is possible that the
telephone transaction privileges will be difficult to execute because of heavy
telephone volume. In such situations, shareholders may wish to contact their
investment representative for assistance, or to send written instructions to the
Fund as detailed elsewhere in this Prospectus.
Neither the Fund nor Investor Services will be liable for any losses resulting
from the inability of a shareholder to execute a telephone transaction.
The telephone transaction privilege may be modified or discontinued by the Fund
at any time upon 60 days' written notice to shareholders.
VALUATION OF FUND SHARES
The net asset value per share of each class of the Fund is determined as of the
scheduled close of the Exchange (generally 1:00 p.m. Pacific time) each day that
the Exchange is open for trading. Many newspapers carry daily quotations of the
prior trading day's closing "bid" (net asset value) and "ask" (offering price,
which includes the maximum sales charge of each class of shares of the Fund).
The net asset value per share for each class of the Fund is determined in the
following manner: The aggregate of all liabilities, including without limitation
the current market value of any outstanding options written by the Fund, is
deducted from the aggregate gross value of all assets, and the difference is
divided by the number of shares of the respective class of each Class of the
Fund outstanding at the time. For the purpose of determining the aggregate net
assets of the Fund, cash and receivables are valued at their realizable amounts.
Interest is recorded as accrued and dividends are recorded on the ex-dividend
date. Portfolio securities listed on a securities exchange or on the NASDAQ
National Market System for which market quotations are readily available are
valued at the last quoted sale price of the day or, if there is no such reported
sale, within the range of the most recent quoted bid and ask prices.
Over-the-counter portfolio securities for which market quotations are readily
available are valued within the range of the most recent bid and ask prices as
obtained from one or more dealers that make markets in the securities. Portfolio
securities which are traded both in the over-the-counter market and on a stock
exchange are valued according to the broadest and most representative market as
determined by the Manager. Portfolio securities underlying actively traded call
options are valued at their market price as determined above. The current market
value of any option held by the Fund is its last sales price on the relevant
exchange prior to the time when assets are valued. Lacking any sales that day or
if the last sale price is outside the bid and ask prices, the options are valued
within the range of the current closing bid and ask prices if such valuation is
believed to fairly reflect the contract's market value. Other securities for
which market quotations are readily available are valued at the current market
price, which may be obtained from a pricing service, based on a variety of
factors, including recent trades, institutional size trading in similar types of
securities (considering yield, risk and maturity) and/or developments related to
specific issues. Securities and other assets for which market prices are not
readily available are valued at fair value as determined following procedures
approved by the Board of Trustees. With the approval of the trustees, the Fund
may utilize a pricing service, bank or securities dealer to perform any of the
above described functions.
Each of the Fund's classes will bear, pro rata, all of the common expenses of
the Fund. The net asset value of all outstanding shares of each class of the
Fund will be computed on a pro rata basis for each outstanding share based on
the proportionate participation in the Fund represented by the value of shares
of such classes, except that the Class I and Class II shares will bear the Rule
12b-1 expenses payable under their respective plans. Due to the specific
distribution expenses and other costs that will be allocable to each class, the
dividends paid to each class of the Fund may vary.
HOW TO GET INFORMATION REGARDING AN INVESTMENT IN THE FUND
Any questions or communications regarding a shareholder's account should be
directed to Investor Services at the address shown on the back cover of this
Prospectus.
From a touch-tone phone, Franklin and Templeton shareholders may access an
automated system (day or night) which offers the following features:
By calling the Franklin TeleFACTS(Registered Trademark) system at
1-800/247-1753, shareholders may obtain Class I and Class II account
information, current price and, if available, yield or other performance
information specific to the Fund or any Franklin Templeton Fund. In addition,
Franklin Class I shareholders may process an exchange, within the same class,
into an identically registered Franklin account; and request duplicate
confirmation or year-end statements, money fund checks, if applicable, and
deposit slips.
Franklin Class I and Class II share codes for the Fund, which will be needed to
access system information are 192 and 292, respectively. The system's automated
operator will prompt the caller with easy to follow step-by-step instructions
from the main menu. Other features may be added in the future.
To assist shareholders and securities dealers wishing to speak directly with a
representative, the following is a list of the various Franklin or Templeton
departments, telephone numbers and hours of operation to call. The same numbers
may be used when calling from a rotary phone:
<TABLE>
<CAPTION>
HOURS OF OPERATION
(PACIFIC TIME)
DEPARTMENT NAME TELEPHONE NO. (MONDAY THROUGH FRIDAY)
<S> <C> <C>
Shareholder Services 1-800/632-2301 6:00 a.m. to 5:00 p.m.
Dealer Services 1-800/524-4040 6:00 a.m. to 5:00 p.m.
Fund Information 1-800/DIAL BEN 6:00 a.m. to 8:00 p.m.
8:30 a.m. to 5:00 p.m.
(Saturday)
Retirement Plans 1-800/527-2020 6:00 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 6:00 a.m. to 5:00 p.m.
</TABLE>
In order to ensure that the highest quality of service is being provided,
telephone calls placed to or by representatives in Franklin's service
departments may be accessed, recorded and monitored. These calls can be
determined by the presence of a regular beeping tone.
PERFORMANCE
Advertisements, sales literature and communications to shareholders may contain
various measures of the a class' performance, including current yield, various
expressions of total return and current distribution rate. They may occasionally
cite statistics to reflect its volatility or risk.
Average annual total return figures as prescribed by the SEC represent the
average annual percentage change in value of $1,000 invested at the maximum
public offering price (offering price includes sales charge) for one-, five- and
ten-year periods, or portion thereof, to the extent applicable, through the end
of the most recent calendar quarter, assuming reinvestment of all distributions.
The Fund may also furnish total return quotations for each class for other
periods or based on investments at various sales charge levels or at net asset
value. For such purposes, total return equals the total of all income and
capital gain paid to shareholders, assuming reinvestment of all distributions,
plus (or minus) the change in the value of the original investment, expressed as
a percentage of the purchase price.
Current yield for each class reflects the income per share earned by the Fund's
portfolio investments; it is calculated for each class by dividing that class'
net investment income per share during a recent 30-day period by the maximum
public offering price for that class of shares on the last day of that period
and annualizing the result.
Yield for each class, which is calculated according to a formula prescribed by
the SEC (see the SAI), is not indicative of the dividends or distributions which
were or will be paid to the Fund's shareholders. Dividends or distributions paid
to shareholders of a class are reflected in the current distribution rate, which
may be quoted to shareholders. The current distribution rate is computed by
dividing the total amount of dividends per share paid by a class during the past
12 months by a current maximum offering price for that class of shares. Under
certain circumstances, such as when there has been a change in the amount of
dividend payout or a fundamental change in investment policies, it might be
appropriate to annualize the dividends paid during the period such policies were
in effect, rather than using the dividends during the past 12 months. The
current distribution rate differs from the current yield computation because it
may include distributions to shareholders from sources other than dividends and
interest, such as premium income from option writing and short-term capital
gain, and is calculated over a different period of time.
In each case, performance figures are based upon past performance, reflect all
recurring charges against a class' income and will assume the payment of the
maximum sales charge on the purchase of that class of shares. When there has
been a change in the sales charge structure, the historical performance figures
will be restated to reflect the new rate. The investment results of each class,
like all other investment companies, will fluctuate over time; thus, performance
figures should not be considered to represent what an investment may earn in the
future or what a class' yield, distribution rate or total return may be in any
future period.
Because Class II shares were not offered prior to May 1, 1995, no performance
data is available for these shares. After a sufficient period of time has
passed, Class II performance data will be available.
GENERAL INFORMATION
REPORTS TO SHAREHOLDERS
The Fund's fiscal year ends April 30. Annual Reports containing audited
financial statements of the Fund, including the auditors' report, and
Semi-Annual Reports containing unaudited financial statements are automatically
sent to shareholders. Copies may be obtained, without charge, upon request to
the Fund at the telephone number or address set forth on the cover page of this
Prospectus.
Additional information on Fund performance is included in the Fund's Annual
Report to Shareholders and the SAI.
ORGANIZATION
The Agreement and Declaration of Trust permits the trustees to issue an
unlimited number of full and fractional shares of beneficial interest with a par
value of $.01 per share, which may be issued in any number of series and
classes. Shares issued will be fully paid and non-assessable and will have no
preemptive, conversion, or sinking rights. Shares of each series have equal and
exclusive rights as to dividends and distributions as declared by such series
and the net assets of such series upon liquidation or dissolution. Additional
series may be added in the future by the Board of Trustees.
VOTING RIGHTS
Shares of each series have equal rights as to voting and vote separately as to
issues affecting that series or the Trust unless otherwise permitted by the 1940
Act. Voting rights are noncumulative, so that in any election of trustees the
holders of more than 50% of the shares voting can elect all of the trustees, if
they choose to do so, and in such event, the holders of the remaining shares
voting will not be able to elect any person or persons to the Board of Trustees.
The Trust does not intend to hold annual shareholders' meetings. The Trust may,
however, hold a special shareholders' meeting of a series for such purposes as
changing fundamental investment restrictions of a series, approving a new
management agreement or any other matters which are required to be acted on by
shareholders under the 1940 Act. A meeting may also be called by the trustees in
their discretion or by shareholders holding at least ten percent of the
outstanding shares of the Trust. Shareholders will receive assistance in
communicating with other shareholders in connection with the election or removal
of trustees such as that provided in Section 16(c) of the 1940 Act.
Shares of each class of a Fund represent proportionate interests in the assets
of the Fund and 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. For matters that only affect a certain class of a Fund's shares, however,
only shareholders of that class will be entitled to vote. Therefore each class
of shares of a Fund will vote separately on matters (1) affecting only that
class of such Fund, (2) expressly required to be voted on separately by state
business trust law, or (3) required to be voted on separately by the 1940 Act,
or the rules adopted thereunder. For instance, if a change to the Rule 12b-1
plan relating to Class I shares of a Fund requires shareholder approval, only
shareholders of Class I of that Fund may vote on the change to the Rule 12b-1
plan affecting that class. Similarly, if a change to the Rule 12b-1 plan
relating to Class II shares requires approval, only shareholders of Class II of
such Fund may vote on changes to such plan. On the other hand, if there is a
proposed change to the investment objective of a Fund, this affects all
shareholders of that Fund, regardless of which class of shares they hold and,
therefore, each share has the same voting rights.
REDEMPTIONS BY THE FUND
The Fund reserves the right to redeem, at net asset value, shares of any
shareholder whose account has a value of less than $50, but only where the value
of such account has been reduced by the shareholder's prior voluntary redemption
of shares and has been inactive (except for the reinvestment of distributions)
for a period of at least six months, provided advance notice is given to the
shareholder. More information is included in the SAI.
OTHER INFORMATION
Distribution or redemption checks sent to shareholders do not earn interest or
any other income during the time such checks remain uncashed and neither the
Fund nor its affiliates will be liable for any loss to the shareholder caused by
the shareholder's failure to cash such check(s).
"Cash" payments to or from the Fund may be made by check, draft or wire. The
Fund has no facility to receive, or pay out, cash in the form of currency.
ACCOUNT REGISTRATIONS
An account registration should reflect the investor's intentions as to
ownership. Where there are two co-owners on the account, the account will be
registered as "Owner 1" and "Owner 2"; the "or" designation is not used except
for money market fund accounts. If co-owners wish to have the ability to redeem
or convert on the signature of only one owner, a limited power of attorney may
be used.
Accounts should not be registered in the name of a minor, either as sole or
co-owner of the account. Transfer or redemption for such an account may require
court action to obtain release of the funds until the minor reaches the legal
age of majority. The account should be registered in the name of one "Adult" as
custodian for the benefit of the "Minor" under the Uniform Transfer or Gifts to
Minors Act.
A trust designation such as "trustee" or "in trust for" should only be used if
the account is being established pursuant to a legal, valid trust document. Use
of such a designation in the absence of a legal trust document may cause
difficulties and require court action for transfer or redemption of the funds.
Shares, whether in certificate form or not, registered as joint tenants or "Jt
Ten" shall mean "as joint tenants with rights of survivorship" and not "as
tenants in common."
Except as indicated, a shareholder may transfer an
account in the Fund carried in "street" or "nominee" name by the shareholder's
securities dealer to a comparably registered Fund account maintained by another
securities dealer. Both the delivering and receiving securities dealers must
have executed dealer agreements on file with Distributors. Unless a dealer
agreement has been executed and is on file with Distributors, the Fund will not
process the transfer and will so inform the shareholder's delivering securities
dealer. To effect the transfer, a shareholder should instruct the securities
dealer to transfer the account to a receiving securities dealer and sign any
documents required by the securities dealer(s) to evidence consent to the
transfer. Under current procedures, the account transfer may be processed by the
delivering securities dealer and the Fund after the Fund receives authorization
in proper form from the shareholder's delivering securities dealer. In the
future it may be possible to effect such transfers electronically through the
services of the NSCC.
The Fund may conclusively accept instructions from an owner or the owner's
nominee listed in publicly available nominee lists, regardless of whether the
account was initially registered in the name of or by the owner, the nominee, or
both. If a securities dealer or other representative is of record on an
investor's account, the investor will be deemed to have authorized the use of
electronic instructions on the account, including, without limitation, those
initiated through the services of the NSCC, to have adopted as instruction and
signature any such electronic instructions received by the Fund and the
Shareholder Services Agent, and to have authorized them to execute the
instructions without further inquiry. At the present time, such services which
are available, include the NSCC's "Networking," "Fund/SERV," and "ACATS"
systems.
Any questions regarding an intended registration should be answered by the
securities dealer handling the investment, or by calling Franklin's Fund
Information Department.
IMPORTANT NOTICE REGARDING
TAXPAYER IRS CERTIFICATIONS
Pursuant to the Code and U.S. Treasury regulations, the Fund may be required to
report to the IRS any taxable dividend, capital gain distribution, or other
reportable payment (including share redemption proceeds) and withhold 31% of any
such payments made to individuals and other non-exempt shareholders who have not
provided a correct taxpayer identification number ("TIN") and made certain
required certifications that appear in the Shareholder Application. A
shareholder may also be subject to backup withholding if the IRS or a securities
dealer notifies the Fund that the number furnished by the shareholder is
incorrect or that the shareholder is subject to backup withholding for previous
under-reporting of interest or dividend income.
The Fund reserves the right to (1) refuse to open an account for any person
failing to provide a TIN along with the required certifications and (2) close an
account by redeeming its shares in full at the then-current net asset value upon
receipt of notice from the IRS that the TIN certified as correct by the
shareholder is in fact incorrect or upon the failure of a shareholder who has
completed an "awaiting TIN" certification to provide the Fund with a certified
TIN within 60 days after opening the account.
PORTFOLIO OPERATIONS
The following persons are primarily responsible for the day-to-day management of
the Fund's portfolio:
Matt Avery
Portfolio Manager
Franklin Advisers, Inc.
Mr. Avery manages the Fund's portfolio and manages other funds for which
Advisers serves as investment manager. Mr. Avery received a Master's degree in
Business Administration from University of California, Los Angeles Graduate
School of Management and a Bachelor of Science degree in Industrial Engineering
from Stanford University. Mr. Avery joined Franklin in 1987.
Tom Branch
Portfolio Manager
Franklin Advisers, Inc.
Mr. Branch received a Bachelor of Science degree in Business Administration with
a concentration in Finance from California Polytechnic State University, San
Luis Obispo. Mr. Branch joined Franklin in July, 1993.
APPENDIX
DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS:
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba - Bonds which are rated Ba are judged to have predominantly speculative
elements; their future cannot be considered well assured. Often the protection
of interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times in the future. Uncertainty of
position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa - Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca - Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
DESCRIPTION OF S&P'S CORPORATE BOND RATINGS:
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,
they differ from AAA issues only in small degree.
A - Bonds rated A have a strong capacity to pay principal and interest, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay principal and interest for bonds in this category
than for bonds in the A category.
BB, B, CCC, CC - Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligations. BB
indicates the lowest degree of speculation and CC the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
D - Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
Franklin Real Estate Securities Fund
777 Mariners Island Blvd.
P.O. Box 7777
San Mateo, California 94403-7777
INVESTMENT MANAGER
Franklin Advisers, Inc.
777 Mariners Island Blvd.
P.O. Box 7777
San Mateo, California 94403-7777
PRINCIPAL UNDERWRITER
Franklin/Templeton Distributors, Inc.
777 Mariners Island Blvd.
P.O. Box 7777
San Mateo, California 94403-7777
SHAREHOLDER SERVICES AGENT
Franklin/Templeton Investor Services, Inc.
777 Mariners Island Blvd.
P.O. Box 7777
San Mateo, California 94403-7777
LEGAL COUNSEL
Stradley, Ronon, Stevens & Young
2600 One Commerce Square
Philadelphia, Pennsylvania 19103
INDEPENDENT AUDITORS
Coopers & Lybrand L.L.P.
333 Market Street
San Francisco, California 94105
CUSTODIAN
Bank of America
555 California Street, 4th Floor
San Francisco, California 94104
For an enlarged version of this prospectus, please call 1-800/DIAL BEN
Your Representative Is:
FRANKLIN REAL ESTATE SECURITIES FUND
FRANKLIN REAL ESTATE SECURITIES TRUST
STATEMENT OF ADDITIONAL INFORMATION
SEPTEMBER 1, 1995
777 MARINERS ISLAND BLVD., P.O. BOX 7777
SAN MATEO, CA 94403-7777 1-800/DIAL BEN
CONTENTS PAGE
About the Fund (See also the Prospectus
"About the Fund," "General Information")
The Fund's Investment Objective and
Restrictions (See also the Prospectus
"Investment Objective and Policies Followed by the Fund")
Officers and Trustees
Investment Management and Other
Services (See also the Prospectus
"Management of the Fund")
The Fund's Policies Regarding
Brokers Used on Portfolio Transactions
Additional Information Regarding
Fund Shares (See also the Prospectus
"How to Buy Shares of the Fund,"
"How to Sell Shares of the Fund,"
"Valuation of Fund Shares")
Additional Information
Regarding Taxation
The Fund's Underwriter
General Information
Financial Statements
Franklin Real Estate Securities Fund (the "Fund") is a non-diversified series of
Franklin Real Estate Securities Trust ("Trust"), an open-end management
investment company. The Fund's investment objective is to maximize total return.
In connection with this objective, the Fund will invest primarily in securities
of companies operating in the real estate industry.
A Prospectus for the Fund, dated September 1, 1995, as may be amended from time
to time, provides the basic information an investor should know before investing
in the Fund, and may be obtained without charge from the Fund or 'from its
principal underwriter, Franklin/Templeton Distributors, Inc.
("Distributors"), at the address shown above.
As explained in the Prospectus, this Fund offers two classes of shares to its
investors: Franklin Real Estate Securities Fund - Class I ("Class I") and
Franklin Real Estate Securities Fund - Class II ("Class II"). This new
multiclass structure allows investors to consider, among other features, the
impact of sales charges and distribution fees ("Rule 12b-1 fees") on their
investments in this Fund.
THIS STATEMENT OF ADDITIONAL INFORMATION (THE "SAI") IS NOT A PROSPECTUS. IT
CONTAINS INFORMATION IN ADDITION TO AND IN MORE DETAIL THAN SET FORTH IN THE
PROSPECTUS. THIS SAI IS INTENDED TO PROVIDE INVESTORS WITH ADDITIONAL
INFORMATION REGARDING THE ACTIVITIES AND OPERATIONS OF THE FUND, AND SHOULD BE
READ IN CONJUNCTION WITH THE FUND'S PROSPECTUS.
ABOUT THE FUND
Franklin Real Estate Securities Fund is a non-diversified series of the Trust,
an open-end management investment company, commonly called a "mutual fund,"
which is registered with the Securities and Exchange Commission ("SEC") under
the Investment Company Act of 1940, as amended, (the "1940 Act"). The Trust is a
Delaware business trust, organized on September 14, 1993.
THE FUND'S INVESTMENT
OBJECTIVE AND RESTRICTIONS
As noted in the Prospectus, the Fund's investment objective is to maximize total
return. In this connection, the Fund will invest primarily in securities of
companies operating in the real estate industry. Under normal circumstances at
least 65% of the Fund's total assets will be invested in real estate securities,
primarily equity real estate investment trusts ("REITs"). The Fund may also
invest in equity securities issued by home builders and developers and in debt
and convertible securities issued by REITs, homebuilders and developers.
SOME OF THE FUND'S OTHER INVESTMENT POLICIES
Repurchase Transactions. As stated in the Prospectus, the Fund may enter into
repurchase agreements with government securities dealers recognized by the
Federal Reserve Board or with member banks of the Federal Reserve System. This
is an agreement in which the seller of a security agrees to repurchase the
security sold at a mutually agreed upon time and price. It may also be viewed as
the loan of money by the Fund to the seller. The resale price is normally in
excess of the purchase price, reflecting an agreed upon interest rate. The
interest rate is effective for the period of time in which the Fund is invested
in the agreement and is not related to the coupon rate on the underlying
security. The period of these repurchase agreements will usually be short, from
overnight to one week, and at no time will the Fund invest in repurchase
agreements for more than one year. The securities which are subject to
repurchase agreements, however, may have maturity dates in excess of one year
from the effective date of the repurchase agreements. The Fund will make payment
for such securities only upon physical delivery or evidence of book entry
transfer to the account of its custodian bank. The Fund may not enter into a
repurchase agreement with more than seven days duration if, as a result, more
than 10% of the market value of the Fund's total assets would be invested in
such repurchase agreements.
Short-term Investments. As stated in the Prospectus, the Fund may invest cash
temporarily in short-term debt instruments. Based upon the terms of an order
issued by the SEC which granted exemptive relief from certain provisions of the
1940 Act, the Fund may invest its short-term cash in shares of one or more money
market funds managed by Franklin Advisers, Inc. or its affiliates.
Illiquid Investments. As stated in the Prospectus, the Fund will not invest more
than 10% of the value of its total net assets in illiquid securities. Generally,
an "illiquid security" is any security that cannot be disposed of promptly and
in the ordinary course of business at approximately the amount at which the Fund
has valued the instrument. Subject to this limitation, the Trust's Board of
Trustees has authorized the Fund to invest in restricted securities where such
investment is consistent with the Fund's investment objective and has authorized
such securities to be considered to be liquid to the extent the investment
manager determines that there is a liquid institutional or other market for such
securities - for example, restricted securities which may be freely transferred
among qualified institutional buyers pursuant to Rule 144A under the Securities
Act of 1933, as amended, and for which a liquid institutional market has
developed. The Board of Trustees will review any determination by the investment
manager to treat a restricted security as a liquid security on an ongoing basis,
including the investment manager's assessment of current trading activity and
the availability of reliable price information. In determining whether a
restricted security is properly considered a liquid security, the investment
manager and the Board of Trustees will take into account the following factors:
(i) the frequency of trades and quotes for the security; (ii) the number of
dealers willing to purchase or sell the security and the number of other
potential purchasers; (iii) dealer undertakings to make a market in the
security; and (iv) the nature of the security and the nature of the marketplace
trades (e.g., the time needed to dispose of the security, the method of
soliciting offers, and the mechanics of transfer).
TRANSACTIONS IN OPTIONS, FUTURES AND OPTIONS ON FINANCIAL FUTURES
Call and Put Options on Securities. The Fund intends to write covered put and
call options and purchase put and call options which trade on securities
exchanges and in the over-the-counter market.
Writing Call and Put Options. Call options written by the Fund give the holder
the right to buy the underlying securities from the Fund at a stated exercise
price; put options written by the Fund give the holder the right to sell the
underlying security to the Fund at a stated exercise price. A call option
written by the Fund is "covered" if the Fund owns the underlying security which
is subject to the call or has an absolute and immediate right to acquire that
security without additional cash consideration (or for additional cash
consideration held in a segregated account by its custodian) upon conversion or
exchange of other securities held in its portfolio. A call option is also
covered if the Fund holds a call on the same security and in the same principal
amount as the call written where the exercise price of the call held (a) is
equal to or less than the exercise price of the call written or (b) is greater
than the exercise price of the call written if the difference is maintained by
the Fund in cash and high grade debt securities in a segregated account with its
custodian. A put option written by the Fund is "covered" if the Fund maintains
cash and high grade debt securities with a value equal to the exercise price in
a segregated account with its custodian, or else holds a put on the same
security and in the same principal amount as the put written where the exercise
price of the put held is equal to or greater than the exercise price of the put
written. The premium paid by the purchaser of an option will reflect, among
other things, the relationship of the exercise price to the market price and
volatility of the underlying security, the remaining term of the option, supply
and demand and interest rates.
The writer of an option may have no control over when the underlying securities
must be sold, in the case of a call option, or purchased, in the case of a put
option, since with regard to certain options, the writer may be assigned an
exercise notice at any time prior to the termination of the obligation. Whether
or not an option expires unexercised, the writer retains the amount of the
premium. This amount, of course, may, in the case of a covered call option, be
offset by a decline in the market value of the underlying security during the
option period. If a call option is exercised, the writer experiences a profit or
loss from the sale of the underlying security. If a put option is exercised, the
writer must fulfill the obligation to purchase the underlying security at the
exercise price, which will usually exceed the then market value of the
underlying security.
The writer of an option that wishes to terminate its obligation may effect a
"closing purchase transaction." This is accomplished by buying an option of the
same series as the option previously written. The effect of the purchase is that
the writer's position will be canceled by the clearing corporation. A writer,
however, may not effect a closing purchase transaction after being notified of
the exercise of an option. Likewise, an investor who is the holder of an option
may liquidate its position by effecting a "closing sale transaction." This is
accomplished by selling an option of the same series as the option previously
purchased. There is no guarantee that either a closing purchase or a closing
sale transaction can be effected.
Effecting a closing transaction in the case of a written call option will permit
the Fund to write another call option on the underlying security with either a
different exercise price or expiration date or both. In the case of a written
put option, a closing transaction will permit the Fund to write another put
option to the extent that the exercise price thereof is secured by deposited
cash or short-term securities. Also, effecting a closing transaction will permit
the cash or proceeds from the concurrent sale of any securities subject to the
option to be used for other Fund investments. If the Fund desires to sell a
particular security from its portfolio on which it has written a call option, it
will effect a closing transaction prior to or concurrent with the sale of the
security.
The Fund will realize a profit from a closing transaction if the price of the
transaction is less than the premium received from writing the option or is more
than the premium paid to purchase the option; the Fund will realize a loss from
a closing transaction if the price of the transaction is more than the premium
received from writing the option or is less than the premium paid to purchase
the option. Because increases in the market price of a call option will
generally reflect increases in the market price of the underlying security, any
loss resulting from the repurchase of a call option is likely to be offset in
whole or in part by appreciation of the underlying security owned by the Fund.
The writing of covered put options involves certain risks. For example, if the
market price of the underlying security rises or otherwise is above the exercise
price, the put option will expire worthless and the Fund's gain will be limited
to the premium received. If the market price of the underlying security declines
or otherwise is below the exercise price, the Fund may elect to close the
position or take delivery of the security at the exercise price, and the Fund's
return will be the premium received from the put options minus the amount by
which the market price of the security is below the exercise price.
Purchasing Call and Put Options. The Fund may purchase call options on
securities which it intends to purchase in order to limit the risk of a
substantial increase in the market price of such security. The Fund may also
purchase call options on securities held in its portfolio and on which it has
written call options. A call option gives the option holder the right to buy the
underlying securities from the option writer at a stated exercise price. Prior
to its expiration, a call option may be sold in a closing sale transaction.
Profit or loss from such a sale will depend on whether the amount received is
more or less than the premium paid for the call option plus the related
transaction costs.
The Fund intends to purchase put options on particular securities in order to
protect against a decline in the market value of the underlying security below
the exercise price less the premium paid for the option. A put option gives the
option holder the right to sell the underlying security at the option exercise
price at any time during the option period. The ability to purchase put options
will allow the Fund to protect the unrealized gain in an appreciated security in
its portfolio without actually selling the security. In addition, the Fund will
continue to receive interest or dividend income on the security. The Fund may
sell a put option which it has previously purchased prior to the sale of the
securities underlying such option. Such sales will result in a net gain or loss
depending on whether the amount received on the sale is more or less than the
premium and other transaction costs paid for the put option that is sold. Such
gain or loss may be wholly or partially offset by a change in the value of the
underlying security which the Fund owns or has the right to acquire.
Over-the-Counter Options ("OTC" options). The Fund intends to write covered put
and call options and purchase put and call options which trade in the
over-the-counter market to the same extent that it will engage in exchange
traded options. Just as with exchange traded options, OTC call options give the
option holder the right to buy an underlying security from an option writer at a
stated exercise price; OTC put options give the holder the right to sell an
underlying security to an option writer at a stated exercise price. OTC options,
however, differ from exchange traded options in certain material respects.
OTC options are arranged directly with dealers and not, as is the case with
exchange traded options, with a clearing corporation. Thus, there is a risk of
non-performance by the dealer. Because there is no exchange, pricing is
typically done by reference to information from market makers. OTC options,
however, are available for a greater variety of securities, and in a wider range
of expiration dates and exercise prices, than exchange traded options; and the
writer of an OTC option is paid the premium in advance by the dealer.
There can be no assurance that a continuous liquid secondary market will exist
for any particular option at any specific time. Consequently, the Fund may be
able to realize the value of an OTC option it has purchased only by exercising
it or entering into a closing sale transaction with the dealer that issued it.
Similarly, when the Fund writes an OTC option, it generally can close out that
option prior to its expiration only by entering into a closing purchase
transaction with the dealer to which the Fund originally wrote it.
Options on Stock Indices. The Fund may also purchase and sell call options on
stock indices in order to hedge against the risk of market or industry-wide
stock price fluctuations. Call and put options on stock indices are similar to
options on securities except that, rather than the right to purchase or sell
stock at a specified price, options on a stock index give the holder the right
to receive, upon exercise of the option, an amount of cash if the closing level
of the underlying stock index is greater than (or less than, in the case of
puts) the exercise price of the option. This amount of cash is equal to the
difference between the closing price of the index and the exercise price of the
option expressed in dollars multiplied by a specified number. Thus, unlike stock
options, all settlements are in cash, and gain or loss depends on price
movements in the stock market generally (or in a particular industry or segment
of the market) rather than price movements in individual stocks.
When the Fund writes an option on a stock index, the Fund will establish a
segregated account containing cash or high quality fixed-income securities with
its custodian in an amount at least equal to the market value of the underlying
stock index and will maintain the account while the option is open or it will
otherwise cover the transaction.
Futures Contracts. The Fund may enter into contracts for the purchase or sale of
futures contracts based upon securities or financial indices ("financial
futures"). Financial futures contracts are commodity contracts that obligate the
long or short holder to take or make delivery of a specified quantity of a
financial instrument, such as a security, or, the cash value of a securities
index during a specified future period at a specified price. A "sale" of a
futures contract means the acquisition of a contractual obligation to deliver
such security or cash value called for by the contract on a specified date. A
"purchase" of a futures contract means the acquisition of a contractual
obligation to take delivery of the security or cash value called for by the
contract at a specified date. Futures contracts have been designed by exchanges
which have been designated "contracts markets" by the Commodity Futures Trading
Commission ("CFTC") and must be executed through a futures commission merchant,
or brokerage firm, which is a member of the relevant contract market.
At the same time a futures contract is purchased or sold, the Fund must allocate
cash or securities as a deposit payment ("initial deposit"). Daily thereafter,
the futures contract is valued and the payment of "variation margin" may be
required since each day the Fund would provide or receive cash that reflects any
decline or increase in the contract's value.
Although futures contracts by their terms call for the actual delivery or
acquisition of securities, or the cash value of the index, in most cases the
contractual obligation is fulfilled before the date of the contract without
having to make or take delivery of the securities or cash. The offsetting of a
contractual obligation is accomplished by buying (or selling, as the case may
be) on a commodities exchange an identical futures contract calling for delivery
in the same month. Such a transaction, which is effected through a member of an
exchange, cancels the obligation to make or take delivery of the securities or
cash. Since all transactions in the futures market are made, offset or fulfilled
through a clearinghouse associated with the exchange on which the contracts are
traded, the Fund will incur brokerage fees when it purchases or sells futures
contracts.
The Fund will not engage in transactions in futures contracts or related options
for speculation but only as a hedge against changes resulting from market
conditions in the values of its securities or securities which it intends to
purchase and, to the extent consistent therewith, to accommodate cash flows. The
Fund will not enter into any stock index or financial futures contract or
related option if, immediately thereafter, more than one-third of the Fund's net
assets would be represented by futures contracts or related options. In
addition, the Fund may not purchase or sell futures contracts or purchase or
sell related options if, immediately thereafter, the sum of the amount of margin
deposits on its existing futures and related options positions and premiums paid
for related options would exceed 5% of the market value of the Fund's total
assets. In instances involving the purchase of futures contracts or related call
options, money market instruments equal to the market value of the futures
contract or related option will be deposited in a segregated account with the
custodian to collateralize such long positions.
The purpose of the acquisition or sale of a futures contract is to attempt to
protect the Fund from fluctuations in price of portfolio securities without
actually buying or selling the underlying security.
To the extent the Fund enters into a futures contract, it will maintain with its
custodian, to the extent required by the rules of the SEC, assets in a
segregated account to cover its obligations with respect to such contract, which
will consist of cash, cash equivalents or high quality debt securities from its
portfolio in an amount equal to the difference between the fluctuating market
value of such futures contract and the aggregate value of the initial and
variation margin payments made by the Fund with respect to such futures
contracts.
Stock Index Futures. As noted above, stock index futures contracts obligate the
seller to deliver (and the purchaser to take) an amount of cash equal to a
specific dollar amount times the difference between the value of a specific
stock index at the close of the last trading day of the contract and the price
at which the agreement is made. No physical delivery of the underlying stocks in
the index is made.
The Fund may sell stock index futures contracts in anticipation of or during a
market decline to attempt to offset the decrease in market value of its equity
securities that might otherwise result. When the Fund is not fully invested in
stocks and anticipates a significant market advance, it may purchase stock index
futures in order to gain rapid market exposure that may in part or entirely
offset increases in the cost of common stocks that it intends to purchase.
Options on Stock Index Futures. The Fund may purchase and sell call and put
options on stock index futures to hedge against risks of marketside price
movements. The need to hedge against such risks will depend on the extent of
diversification of the Fund's common stock portfolio and the sensitivity of such
investments to factors influencing the stock market as a whole.
Call and put options on stock index futures are similar to options on securities
except that, rather than the right to purchase or sell stock at a specified
price, options on a stock index futures give the holder the right to receive
cash. Upon exercise of the option, the delivery of the futures position by the
writer of the option to the holder of the option will be accompanied by delivery
of the accumulated balance in the writer's futures margin account which
represents the amount by which the market price of the futures contract, at
exercise, exceeds, in the case of a call, or is less than, in the case of a put,
the exercise price of the option on the futures contract. If an option is
exercised on the last trading day prior to the expiration date of the option,
the settlement will be made entirely in cash equal to the difference between the
exercise price of the option and the closing price of the futures contract on
the expiration date.
Future Developments. The Fund may take advantage of opportunities in the area of
options and futures contracts and options on futures contracts and any other
derivative investments which are not presently contemplated for use by the Fund
or which are not currently available but which may be developed, to the extent
such opportunities are both consistent with the Fund's investment objective and
legally permissible for the Fund. Prior to investing in any such investment
vehicle, the Fund will supplement its prospectus, if appropriate.
RISK FACTORS AND CONSIDERATIONS REGARDING
OPTIONS, FUTURES AND OPTIONS ON FUTURES
Transactions in options, futures and options on futures are generally considered
"derivative securities." The Fund's ability to hedge effectively all or a
portion of its securities through transactions in options on securities, stock
indexes, stock index futures, financial futures and related options depends on
the degree to which price movements in the underlying security or index
correlate with price movements in the relevant portion of the Fund's securities.
Inasmuch as such securities will not duplicate the components of any index or
such underlying securities, the correlation will not be perfect. Consequently,
the Fund bears the risk that the prices of the securities being hedged will not
move in the same amount as the hedging instrument. It is also possible that
there may be a negative correlation between the index or other securities
underlying the hedging instrument and the hedged securities which would result
in a loss on both such securities and the hedging instrument. Accordingly,
successful use by the Fund of options on securities, stock indexes, stock index
futures, financial futures and related options will be subject to the investment
manager's ability to predict correctly movements in the direction of the
securities markets generally or of a particular segment. This requires different
skills and techniques than predicting changes in the price of individual stocks.
Positions in options, futures and related options on futures may be closed out
only on an exchange which provides a secondary market. There can be no assurance
that a liquid secondary market will exist for any particular option or futures
contract at any specific time. Thus, it may not be possible to close such an
option or futures position. The inability to close options or futures positions
also could have an adverse impact on the Fund's ability to effectively hedge its
securities. The Fund will enter into an option or futures position only if there
appears to be a liquid secondary market for such options or futures.
There can be no assurance that a continuous liquid secondary market will exist
for any particular OTC option at any specific time. Consequently, the Fund may
be able to realize the value of an OTC option it has purchased only by
exercising it or entering into a closing sale transaction with the dealer that
issued it. Similarly, when the Fund writes an OTC option, it generally can close
out that option prior to its expiration only by entering into a closing purchase
transaction with the dealer to which the Fund originally wrote it. If a covered
call option writer cannot effect a closing transaction, it cannot sell the
underlying security until the option expires or the option is exercised.
Therefore, a covered call option writer of an OTC option may not be able to sell
an underlying security even though it might otherwise be advantageous to do so.
Likewise, a secured put writer of an OTC option may be unable to sell the
securities pledged to secure the put for other investment purposes while it is
obligated as a put writer. Similarly, a purchaser of such put or call option
might also find it difficult to terminate its position on a timely basis in the
absence of a secondary market.
The CFTC and the various exchanges have established limits referred to as
"speculative position limits" on the maximum net long or net short position
which any person may hold or control in a particular futures contract. Trading
limits are imposed on the maximum number of contracts which any person may trade
on a particular trading day. An exchange may order the liquidation of positions
found to be in violation of these limits and it may impose other sanctions or
restrictions. The Fund does not believe that these trading and positions limits
will have an adverse impact on the Fund's strategies for hedging its securities.
The ordinary spreads between prices in the cash and futures markets, due to
differences in the natures of those markets, are subject to distortions. First,
all participants in the futures market are subject to initial deposit and
variation margin requirements. Rather than meeting additional variation margin
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced, thus producing distortion. Third, from
the point of view of speculators, the margin deposit requirements in the futures
market are less onerous than margin requirements in the securities market.
Therefore, increased participation by speculators in the futures market may
cause temporary price distortions. Due to the possibility of distortion, a
correct forecast of general interest rate trends by the investment manager may
still not result in a successful transaction.
In addition, futures contracts entail risks. Although the Fund believes that use
of such contracts will be beneficial, if the investment manager's investment
judgment about the general direction of interest rates is incorrect, the Fund's
overall performance would be poorer than if it had not entered into any such
contract. For example, if the Fund has hedged against the possibility of an
increase in interest rates which would adversely affect the price of bonds held
in its portfolio and interest rates decrease instead, the Fund will lose part or
all of the benefit of the increased value of its bonds which it has hedged
because it will have offsetting losses in its futures positions. In addition, in
such situations, if the Fund has insufficient cash, it may have to sell
securities from its portfolio to meet daily variation margin requirements. Such
sales may be, but will not necessarily be, at increased prices which reflect the
rising market. The Fund may have to sell securities at a time when it may be
disadvantageous to do so.
INVESTMENT RESTRICTIONS
The Fund has adopted the following restrictions as fundamental policies, which
means that they may not be changed without the approval of a majority of the
Fund's shareholders. In order to change any of these restrictions (i) 67% or
more of the voting securities present at a meeting of shareholders if the
holders of more than 50% of the voting securities of the Fund are represented at
that meeting or (ii) more than 50% of the outstanding voting securities of the
Fund, whichever is less, must vote to make the change. THE FUND DOES NOT:
1. Invest directly in real estate, except that the Fund could own real estate
directly as a result of a default on debt securities it owns.
2. Make loans to other persons, except by the purchase of bonds, debentures or
similar obligations which are publicly distributed or of a character usually
acquired by institutional investors or through loans of the Fund's portfolio
securities, or to the extent the entry into a repurchase agreement may be deemed
a loan.
3. Borrow money, except from banks in order to meet redemption requests that
might otherwise require the untimely disposition of portfolio securities or for
other temporary or emergency (but not investment) purposes, in an amount up to
10% of the value of the Fund's total assets (including the amount borrowed)
based on the lesser of cost or market, less liabilities (not including the
amount borrowed) at the time the borrowing is made. While borrowings exceed 5%
of the Fund's total assets, the Fund will not make any additional investments.
4. Invest more than 25% of the Fund's assets (at the time of the most recent
investment) in any single industry, except that the Fund will concentrate its
investments in real estate securities, and except that, to the extent this
restriction is applicable, all or substantially all of the assets of the Fund
may be invested in another registered investment company having the same
investment objective and policies as the Fund.
5. Underwrite securities of other issuers (does not preclude the Fund from
obtaining such short-term credit as may be necessary for the clearance of
purchases and sales of its portfolio securities), except that all or
substantially all of the assets of the Fund may be invested in another
registered investment company having the same investment objective and policies
as the Fund.
6. Invest more than 10% of the value of its total assets in illiquid securities
with legal or contractual restrictions on resale (although the Fund may invest
in such securities to the extent permitted under the federal securities laws) or
which are not readily marketable, except that all or substantially all of the
assets of the Fund may be invested in another registered investment company
having the same investment objective and policies as the Fund.
7. Invest in securities which have a record of less than three years continuous
operation, including the operations of any predecessor companies, if more than
5% of the Fund's total assets would be invested in such companies except that
all or substantially all of the assets of the Fund may be invested in another
registered investment company having the same investment objective and policies
as the Fund. (This limitation does not apply to issuers of real estate
investment trusts.)
8. Invest in securities for the purpose of exercising management or control of
the issuer, except that, to the extent this restriction is applicable, all or
substantially all of the assets of the Fund may be invested in another
registered investment company having the same investment objective and policies
as the Fund.
9. Maintain a margin account with a securities dealer or invest in commodities
and commodity contracts, except that the Fund may invest in financial futures
and related options on futures with respect to securities and securities
indices.
10. Lease or acquire any interests, including interest issued by limited
partnerships (other than publicly traded equity securities) in oil, gas, or
other mineral exploration or development programs.
11. Invest in excess of 5% of its total assets in options unrelated to any Fund
transactions in futures, including puts, calls, straddles, spreads, or any
combination thereof.
12. Effect short sales, unless at the time the Fund owns securities equivalent
in kind and amount to those sold (which will normally be for deferring
recognition of gains or losses for tax purposes). (Although the Fund may engage
in short sales if it owns securities equivalent in kind and amount to the
securities sold short, the Fund does not currently intend to employ this
investment technique.)
13. Invest in the securities of other investment companies, except to the extent
permitted by the 1940 Act or other applicable state law, and except in
connection with a merger, consolidation, acquisition or reorganization. To the
extent permitted by exemptions granted under the 1940 Act, the Fund may invest
in shares of one or more money market funds managed by Franklin Advisers, Inc.
or its affiliates.
14. Purchase from or sell to its officers and trustees, or any firm of which any
officer or trustee is a member, as principal, any securities, but may deal with
such persons or firms as brokers and pay a customary brokerage commission; or
purchase or retain securities of any issuer if, to the knowledge of the Fund,
one or more of the officers or trustees of the Fund, or its investment adviser,
own beneficially more than one-half of 1% of the securities of such issuer and
all such officers and trustees together own beneficially more than 5% of such
securities, except that, to the extent this restriction is applicable, all or
substantially all of the assets of the Fund may be invested in another
registered investment company having the same investment objective and policies
as the Fund, or except as permitted under investment restriction Number 13
regarding the purchase of shares of money market funds managed by the Fund's
investment manager or its affiliates.
In addition to these fundamental policies, it is the present policy of the Fund
(which may be changed without the approval of the shareholders) not to pledge,
mortgage or hypothecate the Fund's assets as security for loans, nor to engage
in joint or joint and several trading accounts in securities, except that it may
participate in joint repurchase arrangements, lend its portfolio securities,
invest its short-term cash in shares of one or more investment companies of the
type generally referred to as money market funds, managed by Franklin Advisers,
Inc., or its affiliates, (pursuant to the terms of any order, and any conditions
therein, issued by the SEC permitting such investments), or combine orders to
purchase or sell with orders from other persons to obtain lower brokerage
commissions. The Fund may not invest in excess of 5% of its net assets, valued
at the lower of cost or market, in warrants, nor more than 2% of its net assets
in warrants not listed on either the New York or American Stock Exchange. It is
also the policy of the Fund that it may, consistent with its objective, invest a
portion of its assets, as permitted by the 1940 Act and the rules adopted
thereunder, in securities or other obligations issued by companies engaged in
securities related businesses, including such companies that are securities
brokers, dealers, underwriters or investment advisers.
The investment objective of the Fund is a fundamental policy and may only be
changed with the approval of shareholders of the Fund.
Portfolio Turnover. The Fund expects that its annual portfolio turnover rate
will generally not exceed 100%, but this rate should not be construed as a
limiting factor. High portfolio turnover increases transaction costs which must
be paid by the Fund. High turnover may also result in the realization of net
capital gain, which is taxable when distributed to shareholders.
OFFICERS AND TRUSTEES
The Board of Trustees has the responsibility for the overall management of the
Fund, including general supervision and review of its investment activities. The
trustees, in turn, elect the officers of the Fund who are responsible for
administering the day-to-day operations of the Fund. The affiliations of the
officers and trustees and their principal occupations for the past five years
are listed below. Trustees who are deemed to be "interested persons" of the
Fund, as defined in the 1940 Act, are indicated by an asterisk (*).
POSITIONS AND OFFICES PRINCIPAL OCCUPATIONS
NAME AND ADDRESS WITH THE FUND DURING PAST FIVE YEARS
Frank H. Abbott, III (74)
1045 Sansome St.
San Francisco, CA 94111
Trustee
President and Director, Abbott Corporation (an investment company); and
director, trustee or managing general partner, as the case may be, of 31 of the
investment companies in the Franklin Group of Funds.
Harris J. Ashton (63)
General Host Corporation
Metro Center, 1 Station Place
Stamford, CT 06904-2045
Trustee
President, Chief Executive Officer and Chairman of the Board, General Host
Corporation (nursery and craft centers); Director, RBC Holdings, Inc. (a bank
holding company) and Bar-S Foods; and director, trustee or managing general
partner, as the case may be, of 55 of the investment companies in the Franklin
Templeton Group of Funds.
*Harmon E. Burns (50)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Trustee
Executive Vice President, Secretary and Director, Franklin Resources, Inc.;
Executive Vice President and Director, Franklin Templeton Distributors, Inc.;
Executive Vice President, Franklin Advisers, Inc.; Director, Franklin/Templeton
Investor Services, Inc.; officer and/or director, as the case may be, of other
subsidiaries of Franklin Resources, Inc.; and officer and/or director or trustee
of 42 of the investment companies in the Franklin Templeton Group of Funds.
S. Joseph Fortunato (63)
Park Avenue at Morris County
P. O. Box 1945
Morristown, NJ 07962-1945
Trustee
Member of the law firm of Pitney, Hardin, Kipp & Szuch; Director of General Host
Corporation; director, trustee or managing general partner, as the case may be,
of 57 of the investment companies in the Franklin Templeton Group of Funds.
David W. Garbellano (80)
111 New Montgomery St., #402
San Francisco, CA 94105
Trustee
Private Investor; Assistant Secretary/Treasurer and Director, Berkeley Science
Corporation (a venture capital company); and director, trustee or managing
general partner, as the case may be, of 30 of the investment companies in the
Franklin Group of Funds.
*Charles B. Johnson (62)
777 Mariners Island Blvd.
San Mateo, CA 94404
Chairman of the Board and Trustee
President and Director, Franklin Resources, Inc.; Chairman of the Board and
Director, Franklin Advisers, Inc. and Franklin Templeton Distributors, Inc.;
Director, Franklin/Templeton Investor Services, Inc. and General Host
Corporation; and officer and/or director, trustee or managing general partner,
as the case may be, of most other subsidiaries of Franklin Resources, Inc. and
of 56 of the investment companies in the Franklin Templeton Group of Funds.
*Rupert H. Johnson, Jr. (55)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Trustee
Executive Vice President and Director, Franklin Resources, Inc. and Franklin
Templeton Distributors, Inc.; President and Director, Franklin Advisers, Inc.;
Director, Franklin/Templeton Investor Services, Inc.; and officer and/or
director, trustee or managing general partner, as the case may be, of most other
subsidiaries of Franklin Resources, Inc. and of most43 of the investment
companies in the Franklin Templeton Group of Funds.
Frank W. T. LaHaye (66)
20833 Stevens Creek Blvd.
Suite 102
Cupertino, CA 95014
Trustee
General Partner, Peregrine Associates and Miller & LaHaye, which are General
Partners of Peregrine Ventures and Peregrine Ventures II (venture capital
firms); Chairman of the Board and Director, Quarterdeck Office Systems, Inc.;
Director, FischerImaging Corporation; and director or trustee, as the case may
be, of 26 of the investment companies in the Franklin Group of Funds.
Gordon S. Macklin (67)
8212 Burning Tree Road
Bethesda, MD 20817
Trustee
Chairman, White River Corporation (information services); Director, Fund
American Enterprises Holdings, Inc., Lockheed Martin Corporation, MCI
Communications Corporation, Med Immune, Inc. (biotechnology), InfoVest
Corporation (information services), and Fusion Systems Corporation (industrial
technology); and director, trustee or managing general partner, as the case may
be, of 52 of the investment companies in the Franklin Templeton Group of Funds;
formerly Chairman, Hambrecht and Quist Group; Director, H & Q Healthcare
Investors; and formerly President, National Association of Securities Dealers,
Inc.
Kenneth V. Domingues (62)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President - Financial Reporting and Accounting Standards
Senior Vice President, Franklin Resources, Inc., Franklin Advisers, Inc., and
Franklin Templeton Distributors, Inc.; officer and/or director, as the case may
be, of other subsidiaries of Franklin Resources, Inc.; and Officer and/or
managing general partner, as the case may be, of 37 of the investment companies
in the Franklin Group of Funds.
Martin L. Flanagan (35)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Chief Financial Officer
Senior Vice President, Chief Financial Officer and Treasurer, Franklin
Resources, Inc.; Executive Vice President, Templeton Worldwide, Inc.; Senior
Vice President and Treasurer, Franklin Advisers, Inc. and Franklin Templeton
"" Distributors, Inc.; Senior Vice President, Franklin/Templeton Investor
Services, Inc.; officer of most other subsidiaries of Franklin Resources, Inc.;
and officer of 61 of the investment companies in the Franklin Templeton Group of
Funds.
Deborah R. Gatzek (46)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Secretary
Senior Vice President - Legal, Franklin Resources, Inc. and
Franklin Templeton Distributors, Inc.; Vice President, Franklin Advisers, Inc.
and officer of 37 of the investment companies in the Franklin Group of Funds.
Charles E. Johnson (39)
777 Mariners Island Blvd.
San Mateo CA 94404
Vice President
Senior Vice President and Director, Franklin Resources, Inc.; Senior Vice
President, Franklin Templeton Distributors, Inc.; President and Director,
Templeton Worldwide, Inc. and Franklin Institutional Services Corporation;
officer and/or director, as the case may be, of some of the subsidiaries of
Franklin Resources, Inc. and officer and/or director or trustee, as the case may
be, of 24 of the investment companies in the Franklin Templeton Group of Funds.
Diomedes Loo-Tam (56)
777 Mariners Island Blvd.
San Mateo, CA 94404
Treasurer and Principal Accounting Officer
Employee of Franklin Advisers, Inc.; and officer of 37 of the investment
companies in the Franklin Group of Funds.
Edward V. McVey (58)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Senior Vice President/National Sales Manager, Franklin Templeton Distributors,
Inc.; and officer of 32 of the investment companies in the Franklin Group of
Funds.
(Registered Trademark)Trustees not affiliated with the investment manager may be
but are not currently paid fees or expenses incurred in connection with
attending meetings. As indicated above, certain of the trustees and officers
hold positions with other companies in the Franklin Group of Funds(Registered
Trademark) and the Templeton Funds ("Franklin Templeton Funds"). The following
table indicates the total fees received by such trustees from other Franklin
Templeton Funds for which they serve as directors, trustees or managing general
partners.
<TABLE>
<CAPTION>
NUMBER OF FRANK- TOTAL COMPENSATION
LIN TEMPLETON FROM FRANKLIN
BOARDS ON WHICH TEMPLETON FUNDS, IN-
NAME EACH SERVES* CLUDING THE FUND**
- ---- ------------ ------------------
<S> <C> <C>
Mr. Abbott 30 $176,870
Mr. Ashton 54 $319,925
Mr. Fortunato 56 $336,065
Mr. Garbellano 29 $153,300
Mr. LaHaye 25 $150,817
Mr. Macklin 51 $303,685
</TABLE>
* The number of boards is based on the number of registered investment companies
in the Franklin Templeton Group of Funds and does not include the total number
of series or funds within each investment company for which the directors are
responsible. The Franklin Templeton Group of Funds currently includes 61
registered investment companies, consisting of more than 112 U.S. based mutual
funds or series. **For the calendar year ended December 31, 1994.
No officer or director received any other compensation directly from the Fund.
As of June 5, 1995, the trustees and officers, as a group, owned of record and
beneficially approximately 972 shares or less than 1% of the total outstanding
shares of the Class I. In addition, many of the Fund's trustees own shares in
various of the other funds in the Franklin Group of Funds and the Templeton
Group of Funds. Certain officers or trustees who are shareholders of Franklin
Resources, Inc. may be deemed to receive indirect remuneration by virtue of
their participation, if any, in the fees paid to its subsidiaries. Charles E.
Johnson is the son and nephew, respectively, of Charles B. Johnson and Rupert H.
Johnson, Jr., who are brothers.
' '
INVESTMENT MANAGEMENT AND
OTHER SERVICES
The investment manager of the Fund is Franklin Advisers, Inc. ("Advisers" or
"Manager"). Advisers is a wholly-owned subsidiary of Franklin Resources, Inc.
("Resources"), a publicly owned holding company whose shares are listed on the
New York Stock Exchange (the "Exchange"). Resources owns several other
subsidiaries which are involved in investment management and shareholder
services. The Manager and other subsidiary companies of Resources currently
manage over $121 billion in assets for more than 3.8 million shareholders. The
preceding table indicates those officers and trustees who are also affiliated
persons of Distributors and Advisers.
Pursuant to the management agreement, the Manager provides investment research
and portfolio management services, including the selection of securities for the
Fund to purchase, hold or sell and the selection of brokers through whom the
Fund's portfolio transactions are executed. The Manager's activities are subject
to the review and supervision of the Board of Trustees to whom the Manager
renders periodic reports of the Fund's investment activities. The Manager, at
its own expense, furnishes the Fund with office space and office furnishings,
facilities and equipment required for managing the business affairs of the Fund;
maintains all internal bookkeeping, clerical, secretarial and administrative
personnel and services; and provides certain telephone and other mechanical
services. The Manager is covered by fidelity insurance on its officers,
directors and employees for the protection of the Fund. The Fund bears all of
its expenses not assumed by the Manager. See the Statement of Operations
included in the Fund's Annual Report to Shareholders date April 30,l 1995.
Pursuant to the management agreement, the Fund is obligated to pay the Manager a
fee computed at the close of business on the last business day of each month
equal to an annual rate of 0.625 of 1% of the value of average daily net assets
up to and including $100 million; 0.50 of 1% of the value of average daily net
assets over $100 million up to and including $250 million; 0.45 of 1% of the
value of average daily net assets over $250 million up to and including $10
billion; 0.44 of 1% of the value of average daily net assets over $10 billion up
to and including $12.5 billion; 0.42 of 1% of the value of average daily net
assets over $12.5 billion up to and including $15 billion; and 0.40 of 1% of the
value of average daily net assets over $15 billion. Each class will pay its
share of the fee as determined by the proportion of the Fund that it represents.
The management agreement specifies that the management fee will be reduced to
the extent necessary to comply with the most stringent limits on the expenses
which may be borne by the Fund as prescribed by any state in which the Fund's
shares are offered for sale. The most stringent current limit requires the
Manager to reduce or eliminate its fee to the extent that aggregate operating
expenses of the Fund (excluding interest, taxes, brokerage commissions and
extraordinary expenses such as litigation costs) would otherwise exceed in any
fiscal year 2.5% of the first $30 million of average net assets of the Fund, 2%
of the next $70 million of average net assets of the Fund and 1.5% of average
net assets of the Fund in excess of $100 million. 'Expense reductions have not
been necessary based on state requirements. '
In addition, the Manager will limit its management fees and assume
responsibility for certain other expenses during the formation stages of the
Fund, as described in the Prospectus of the Fund. This action by the Manager to
limit its management fees and assume responsibility for payment of certain
expenses may be cancelled or modified at any time. For the Fund's fiscal period
ended April 30, 1994, and fiscal year ended April 30, 1995, the management fees
the Fund was contractually obligated to pay the Manager were $6,042 and $81,809,
respectively, and the management fees actually paid by the Fund for the same
period s were none.
The management agreement is in effect until April 30, 1996. Thereafter, it may
continue in effect for successive annual periods providing such continuance is
specifically approved at least annually by a vote of the Trust's Board of
Trustees or by a vote of the holders of a majority of the Fund's outstanding
voting securities and, in either event, by a majority vote of the trustees who
are not parties to the management agreement or interested persons of any such
party (other than as trustees of the Trust), cast in person at a meeting called
for that purpose. The management agreement may be terminated without penalty at
any time by the Board of Trustees of the Trust, by vote of the majority of the
Fund's outstanding shares or by the Manager on 60 days' written notice and will
automatically terminate in the event of its assignment, as defined in the 1940
Act.
Franklin/Templeton Investor Services, Inc. ("Investor Services" or "Shareholder
Services Agent"), a wholly-owned subsidiary of Resources, is the shareholder
servicing agent for the Fund and acts as the Fund's transfer agent and
dividend-paying agent. Investor Services is compensated on the basis of a fixed
fee per account.
Bank of America NT & SA, 555 California Street, 4th Floor, San Francisco,
California 94104, acts as custodian of the securities and other assets of the
Fund. Citibank Delaware, One Penn's Way, New Castle, Delaware 19720, acts as
custodian in connection with transfer services through bank automated clearing
houses. The custodians do not participate in decisions relating to the purchase
and sale of portfolio securities.
Coopers & Lybrand, L.L.P., 333 Market Street, San Francisco, California 94105,
are the Fund's independent auditors. During the fiscal year ended April 30,
1995, their audit services consisted of rendering an opinion of the financial
statements of the Fund included in the Fund's Annual Report and this Statement
of Additional Information.
THE FUND'S POLICIES REGARDING
BROKERS USED ON PORTFOLIO TRANSACTIONS
Under the current management agreement with Advisers, the selection of brokers
and dealers to execute transactions in the Fund's portfolio is made by the
Manager in accordance with criteria set forth in the management agreement and
any directions which the Board of Trustees may give.
When placing a portfolio transaction, the Manager attempts to obtain the best
net price and execution of the transaction. On portfolio transactions which are
done on a securities exchange, the amount of commission paid by the Fund is
negotiated between the Manager and the broker executing the transaction. The
Manager seeks to obtain the lowest commission rate available from brokers which
are felt to be capable of efficient execution of the transactions. The
determination and evaluation of the reasonableness of the brokerage commissions
paid in connection with portfolio transactions are based to a large degree on
the professional opinions of the persons responsible for the placement and
review of such transactions. These opinions are formed on the basis of, among
other things, the experience of these individuals in the securities industry and
information available to them concerning the level of commissions being paid by
other institutional investors of comparable size. The Manager will ordinarily
place orders for the purchase and sale of over-the-counter securities on a
principal rather than agency basis with a principal market maker unless, in the
opinion of the Manager, a better price and execution can otherwise be obtained.
Purchases of portfolio securities from underwriters will include a commission or
concession paid by the issuer to the underwriter, and purchases from dealers
will include a spread between the bid and ask price. The Fund seeks to obtain
prompt execution of orders at the most favorable net price.
The amount of commission is not the only relevant factor to be considered in the
selection of a broker to execute a trade. If it is felt to be in the Fund's best
interests, the Manager may place portfolio transactions with brokers who provide
the types of services described below, even if it means the Fund will have to
pay a higher commission than would be the case if no weight were given to the
broker's furnishing of these services. This will be done only if, in the opinion
of the Manager, the amount of any additional commission is reasonable in
relation to the value of the services. Higher commissions will be paid only when
the brokerage and research services received are bona fide and produce a direct
benefit to the Fund or assist the Manager in carrying out its responsibilities
to the Fund, or when it is otherwise in the best interest of the Fund to do so,
whether or not such data may also be useful to the Manager in advising other
clients.
When it is felt that several brokers are equally able to provide the best net
price and execution, the Manager may decide to execute transactions through
brokers who provide quotations and other services to the Fund, specifically
including the quotations necessary to determine the value of the Fund's net
assets, in such amount of total brokerage as may reasonably be required in light
of such services, and through brokers who supply research, statistical and other
data to the Fund and Manager in such amount of total brokerage as may reasonably
be required.
It is not possible to place a dollar value on the special executions or on the
research services received by Advisers from dealers effecting transactions in
portfolio securities. The allocation of transactions in order to obtain
additional research services permits Advisers to supplement its own research and
analysis activities and to receive the views and information of individuals and
research staff of other securities firms. As long as it is lawful and
appropriate to do so, the Manager and its affiliates may use this research and
data in their investment advisory capacities with other clients. Provided that
the Fund's officers are satisfied that the best execution is obtained, the sale
of Fund shares may also be considered as a factor in the selection of
securitiesbroker dealers to execute the Fund's portfolio transactions.
Because Distributors is a member of the National Association of Securities
Dealers, it is sometimes entitled to obtain certain fees when the Fund tenders
portfolio securities pursuant to a tender-offer solicitation. As a means of
recapturing brokerage for the benefit of the Fund, any portfolio securities
tendered by the Fund will be tendered through Distributors if it is legally
permissible to do so. In turn, the next management fee payable to Advisers under
the management agreement will be reduced by the amount of any fees received by
Distributors in cash, less any costs and expenses incurred in connection
therewith.
If purchases or sales of securities of the Fund and one or more other investment
companies or clients supervised by the Manager are considered at or about the
same time, transactions in such securities will be allocated among the several
investment companies and clients in a manner deemed equitable to all by the
Manager, taking into account the respective sizes of the funds and the amount of
securities to be purchased or sold. It is recognized that in some cases this
procedure could possibly have a detrimental effect on the price or volume of the
security so far as the Fund is concerned. In other cases it is possible that the
ability to participate in volume transactions and to negotiate lower brokerage
commissions will be beneficial to the Fund.
During the fiscal year ended April 30, 1995, the Fund paid total brokerage
commissions of $25,162. As of that date, the Fund did not own any securities of
its regular broker-dealers.
ADDITIONAL INFORMATION
REGARDING FUND SHARES
All checks, drafts, wires and other payment mediums used for purchasing or
redeeming shares of the Fund must be denominated in U.S. dollars. The Fund
reserves the right, in its sole discretion, to either (a) reject any order for
the purchase or sale of shares denominated in any other currency, or (b) honor
the transaction or make adjustments to a shareholder's account for the
transaction as of a date and with a foreign currency exchange factor determined
by the drawee bank.
In connection with exchanges (see ""the Prospectus "Exchange Privilege"), it
should be noted that since the proceeds from the sale of shares of an investment
company generally are not available until the fifth business day following the
redemption, the funds into which the Fund shareholders are seeking to exchange
reserve the right to delay issuing shares pursuant to an exchange until said
fifth business day. The redemption of shares of the Fund to complete an exchange
for shares of any of the investment companies will be effected at the close of
business on the day the request for exchange is received in proper form at the
net asset value then effective.
If a substantial portion of the Fund's shareholders should, within a short
period, elect to redeem their shares of the Fund pursuant to the exchange
privilege, the Fund might have to liquidate portfolio securities it might
otherwise hold and incur the additional costs related to such transactions. On
the other hand, increased use of the exchange privilege may result in periodic
large inflows of money. If this should occur, it is the general policy of the
Fund to initially invest this money in short-term, interest-bearing money market
instruments, unless it is felt that attractive investment opportunities
consistent with the Fund's investment objectives exist immediately.
Subsequently, this money will be withdrawn from such short-term money market
instruments and invested in portfolio securities in as orderly a manner as is
possible when attractive investment opportunities arise.
Dividend checks which are returned to the Fund marked "unable to forward" by the
postal service will be deemed to be a request by the shareholder to change the
dividend option, and the proceeds will be reinvested in additional shares at net
asset value until new instructions are received.
The Fund may impose a $10 charge for each returned item , against any
shareholder account which, in connection with the purchase of Fund shares,
submits a check or a draft which is returned unpaid to the Fund.
The Fund may deduct from a shareholder's account the costs of its efforts to
locate a shareholder if mail is returned as undeliverable or the Fund is
otherwise unable to locate the shareholder or verify the current mailing
address. These costs may include a percentage of the account when a search
company charges a percentage fee in exchange for its location services.
Under agreements with certain banks in Taiwan, Republic of China, the Fund's
shares are available to such banks' discretionary trust funds at net asset
value. The banks may charge service fees to their customers who participate in
the discretionary trusts. Pursuant to agreements, a portion of such service fees
may be paid to Distributors, or an affiliate of Distributors, to help defray
expenses of maintaining a service office in Taiwan, including expenses related
to local literature fulfillment and communication facilities.
Class I shares of the Fund may be offered to investors in Taiwan through
securities firms known locally as Securities Investment Consulting Enterprises.
In conformity with local business practices in Taiwan, Class I shares of the
Fund will be offered with the following schedule of sales charges:
SALES
SIZE OF PURCHASE CHARGE
---------------- ------
Up to U.S. $100,000 3%
U.S. $100,000 to U.S. $1,000,000 2%
Over U.S. $1,000,000 1%
PURCHASES AND REDEMPTIONS
THROUGH SECURITIES DEALERS
Orders for the purchase of shares of the Fund received in proper form prior to
the close of the Exchange (generally 1:00 p.m. Pacific time) any business day
that the Exchange is open for trading and promptly transmitted to the Fund will
be based upon the public offering price determined that day. Purchase orders
received by securities dealers or other financial institutions after the close
of the Exchange (generally 1:00 p.m. Pacific time) will be effected at the
Fund's public offering price on the day it is next calculated. The use of the
term "securities dealer" herein shall include other financial institutions
which, pursuant to an agreement with Distributors (directly or through
affiliates), handle customer orders and accounts with the Fund. Such reference,
however, is for convenience only and does not indicate a legal conclusion of
capacity.
Orders for the redemption of shares are effected at net asset value subject to
the same conditions concerning time of receipt in proper form. It is the
securities dealer's responsibility to transmit the order in a timely fashion,
and any loss to the customer resulting from failure to do so must be settled
between the customer and the securities dealer.
DESCRIPTION OF SPECIAL NET ASSET VALUE PURCHASES - CLASS I SHARES
As discussed in the Prospectus under "How to Buy Shares of the Fund -
Description of Special Net Asset Value Purchases," certain categories of
investors may purchase Class I shares of the Fund without a front-end sales
charge ("net asset value") or a contingent deferred sales charge. Distributors
or one of its affiliates may make payments, out of its own resources, to
securities dealers who initiate and are responsible for such purchases, as
indicated below. Distributors may make these payments in the form of contingent
advance payments, which may be recovered from the securities dealer, or set off
against other payments due to the securities dealer, in the event of investor
redemptions made within 12 months of the calendar month following purchase.
Other conditions may apply. All terms and conditions may be imposed by an
agreement between Distributors, or its affiliates, and the securities dealer.
The following amounts may be paid by Distributors or one of its affiliates, out
of its own resources, to securities dealers who initiate and are responsible for
(i) purchases of most equity and taxable-income Franklin Templeton Funds made at
net asset value by certain designated retirement plans (excluding IRA and IRA
rollovers): 1.00% on sales of $1 million but less than $2 million, plus 0.80% on
sales of $2 million but less than $3 million, plus 0.50% on sales of $3 million
but less than $50 million, plus 0.25% on sales of $50 million but less than $100
million, plus 0.15% on sales of $100 million or more; and (ii) purchases of most
taxable income Franklin Templeton Funds made at net asset value by
non-designated retirement plans: 0.75% on sales of $1 million but less than $2
million, plus 0.60% on sales of $2 million but less than $3 million, plus 0.50%
on sales of $3 million but less than $50 million, plus 0.25% on sales of $50
million but less than $100 million, plus 0.15% on sales of $100 million or more.
These payment breakpoints are reset every 12 months for purposes of additional
purchases. With respect to purchases made at net asset value by certain trust
companies and trust departments of banks and certain retirement plans of
organizations with collective retirement plan assets of $10 million or more,
Distributors, or one of its affiliates, out of its own resources, may pay up to
1% of the amount invested.
LETTER OF INTENT. An investor may qualify for a reduced sales charge on the
purchase of Class I shares of the Fund, as described in the prospectus. At any
time within 90 days after the first investment which the investor wants to
qualify for the reduced sales charge, a signed Shareholder Application, with the
Letter of Intent section completed, may be filed with the Fund. After the Letter
of Intent is filed, each additional investment will be entitled to the sales
charge applicable to the level of investment indicated on the Letter. Sales
charge reductions based upon purchases in more than one of the Franklin
Templeton Funds will be effective only after notification to Distributors that
the investment qualifies for a discount. The shareholder's holdings in the
Franklin Templeton Funds, including Class II shares, acquired more than 90 days
before the Letter of Intent is filed will be counted towards completion of the
Letter of Intent but will not be entitled to a retroactive downward adjustment
in the sales charge. Any redemptions made by the shareholder, other than by a
designated benefit plan during the 13-month period will be subtracted from the
amount of the purchases for purposes of determining whether the terms of the
Letter of Intent have been completed. If the Letter of Intent is not completed
within the 13-month period, there will be an upward adjustment of the sales
charge, depending upon the amount actually purchased (less redemptions) during
the period. The upward adjustment does not apply to designated benefit plans. An
investor who executes a Letter of Intent prior to a change in the sales charge
structure for the Fund will be entitled to complete the Letter of Intent at the
lower of (i) the new sales charge structure; or (ii) the sales charge structure
in effect at the time the Letter of Intent was filed with the Fund.
As mentioned in the Prospectus, five percent (5%) of the amount of the total
intended purchase will be reserved in shares of the Fund registered in the
investor's name, unless the investor is a designated benefit plan. If the total
purchases, less redemptions, equal the amount specified under the Letter, the
reserved shares will be deposited to an account in the name of the investor or
delivered to the investor or the investor's order. If the total purchases, less
redemptions, exceed the amount specified under the Letter of Intent and is an
amount which would qualify for a further quantity discount, a retroactive price
adjustment will be made by Distributors and the securities dealer through whom
purchases were made pursuant to the Letter of Intent (to reflect such further
quantity discount) on purchases made within 90 days before and on those made
after filing the Letter. The resulting difference in offering price will be
applied to the purchase of additional shares at the offering price applicable to
a single purchase or the dollar amount of the total purchases. If the total
purchases, less redemptions, are less than the amount specified under the
Letter, the investor will remit to Distributors an amount equal to the
difference in the dollar amount of sales charge actually paid and the amount of
sales charge which would have applied to the aggregate purchases if the total of
such purchases had been made at a single time. The shareholder will receive a
written notification from Distributors requesting the remittance. Upon such
remittance the reserved shares held for the investor's account will be deposited
to an account in the name of the investor or delivered to the investor or to the
investor's order. If within 20 days after written request such difference in
sales charge is not paid, the redemption of an appropriate number of reserved
shares to realize such difference will be made. In the event of a total
redemption of the account prior to fulfillment of the Letter of Intent, the
additional sales charge due will be deducted from the proceeds of the
redemption, and the balance will be forwarded to the investor.
If a Letter of Intent is executed on behalf of a benefit plan (such plans are
described under "Purchases at Net Asset Value" in the Prospectus), the level and
any reduction in sales charge for these designated benefit plans will be based
on actual plan participation and the projected investments in the Franklin
Templeton Funds under the Letter of Intent. Benefit plans are not subject to the
requirement to reserve 5% of the total intended purchase, or to any penalty as a
result of the early termination of a plan, nor are benefit plans entitled to
receive retroactive adjustments in price for investments made before executing
the Letter of Intent.
REDEMPTIONS IN KIND
The Fund has committed itself to pay in cash (by check) all requests for
redemption by any shareholder of record, limited in amount, however, during any
90-day period to the lesser of $250,000 or 1% of the value of the Fund's net
assets at the beginning of such period. Such commitment is irrevocable without
the prior approval of the SEC. In the case of requests for redemption in excess
of such amounts, the Trustees reserve the right to make payments in whole or in
part in securities or other assets of the Fund from which the shareholder is
redeeming in case of an emergency, or if the payment of such a redemption in
cash would be detrimental to the existing shareholders of the Fund. In such
circumstances, the securities distributed would be valued at the price used to
compute the Fund's net assets. Should the Fund do so, a shareholder may incur
brokerage fees in converting the securities to cash. The Fund does not intend to
redeem illiquid securities in kind; however, should it happen, shareholders may
not be able to timely recover their investment and may also incur brokerage
costs in selling such securities.
REDEMPTIONS BY THE FUND
Due to the relatively high cost of handling small investments, the Fund reserves
the right to redeem, involuntarily, at net asset value, the shares of any
shareholder whose account has a value of less than one-half of the initial
minimum investment required for that shareholder, but only where the value of
such account has been reduced by the shareholder's prior voluntary redemption of
shares. Until further notice, it is the present policy of the Fund not to
exercise this right with respect to any shareholder whose account has a value of
$50 or more. In any event, before the Fund redeems such shares and sends the
proceeds to the shareholder, it will notify the shareholder that the value of
the shares in the account is less than the minimum amount and allow the
shareholder 30 days to make an additional investment in an amount which will
increase the value of the account to at least $100.
CALCULATION OF NET ASSET VALUE
As noted in the Prospectus, the Fund generally calculates net asset value of
each class as of the close of the Exchange (generally 1:00 p.m. Pacific time)
each day that the Exchange is open for trading. As of the date of this SAI, the
Fund is informed that the Exchange observes the following holidays: New Year's
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
The Fund's portfolio securities are valued as stated in the Prospectus.
Generally, trading in corporate bonds, U.S. government securities and money
market instruments is substantially completed each day at various times prior to
the close of the Exchange. The values of such securities used in computing the
net asset value of the Fund's shares are determined as of such times.
Occasionally, events affecting the values of such securities may occur between
the time at which they are determined and the close of the Exchange (generally
1:00 p.m. Pacific time) which will not be reflected in the computation of the
Fund's net asset value. If events materially affecting the value of such
securities occur during such period, then these securities will be valued at
their fair value as determined in good faith by the Board of Trustees.
REINVESTMENT DATE
Shares acquired through the reinvestment of dividends will be purchased at the
net asset value determined on the business day following the dividend record
date (sometimes known as "ex-dividend date"). The processing date for the
reinvestment of dividends may vary from month to month, and does not affect the
amount or value of the shares acquired.
REPORTS TO SHAREHOLDERS
The Fund sends annual and semiannual reports to its shareholders regarding the
Fund's performance and its portfolio holdings. Shareholders who would like to
receive an interim quarterly report may phone Fund Information at 1-800 DIAL
BEN.
SPECIAL SERVICES
The Trust and Institutional Services Division of Distributors provides
specialized services, including recordkeeping for institutional investors of the
Fund. The cost of these services is not borne by the Fund.
Investor Services may pay certain financial institutions which maintain omnibus
accounts with the Fund on behalf of numerous beneficial owners for recordkeeping
operations performed with respect to such beneficial owners. For each beneficial
owner in the omnibus account, the Fund may reimburse Investor Services an amount
not to exceed the per account fee which the Fund normally pays Investor
Services. Such financial institutions may also charge a fee for their services
directly to their clients.
ADDITIONAL INFORMATION REGARDING TAXATION
As stated in the Prospectus, the Fund has elected to be treated as a regulated
investment company under Subchapter M of the Code. The trustees reserve the
right not to maintain the qualification of the Fund as a regulated investment
company if they determine such course of action to be beneficial to the
shareholders. In such case, the Fund will be subject to federal and possibly
state corporate taxes on its taxable income and gains, and distributions to
shareholders will be ordinary dividend income to the extent of the Fund's
available earnings and profits.
The Code requires all funds to distribute at least 98% of their taxable ordinary
income earned during the calendar year and at least 98% of their capital gain
net income earned during the twelve-month period ending October 31 of each year
(in addition to amounts from the prior year that were neither distributed nor
taxed to the Fund) to shareholders by December 31 of each year in order to avoid
the imposition of a federal excise tax. Under these rules, certain distributions
which are declared in October, November or December but which, for operational
reasons, may not be paid to the shareholder until the following January, will be
treated for tax purposes as if paid by the Fund and received by the shareholder
on December 31 of the calendar year in which they are declared. The Fund intends
as a matter of policy to declare and pay such dividends, if any, in December to
avoid the imposition of this tax, but does not guarantee that its distributions
will be sufficient to avoid any or all federal excise taxes.
Redemptions and exchanges of Fund shares are taxable transactions for federal
and state income tax purposes. For most shareholders, gain or loss will be
recognized in an amount equal to the difference between the shareholder's basis
in the shares and the amount received, subject to the rules described below. If
such shares are a capital asset in the hands of the shareholder, gain or loss
will be capital gain or loss and will be long-term for federal income tax
purposes if the shares have been held for more than one year.
All or a portion of the sales charge incurred in purchasing shares of the Fund
will not be included in the federal tax basis of such shares sold or exchanged
within ninety (90) days of their purchase (for purposes of determining gain or
loss with respect to such shares) if the sales proceeds are reinvested in the
Fund or in another fund in the Franklin/Templeton Group and a sales charge which
would otherwise apply to the reinvestment is reduced or eliminated. Any portion
of such sales charge excluded from the tax basis of the shares sold will be
added to the tax basis of the shares acquired in the reinvestment. Shareholders
should consult with their tax advisors concerning the tax rules applicable to
the redemption or exchange of Fund shares.
All or a portion of a loss realized upon a redemption of shares will be
disallowed to the extent other shares of the Fund are purchased (through
reinvestment of dividends or otherwise) within 30 days before or after such
redemption. Any loss disallowed under these rules will be added to the tax basis
of the shares purchased.
The Fund's investment in options and futures contracts, including stock options,
stock index options, stock index futures and options on stock index futures are
subject to many complex and special tax rules. For example, over-the-counter
options on debt securities and equity options, including options on stock and on
narrow-based stock indexes, will be subject to tax under Section 1234 of the
Code, generally producing a long-term or short-term capital gain or loss upon
exercise, lapse, or closing out of the option or sale of the underlying stock or
security. By contrast, the Fund treatment of certain other options, futures and
forward contracts entered into by the Fund is generally governed by Section 1256
of the Code. These "Section 1256" positions generally include listed options on
debt securities, options on broad-based stock indexes, options on securities
indexes, options on futures contracts, regulated futures contracts and certain
foreign currency contracts and options thereon.
Absent a tax election to the contrary, each such Section 1256 position held by
the Fund will be marked-to-market (i.e., treated as if it were sold for fair
market value) on the last business day of the Fund's fiscal year, and all gain
or loss associated with fiscal year transactions and mark-to-market positions at
fiscal year end (except certain foreign currency gain or loss covered by Section
988 of the Code) will generally be treated as 60% long-term capital gain or loss
and 40% short-term capital gain or loss. The effect of Section 1256
mark-to-market rules may be to accelerate income or to convert what otherwise
would have been long-term capital gains into short-term capital gains or
short-term capital losses into long-term capital losses within the Fund. The
acceleration of income on Section 1256 positions may require the Fund to
recognize taxable income without the corresponding receipt of cash. In order to
generate cash to satisfy the distribution requirements of the Code, the Fund may
be required to dispose of portfolio securities that it otherwise would have
continued to hold or to use cash flows from other sources such as the sale of
Fund shares. In these ways, any or all of these rules may affect both the
amount, character and timing of income distributed to shareholders by the Fund.
When the Fund holds an option or contract which substantially diminishes the
Fund's risk of loss with respect to another position of the Fund (as might occur
in some hedging transactions), this combination of positions could be treated as
a "straddle" for tax purposes, resulting in possible deferral of losses,
adjustments in the holding periods of Fund securities and conversion of
short-term capital losses into long-term capital losses. Certain tax elections
exist for mixed straddles (i.e., straddles comprised of at least one Section
1256 position and at least one non-Section 1256 position) which may reduce or
eliminate the operation of these straddle rules.
As a regulated investment company, the Fund is also subject to the requirement
that less than 30% of its annual gross income be derived from the sale or other
disposition of securities and certain other investments held for less than three
months ("short-short income").
This requirement may limit the Fund's ability to engage in options, straddles,
hedging transactions and futures contracts because these transactions are often
consummated in less than three months, may require the sale of portfolio
securities held less than three months and may, as in the case of short sales of
portfolio securities, reduce the holding periods of certain securities within
the Fund, resulting in additional short-short income for the Fund.
The Fund will monitor its transactions in such options and contracts and may
make certain other tax elections in order to mitigate the effect of the above
rules and to prevent disqualification of the Fund as a regulated investment
company under Subchapter M of the Code.
THE FUND'S UNDERWRITER
Pursuant to an underwriting agreement in effect until April 30, 1996,
Distributors acts as principal underwriter in a continuous public offering for
both classes of the Fund's shares.
Distributors pays the expenses of distribution of Fund shares, including
advertising expenses and the costs of printing sales material and prospectuses
used to offer shares to the public. The Fund pays the expenses of preparing and
printing amendments to its registration statements and prospectuses (other than
those necessitated by the activities of Distributors) and of sending
prospectuses to existing shareholders.
The underwriting agreement will continue in effect for successive annual periods
provided that its continuance is specifically approved at least annually by a
vote of the Trust's Board of Trustees, or by a vote of the holders of a majority
of the Fund's outstanding voting securities and, in either event by a majority
vote of the Trustees who are not parties to the underwriting agreement or
interested persons of any such party (other than as trustees of the Fund), cast
in person at a meeting called for that purpose. The underwriting agreement
terminates automatically in the event of its assignment and may be terminated by
either party on 90 days' written notice.
In connection with the offering of the Fund's Class I shares, aggregate
underwriting commissions for the Fund's fiscal period ended April 30, 1994, and
the fiscal year ended April 30, 1995, were $92,347 and $383,480, respectively.
After allowances to dealers, Distributors retained $963 and $14,048,
respectively. Distributors received no other compensation from the Fund for
acting as underwriter.
Distributors may be entitled to
reimbursement or compensation under the Rule 12b-1 distribution plan relating to
both classes as discussed in "Plans of Distribution" below. Except as noted,
Distributors received no other compensation from the Fund with respect to the
Class I shares for acting as underwriter.
PLAN OF DISTRIBUTION
Each class of the Fund has adopted a Distribution Plan ("Class I Plan" and
"Class II Plan," respectively, or "Plans") pursuant to Rule 12b-1 under the 1940
Act.
THE CLASS I PLAN
""Pursuant to the Class I Plan, the Fund has adopted a Distribution Plan
pursuant to Rule 12b-1 under the 1940 Act, whereby the Fund may pay up to a
maximum of 0.25% per annum (0.25 of 1%) of its average daily net assets for
expenses incurred in the promotion and distribution of its shares.
Pursuant to the Class I Plan, Distributors or others will be entitled to be
reimbursed each quarter (up to the maximum as stated above) for actual expenses
incurred in the distribution and promotion of Fund'sClass I shares, including,
but not limited to, the printing of prospectuses and reports used for sales
purposes, expenses of preparing and distributing sales literature and related
expenses, advertisements, and other distribution-related expenses, including a
prorated portion of Distributors' overhead expenses attributable to the
distribution of Class I shares, as well as any distribution or service fees paid
to securities dealers or their firms or others who have executed a servicing
agreement with the Fund, Distributors or its affiliates.
The Fund did not make any payments with respect to the Class I shares under its
Rule 12b-1 Plan during the fiscal year ended April 30, 1995.
The Class I Plan does not permit unreimbursed expenses incurred in a particular
year to be carried over to or reimbursed in subsequent years.
THE CLASS II PLAN
Under the Class II Plan, the Fund is permitted to pay to Distributors or others
annual distribution fees, payable quarterly, of 0.75% of Class II's average
daily net assets, in order to compensate Distributors or others for providing
distribution and related services and bearing certain expenses of the Class. All
expenses of distribution and marketing over that amount will be borne by
Distributors, or others who have incurred them, without reimbursement by the
Fund. In addition to this amount, under the Class II Plan, the Fund shall pay
0.25% per annum, payable quarterly, of the Class' average daily net assets as a
servicing fee. This fee will be used to pay dealers or others for, among other
things, assisting in establishing and maintaining customer accounts and records;
assisting with purchase and redemption requests; receiving and answering
correspondence; monitoring dividend payments from the Fund on behalf of the
customers, and similar activities related to furnishing personal services and
maintaining shareholder accounts. Distributors may pay the securities dealer,
from its own resources, a commission of up to 1% of the amount invested at the
time of investment.
IN GENERAL
In addition to the payments to which Distributors or others are entitled under
the Plan s, the Plans also provide that to the extent the Fund, the Manager or
Distributors or other parties on behalf of the Fund, the Manager or
Distributors, make payments that are deemed to be payments for the financing of
any activity primarily intended to result in the sale of each class of shares of
the Fund within the context of Rule 12b-1 under the 1940 Act, then such payments
shall be deemed to have been made pursuant to the Plans.
In no event shall the aggregate asset-based sales charges which include payments
made under a Plan, plus any other payments deemed to be made pursuant to a Plan,
exceed the amount permitted to be paid pursuant to the Rules of Fair Practice of
the National Association of Securities Dealers, Inc., Article III, Section
26(d)4.
The terms and provisions of the Plans relating to required reports, term, and
approval are consistent with Rule 12b-1. The Plans do not permit unreimbursed
expenses incurred in a particular year to be carried over or reimbursed in
subsequent years.
To the extent fees are for distribution or marketing functions, as distinguished
from administrative servicing or agency transactions, certain banks may not be
entitled to participate in the Plans to the extent that applicable federal law
prohibits certain banks from engaging in the distribution of mutual fund shares.
Such banking institutions, however, are permitted to receive fees under the
Plans for administrative servicing or for agency transactions. If a bank were
prohibited from providing such services, its customers who are shareholders
would be permitted to remain shareholders of the Fund, and alternate means for
continuing the servicing of such shareholders would be sought. In such an event,
changes in the services provided might occur and such shareholders might no
longer be able to avail themselves of any automatic investment or other services
then being provided by the bank. It is not expected that shareholders would
suffer any adverse financial consequences as a result of any of these changes.
Securities laws of states in which the Fund's shares are offered for sale may
differ from the interpretations of federal law expressed herein, and banks and
financial institutions selling shares of the Fund may be required to register as
dealers pursuant to state law.
The Class I Plan has been approved by Resources, the Fund's initial shareholder
and the Class II Plan was approved by the sole initial shareholder prior to May
1, 1995, the date as of which the Class II Plan became effective. Both the Class
I and Class II Plans were approved by the trustees of the Fund, including those
trustees who are not interested persons, as defined in the 1940 Act. The Class I
Plan isand the Class II Plan are effective through April 30, 1996, and are
renewable annually by a vote of the Fund's Board of Trustees, including a
majority vote of the trustees who are non-interested persons of the Fund and who
have no direct or indirect financial interest in the operation of the Plans,
cast in person at a meeting called for that purpose. It is also required that
the selection and nomination of such trustees be done by the non-interested
trustees. The Plans and any related agreement may be terminated at any time,
without any penalty, by vote of a majority of the non-interested trustees on not
more than 60 days' written notice, by Distributors on not more than 60 days'
written notice, by any act that constitutes an assignment of the management
agreement with the Manager or by vote of a majority of the Fund's outstanding
shares. Distributors or any dealer or other firm may also terminate their
respective distribution or service agreement at any time upon written notice.
With respect to a Plan, the Plan and any related agreements may not be amended
to increase materially the amount to be spent for distribution expenses without
approval by a majority of such class of the Fund's outstanding shares, and all
material amendments to the Plan or any related agreements shall be approved by a
vote of the non-interested trustees, cast in person at a meeting called for the
purpose of voting on any such amendment.
Distributors is required to report in writing to the Board of Trustees at least
quarterly on the amounts and purpose of any payment made under the Plans and any
related agreements, as well as to furnish the Board of Trustees with such other
information as may reasonably be requested in order to enable the Board of
Trustees to make an informed determination of whether the Plans should be
continued.
For the fiscal year ended April 30, 1995, the total amount paid by the
Fund.pursuant to the Plan was $25,837, which was used for payments to brokers or
dealers.
GENERAL INFORMATION
PERFORMANCE
As noted in the Prospectus, each class may from time to time quote various
performance figures to illustrate 'its past performance. Each Class also may
occasionally cite statistics to reflect its volatility or risk.
Performance quotations by investment companies are subject to rules adopted by
the SEC. These rules require the use of standardized performance quotations or,
alternatively, that every non-standardized performance quotation furnished by a
class be accompanied by certain standardized performance information computed as
required by the SEC. Current yield and average annual compounded total return
quotations used by a class are based on the standardized methods of computing
performance mandated by the SEC. An explanation of those and other methods used
by the classes to compute or express performance follows.
TOTAL RETURN
The average annual total return is determined by finding the average annual
compounded rates of return over one-, five- and ten-year periods, or fractional
portion thereof, that would equate an initial hypothetical $1,000 investment to
its ending redeemable value. The calculation assumes the maximum front-end sales
charge is deducted from the initial $1,000 purchase order, and income dividends
and capital gains are reinvested at net asset value. The quotation assumes the
account was completely redeemed at the end of each one-, five- and ten-year
period and the deduction of all applicable charges and fees. If a change is made
in the sales charge structure, historical performance information will be
restated to reflect the maximum sales charge currently in effect.
In considering the quotations of total return by the Fund, investors should
remember that the maximum sales charge reflected in each quotation (currently
4.50%) is a one-time fee (charged on all direct purchases) which will have its
greatest impact during the early stages of an investor's investment in the Fund.
The actual performance of an investment will be affected less by this charge the
longer an investor retains the investment in the Fund. The average annual
compounded rates of return for the Class I shares of the Fund for the one-year
period ended April 30, 1995, was -4.92% and for the period from the Fund's
inception (January 3, 1994) to April 30, 1995, was 2.86%.
Any average annual total return figures quoted by the Fund will be calculated
according to the SEC formula:
P(1+T)n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the one-, five-, or ten-year periods at the end of the one-,
five-, or ten-year periods (or fractional portion thereof).
As discussed in the Prospectus, each class may quote total rates of return in
addition to its average annual total return. Such quotations are computed in the
same manner as 'a class' average annual compounded rate, except that such
quotations will be based on 'such class' actual return for a specified period
rather than on its average return over one-, five- and ten-year periods (or
fractional portion thereof). The total rate of return for the Class I shares of
the Fund for the one-year period ended April 30, 1995, was -4.92% and for the
period from inception (January 3, 1994) to April 30, 1995, was 3.80%.
YIELD
Current yield reflects the income per share earned by the Fund's portfolio
investments.
Current yield for each class is determined by dividing the net investment income
per share earned by a class during a 30-day base period by the maximum offering
price per share on the last day of the period and annualizing the result.
Expenses accrued for the period include any fees charged to all shareholders of
a class during the base period. The yield for the Class I shares for the 30-day
period ended on the date of the financial statements included herein was 4.87%.
This figure was obtained using the following SEC formula:
Yield = 2 [( a-b + 1 )6 - 1]
----
cd
Where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period that
were entitled to receive dividends
d = the maximum offering price per share on the last day of the period
CURRENT DISTRIBUTION RATE
Yield, which is calculated according to a formula prescribed by the SEC, is not
indicative of the amounts which were or will be paid to 'a class' shareholders.
Amounts paid to shareholders are reflected in the quoted "current distribution
rate." The current distribution rate is computed by dividing the total amount of
dividends per share paid by a class during the past 12 months by a current
maximum offering price. Under certain circumstances, such as when there has been
a change in the amount of dividend payout, or a fundamental change in investment
policies, it might be appropriate to annualize the dividends paid over the
period such policies were in effect, rather than using the dividends during the
past 12 months. The current distribution rate differs from the current yield
computation because it may include distributions to shareholders from sources
other than dividends and interest, such as premium income from option writing
and short-term capital gains, and is calculated over a different period of time.
VOLATILITY
Occasionally, statistics may be used to specify Fund volatility or risk.
Measures of volatility or risk are generally used to compare Fund net asset
value or performance relative to a market index. One measure of volatility is
beta. Beta is the volatility of a fund relative to the total market as
represented by the Standard & Poor's 500 Stock Index. A beta of more than 1.00
indicates volatility greater than the market, and a beta of less than 1.00
indicates volatility less than the market. Another measure of volatility or risk
is standard deviation. Standard deviation is used to measure variability of net
asset value or total return around an average, over a specified period of time.
The premise is that greater volatility connotes greater risk undertaken in
achieving performance.
OTHER PERFORMANCE QUOTATIONS
With respect to those categories of investors who are permitted to purchase
Class I shares at net asset value, sales literature pertaining to such class may
quote a current distribution rate, yield, total return, average annual total
return and other measures of performance as described elsewhere in this AI with
the substitution of net asset value for the public offering price.
Sales literature referring to the use of the Fund as a potential investment for
Individual Retirement Accounts (IRAs), Business Retirement Plans, and other
tax-advantaged retirement plans may quote a total return based upon compounding
of dividends on which it is presumed no federal income tax applies.
Regardless of the method used, past performance is not necessarily indicative of
future results, but is an indication of the return to shareholders only for the
limited historical period used.
The Fund may include in its advertising or sales material information relating
to investment objectives and performance results of funds and classes belonging
to the Templeton Group of Funds. Inc.Resources is the parent company of the
advisers and underwriter of both the Franklin Group of Funds(Registered
Trademark) and Templeton Group of Funds.
COMPARISONS
To help investors better evaluate how an investment in the Fund might satisfy
their investment objective, advertisements and other materials regarding the
Fund may discuss various measures of Fund and class performance as reported by
various financial publications. Materials may also compare performance (as
calculated above) to performance as reported by other investments, indices, and
averages. Such comparisons may include, but are not limited to, the following
examples:
a) NAREIT Equity REIT Index - The NAREIT Equity REIT Index is a compilation of
market weighted securities data collected from all tax-qualified equity real
estate investment trusts listed on the New York and American Stock Exchanges and
the NASDAQ. The index tracks performance, as well as REIT assets, by property
type and geographic region.
b) Russell-NCREIF Property Index - The Russell-NCREIF Property Index is a
compilation of real estate investment data collected from the members of the
National Council of Real Estate Investment Fiduciaries. The index is a
property-specific institutional real estate performance benchmark in the United
States, which summarizies the historical performance of income-producing
properties owned by pension and profit sharing plans.
c) Dow Jones Composite Average or its component averages - an unmanaged index
composed of 30 blue-chip industrial corporation stocks (Dow Jones Industrial
Average), 15 utilities company stocks (Dow Jones Utilities Average), and 20
transportation company stocks (Dow Jones Transportation Average). Comparisons of
performance assume reinvestment of dividends.
d) Standard & Poor's 500 Composite Stock Price Index or its component indices -
an unmanaged index composed of 400 industrial stocks, 40 financial stocks, 40
utilities stocks, and 20 transportation stocks. Comparisons of performance
assume reinvestment of dividends.
e) The New York Stock Exchange composite or component indices - unmanaged
indices of all industrial, utilities, transportation, and finance stocks listed
on the New York Stock Exchange.
f) Wilshire 5000 Equity Index - represents the return on the market value of all
common equity securities for which daily pricing is available. Comparisons of
performance assume reinvestment of dividends.
g) Lipper - Mutual Fund Performance Analysis and Lipper - Fixed Income Fund
Performance Analysis - measure total return and average current yield for the
mutual fund industry. Rank individual mutual fund performance over specified
time periods, assuming reinvestment of all distributions, exclusive of any
applicable sales charges.
h) CDA Mutual Fund Report, published by CDA Investment Technologies, Inc. -
analyzes price, current yield, risk total return, and average rate of return
(average annual compounded growth rate) over specified time periods for the
mutual fund industry.
i) Mutual Fund Source Book, published by Morningstar, Inc. - analyzes price,
yield, risk, and total return for equity funds.
j) Valueline Index - an unmanaged index which follows the stock of approximately
1,700 companies.
k) Bateman Eichler Hill Richards Western Stock Index - A managed index
representing 215 stocks of companies within the Western United States.
Seventy-five percent of the stocks are Californian companies, the remaining 25%
represent companies in: Arizona, Hawaii, Nevada, Oregon and Washington.
l) Consumer Price Index (or Cost of Living Index), published by the U.S. Bureau
of Labor Statistics - a statistical measure of change, over time, in the price
of goods and services in major expenditure groups.
m) Historical data supplied by the research departments of First Boston
Corporation, the J.P. Morgan companies, Salomon Brothers, Merrill Lynch, Pierce,
Fenner & Smith, and Lehman Brothers and Bloomberg L.P.
n) Financial publications: Business Week, Changing Times, Financial World,
Forbes, Fortune, and Money magazines - rate fund performance over specified time
periods.
o) Russell 3000 Index - composed of 3,000 large U.S. companies by market
capitalization, representing approximately 98% of the U.S. equity market. The
average market capitalization (as of May 31, 1991) is $1.0 billion.
p) Russell 2000 Small Stock Index - consists of the smallest 2,000 companies in
the Russell 3000 Index, representing approximately 7% of the Russell 3000 total
market capitalization. The average market capitalization (as of May 31, 1991) is
$100 million.
q) Stocks, Bonds, Bills, and Inflation, published by Ibbotson Associates -
historical measure of yield, price, and total return for common and small
company stock, long-term government bonds, Treasury bills, and inflation.
r) Savings and Loan Historical Interest Rates - as published in the U.S. Savings
& Loan League Fact Book.
s) Wilshire Real Estate Securities Index - a market capitalization weighted
index of publicly traded real estate securites, such as: Real Estate Investment
Trusts (REITs), Real Estate Operating Companies (REOCs) and partnerships. The
Index is comprised of companies whose charter is the equity ownership and
operation of commercial real estate.
From time to time, advertisements or information for the Fund may include a
discussion of certain attributes or benefits to be derived by an investment in
the Fund. Such advertisements or information may include symbols, headlines, or
other material which highlight or summarize the information discussed in more
detail in the communication.
Advertisements or information may also compare the Fund's or class' performance
to the return on certificates of deposit or other investments. Investors should
be aware, however, that an investment in the Fund involves the risk of
fluctuation of principal value, a risk generally not present in an investment in
a certificate of deposit issued by a bank. For example, as the general level of
interest rates rise, the value of the Fund's fixed-income investments, as well
as the value of its shares which are based upon the value of such portfolio
investments, can be expected to decrease. Conversely, when interest rates
decrease, the value of the Fund's shares can be expected to increase.
Certificates of deposit are frequently insured by an agency of the U.S.
government. An investment in the Fund is not insured by any federal, state or
private entity.
In assessing such comparisons of performance an investor should keep in mind
that the composition of the investments in the reported indices and averages is
not identical to the Fund's portfolio, that the indices and averages are
generally unmanaged, and that the items included in the calculations of such
averages may not be identical to the formula used by the Fund to calculate its
figures. In addition there can be no assurance that the Fund will continue this
performance as compared to such other averages.
OTHER FEATURES AND BENEFITS
The Fund may help investors achieve various investment goals such as
accumulating money for retirement, saving for a down payment on a home, college
cost and/or other long-term goals. The Franklin College Costs Planner may assist
an investor in determining how much money must be invested on a monthly basis in
order to have a projected amount available in the future to fund a child's
college education. (Projected college cost estimates are based upon current
costs published by the College Board.) The Franklin Retirement Planning Guide
leads an investor through the steps to start a retirement savings program. Of
course, an investment in the Fund cannot guarantee that such goals will be met.
MISCELLANEOUS INFORMATION
The Fund is a member of the Franklin Templeton Group, one of the largest mutual
fund organizations in the United States and may be considered in a program for
diversification of assets. Founded in 1947, Franklin, one of the oldest mutual
fund organizations, has managed mutual funds for over 47 years and now services
more than 2.48 million shareholder accounts. In 1992, Franklin, a leader in
managing fixed-income mutual funds and an innovator in creating domestic equity
funds, joined forces with Templeton Worldwide, Inc., a pioneer in international
investing. Together, the Franklin Templeton Group has over $121 billion in
assets under management for more than 3.8 million shareholder accounts and
offers 111 U.S.-based mutual funds. The Fund may identify itself by its NASDAQ
or CUSIP number.
The Dalbar Surveys, Inc. broker/dealer survey has ranked Franklin number one in
service quality for five of the past seven years. Access persons of the Franklin
Templeton Group, as defined in SEC Rule 17(j) under the 1940 Act, who are
employees of Resources or its subsidiaries, are permitted to engage in personal
securities transactions subject to the following general restrictions and
procedures: (1) The trade must receive advance clearance from a Compliance
Officer and must be completed within 24 hours after this clearance; (2) Copies
of all brokerage confirmations must be sent to the Compliance Officer and within
10 days after the end of each calendar quarter, a report of all securities
transactions must be provided to the Compliance Officer; (3) In addition to
items (1) and (2), access persons involved in preparing and making investment
decisions must file annual reports of their securities holdings each January and
also inform the Compliance Officer (or other designated personnel) if they own a
security that is being considered for a fund or other client transaction or if
they are recommending a security in which they have an ownership interest for
purchase or sale by a fund or other client.
From time to time, the number of Fund shares held in the "street name" accounts
of various securities dealers for the benefit of their clients or in centralized
securities depositories may exceed 5% of the total shares outstanding.
As of June 5, 1995, the principal shareholders of the Fund, beneficial or of
record, their addresses and the amount of their share ownership were as follows:
CLASS I NUMBER OF
SHARES PERCENTAGE
Franklin Resources, Inc. 205,442 11.9%
777 Mariners Island Boulevard
San Mateo, California 94404,
CLASS II
Nancy T. Council TTEE
Council Brothers Inc
P/S & RET PLN
U/A DTD 09-01-72
P.O. Box 2497
Tallahassee, FL 32316 903 6.8%
William B. Fay
5789 S. Geneva
Englewood, CO 80111 1,127 8.5%
Mark H. Sanborn
677 S. Williams
Denver, CO 80209 1,8131 3.6%
OWNERSHIP AND AUTHORITY DISPUTES
In the event of disputes involving multiple claims of ownership or authority to
control a shareholder's account, the Fund has the right (but has no obligation)
to (a) freeze the account and require the written agreement of all persons
deemed by the Fund to have a potential property interest in the account, prior
to executing instructions regarding the account; (b) interplead disputed funds
or accounts with a court of competent jurisdiction; or (c) surrender ownership
of all or a portion of the account to the Internal Revenue Service in response
to a Notice of Levy.
FINANCIAL STATEMENTS
The financial statements contained in the Annual Report to Shareholders of the
Franklin Real Estate Securities Fund dated April 30, 1995, are incorporated
herein by reference.
FRANKLIN REAL ESTATE SECURITIES TRUST
File Nos. 33-69048
811-8034
FORM N-1A
PART C
Other Information
Item 24 Financial Statements and Exhibits
a) Financial Statements filed in Part B:
1. Financial Statements incorporated herein by reference to the
Registrant's Annual Report to Shareholders dated April 30, 1995
as filed with the SEC electronically on form type N-30D on June
25, 1995
(i) Report of Independent Auditors - June 2, 1995.
(ii) Statements of Investments in Securities and Net Assets,
April 30, 1994.
(iii)Statement of Assets and Liabilities - April 30, 1995.
(iv) Statement of Operations - for the year ended April 30,
1995.
(v) Statement of Changes in Net Assets - for the period
January 3, 1994 (effective date) to April 30, 1994 and
the year ended April 30, 1995.
(vi) Notes to Financial Statements
b) Exhibits:
The following exhibits are attached herewith, except Exhibits: 8(ii),
8(iii), 14(i), 16(i), which are incorporated by reference as noted.
(1) copies of the charter as now in effect:
(i) Certificate of Trust of Franklin Real Estate Securities
Trust dated September 14, 1993
(ii) Agreement and Declaration of Trust of Franklin Real
Estate Securities Trust dated September 14, 1993
(iii)Certificate of Amendment of Agreement and Declaration
of Trust of Franklin Real Estate Securities Trust dated
February 16, 1995.
(2) copies of the existing By-Laws or instruments corresponding
thereto:
(i) By-Laws of Franklin Real Estate Securities Trust
(3) copies of any voting trust agreement with respect to more than
five percent of any class of equity securities of the
Registrant;
Not Applicable
(4) copies of all instruments, defining the rights of the holders
of the securities being registered including, where applicable
the relevant portion of the Declaration of Trust and Bylaws 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 Registrant and Franklin
Advisers, Inc. dated January 3, 1994
(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
Registrant and Franklin/Templeton Distributors, Inc.
date April 23, 1995
(ii) Dealer Agreement between Registrant and
Franklin/Templeton Distributors, Inc. dated May 1, 1995
(7) copies of all bonus, profit sharing, pension or other similar
contracts or arrangements wholly or partly for the benefit of
Trustees or officers of the Registrant in their capacity as
such; any such plan that is not set forth in a formal
document, furnish a reasonably detailed description thereof;
Not Applicable
(8) copies of all custodian agreements and depository contracts
under Section 17(f) of the Investment Company Act of 1940 (the
"1940 Act"), with respect to securities and similar
investments of the Registrant, including the schedule of
remuneration;
(i) Custodian Agreement between Registrant and Bank of
America NT & SA dated January 3, 1994.
(ii) Copy of Custodian Agreements between Registrant and
Citibank Delaware:
1. Citicash Management ACH Customer
Agreement
2. Citibank Cash Management
Services Master Agreement
3. Short Form Bank Agreement - Deposits
and Disbursements of Funds
Registrant: Franklin Premier Return
Fund
Filing: Post-Effective Amendment No.
54 to Registration on Form N-1A
File No. 2-12647
Filing Date: February 27, 1995
(iii)Amendment to Custodian Agreement between Registrant and
Bank of America NT & SA dated December 1, 1994
Registrant: Franklin Premier Return Fund
Filing: Post-Effective Amendment No. 54
to Registration on Form N-1A
File No. 2-12647
Filing Date: February 27, 1995
(9) copies of all other material contracts not made in the
ordinary course of business which are to be performed in whole
or in part at or after the date of filing the Registration
Statement;
Not Applicable
(10) An opinion and consent of counsel as to the legality of the
securities being registered, indicating whether they will when
sold be legally issued, fully paid and nonassessable;
(i) Not Applicable
(11) copies of any other opinions, appraisals or rulings and
consents to the use thereof relied on in the preparation of
this registration statement and required by Section 7 of the
1933 Act;
(i) Consent of Independent Auditors
(12) All financial statements omitted from Item 23;
Not Applicable
(13) copies of any agreements or understandings made in
consideration for providing the initial capital between or
among the Registrant, the underwriter, adviser, promoter or
initial stockholders and written assurances from promoters or
initial stockholders that their purchases were made for
investment purposes without any present intention of redeeming
or reselling;
(i) Letter of Understanding dated December 27, 1993
(14) copies of the model plan used in the establishment of any
retirement plan in conjunction with which Registrant offers
its securities, any instructions thereto and any other
documents making up the model plan. Such form(s) should
disclose the costs and fees charged in connection therewith;
(i) Copy of Model Retirement Plan:
Registrant: AGE High Income Fund, Inc.
Filing: Post-effective Amendment No. 26
to Registration Statement on Form N-1A
File No. 2-3020
Filing Date: August 1, 1989
(15) copies of any plan entered into by Registrant pursuant to Rule
12b-l under the 1940 Act, which describes all material aspects
of the financing of distribution of Registrant's shares, and
any agreements with any person relating to implementation of
such plan.
(i) Plan of Distribution Pursuant to Rule 12b-1 dated
January 3, 1994
(ii) Class II Distribution Plan Pursuant to Rule 12b-1
between Registrant and Franklin/Templeton Distributors,
Inc. dated March 30, 1995
(16) schedule for computation of each performance quotation
provided in the registration statement in response to Item 22
(which need not be audited)
(i) Schedule for Computation of Performance Quotation
Registrant: Franklin Tax-Advantaged U.S.
Government Securities Fund
Filing: Post-Effective Amendment No. 8 to
Registration on Form N-1A
File No. 33-11963
Filing Date: March 1, 1995
(17) (i) Power of Attorney dated January 17, 1995
(ii) Certificate of Secretary dated January 17, 1995
(18) Copies of any plan entered into by Registrant pursuant to Rule
18f-3 under the 1940 Act
(i) Form of Mutiple Class Plan
(27) Financial Data Schedule Computation
(i) Financial Data Schedule
Item 25 Persons Controlled by or under Common Control with
Registrant
None
Item 26 Number of Holders of Securities
As of April 30, 1995 the number of record holders of the only class of
securities of the Registrant are as follows:
Number of
Title of Class Record Holders
Shares of Beneficial Interest: 1,701
Item 27 Indemnification
See Article III, Section 7 and Article VII, Section 3 of the Agreement
and Declaration of Trust (Exhibit No. 1(ii)) and Article VI of the
By-Laws (Exhibit No. 2(i)) of Registrant.
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
The officers and Directors of the Registrant's advisor also serve as
officers and/or directors, trustees or managing general partners for
(1) the manager's corporate parent, Franklin Resources, Inc., and/or
(2) other investment companies in the Franklin Group of
Funds(Registered Trademark) and the Templeton Group of Funds. In
addition, Mr. Charles B. Johnson is a director of General Host
Corporation. For additional information please see Part B.
Item 29 Principal Underwriters
a) Franklin/Templeton Distributors, Inc., ("Distributors") also acts as
principal underwriter of shares of AGE High Income Fund, Inc., Franklin
Premier Return Fund, Franklin Custodian Funds, Inc., Franklin Gold
Fund, Franklin Equity Fund, Franklin New York Tax-Free Income Fund,
Inc., Franklin California Tax- Free Income Fund, Inc., Franklin
California Tax Free Trust, Franklin Federal Tax-Free Income Fund,
Franklin Investors Securities Trust, Franklin Tax-Advantaged
International Bond Fund, Franklin Tax-Advantaged U.S. Government
Securities Fund, Franklin Tax-Advantaged High Yield Securities Fund,
Franklin Tax-Free Trust, Franklin Managed Trust, Franklin Balance Sheet
Investment Fund, Franklin New York Tax-Free Trust, Franklin
International Trust, Franklin Strategic Mortgage Portfolio,
Institutional Fiduciary Trust, Franklin Money Fund, Franklin Federal
Money Fund, Franklin Tax Exempt Money Fund, Franklin Municipal
Securities Trust, Franklin Templeton Money Fund Trust, Franklin
Templeton Global Trust, Templeton Variable Products Series Fund,
Templeton Real Estate Securities Fund, Templeton Growth Fund, Inc.,
Templeton Funds, Inc., Templeton Smaller Companies Growth Fund, Inc.,
Templeton Income Trust, Templeton Global Opportunities Trust, Templeton
Institutional Funds, Inc., Templeton American Trust, Inc., Templeton
Capital Accumulator Fund, Inc., Templeton Developing Markets Trust,
Templeton Global Investment Trust, Templeton Variable Annuity Fund,
Inc., and Franklin Templeton Japan 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 will be kept by
the Fund or its shareholder services agent, Franklin/Templeton Investor
Services, Inc., both of whose address is 777 Mariners Island Blvd., San
Mateo, CA 94404.
Item 31 Management Services
There are no management-related service contracts not discussed in Part
A or Part B.
Item 32 Undertakings
(a) The Registrant hereby undertakes to promptly call a meeting of
shareholders for the purpose of voting upon the question of removal of
any trustee or trustees when requested in writing to do so by the
record holders of not less than 10 per cent of the Registrant's
outstanding shares 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 Fund's annual report and to furnish each person to
whom a prospectus is delivered a copy of the annual report upon request
and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant 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 30th day of June, 1995.
FRANKLIN REAL ESTATE SECURITIES TRUST
(Registrant)
By: Rupert H. Johnson, Jr.*
Rupert H. Johnson, Jr.
President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated:
Rupert H. Johnson, Jr.* Principal Executive Officer and
Rupert H. Johnson, Jr. Trustee
Dated: June 30, 1995
Charles B. Johnson* Trustee
Charles B. Johnson Dated: June 30, 1995
Martin L. Flanagan* Principal Financial Officer
Martin L. Flanagan Dated: June 30, 1995
Diomedes Loo-Tam* Principal Accounting Officer
Diomedes Loo-Tam Dated: June 30, 1995
Frank H. Abbott III* Trustee
Frank H. Abbott III Dated: June 30, 1995
Harris J. Ashton* Trustee
Harris J. Ashton Dated: June 30, 1995
Harmon E. Burns* Trustee
Harmon E. Burns Dated: June 30, 1995
S. Joseph Fortunato* Trustee
S. Joseph Fortunato Dated: June 30, 1995
David W. Garbellano* Trustee
David W. Garbellano Dated: June 30, 1995
Frank W.T. LaHaye* Trustee
Frank W.T. LaHaye Dated: June 30, 1995
Gordon S. Macklin* Trustee
Gordon S. Macklin Dated: June 30, 1995
*By /s/ Larry L. Greene
Larry L. Greene, Attorney-in-Fact
(Pursuant to Powers of Attorney filed herewith)
FRANKLIN REAL ESTATE SECURITIES TRUST
REGISTRATION STATEMENT
EXHIBITS INDEX
EXHIBIT NO. DESCRIPTION PAGE NO. IN
SEQUENTIAL
NUMBERING SYSTEM
EX-99.B1(i) Certificate of Trust of Attached
Franklin Real Estate
Securities Trust dated
September 14, 1993
EX-99.B1(ii) Agreement and Attached
Declaration of Trust of
Franklin Real Estate
Securities Trust dated
September 14, 1993
EX-99.B1(iii) Certificate of Amendment Attached
of Agreement and
Declaration of Trust of
Franklin Real Estate
Securities Trust dated
February 16, 1995
EX-99.B2(i) By Laws Attached
EX-99.B5(i) Management Agreement Attached
between Registrant and
Franklin Advisers, Inc.
dated January 3, 1994
EX-99.B6(i) Amended and Restated Attached
Distribution Agreement
between Registrant and
Franklin/Templeton
Distributors, Inc. dated
April 23, 1995
EX-99.B6(ii) Dealer Agreement between Attached
Registrant and
Franklin/Templeton
Distributors, Inc. dated
May 1, 1995
EX-99.B8(i) Custodian Agreement Attached
between Registrant and
Bank of America NT & SA
dated January 3, 1994
EX-99.B8(ii) Copy of Custodian *
Agreement between
Registrant and Citibank
Delaware
EX-99.B8(iii) Amendment to Custodian *
Agreement between
Registrant and Bank of
America NT & SA dated
December 1, 1994
EX-99.B11(i) Consent of Independent Attached
Auditors
EX-99.B13(i) Letter of Understanding Attached
dated December 27, 1993
EX-99.B14(i) Copy of model retirement *
plan
EX-99.B15(i) Plan of Distribution to Attached
Rule 12b-1 dated January
3, 1994
EX-99.B15(ii) Class II Distribution Attached
Plan Pursuant to Rule
12b-1 between Registrant
and Franklin/Templeton
Distributors, Inc. dated
March 30, 1995
EX-99.B16(i) Schedule for Computation *
of Performance
Quotations
EX-99.B17(i) Power of Attorney dated Attached
January 17, 1995
EX-99.B17(ii) Certificate of Secretary Attached
dated January 17, 1995
EX-99.B18(i) Form of Multiple Class Attached
Plan
EX-99.B27(i) Financial Data Schedule Attached
* Incorporated by Reference.
CERTIFICATE OF TRUST
OF
FRANKLIN REAL ESTATE SECURITIES TRUST
a Delaware Business Trust
THIS Certificate of Trust of the FRANKLIN REAL ESTATE
SECURITIES TRUST (the "Trust"), dated as of this 14th day of
September, 1993, is being duly executed and filed, in order to
form a business trust pursuant to the Delaware Business Trust Act
(the "Act"), Del. Code Ann. tit. 12, (section)(section)3801-3819.
1. NAME. The name of the business trust formed
hereby is "FRANKLIN REAL ESTATE SECURITIES TRUST."
2. REGISTERED OFFICE AND REGISTERED AGENT. The Trust
will become, prior to the issuance of beneficial interests, a
registered investment company under the Investment Company Act of
1940, as amended. Therefore, in accordance with section 3807(b)
of the Act, the Trust has and shall maintain in the State of
Delaware a registered office and a registered agent for service
of process.
(a) REGISTERED OFFICE. The registered office of
the Trust in Delaware is The Corporation Trust Company,
1209 Orange Street, Wilmington, Delaware 19801.
(b) REGISTERED AGENT. The registered agent for
service of process on the Trust in Delaware is The
Corporation Trust Company.
3. LIMITATION ON LIABILITY. Pursuant to section 3804
of the Act, in the event that the Trust's governing instrument,
as defined in section 3801(f) of the Act, creates one or more
series as provided in section 3806(b)(2) of the Act, the debts,
liabilities, obligations and expenses incurred, contracted for or
otherwise existing with respect to a particular series of the
Trust shall be enforceable against the assets of such series
only, and not against the assets of the Trust generally.
IN WITNESS WHEREOF, the Trustees named below do hereby
execute this Certificate of Trust as of the date first-above
written.
/s/ Frank H. Abbott, III /s/ Charles B. Johnson
Frank H. Abbott, III Charles B. Johnson
1045 Sansome Street 777 Mariners Island Blvd.
San Francisco, CA 94111 San Mateo, CA 94404
/s/ Harris J. Ashton /s/ Rupert H. Johnson, Jr.
Harris J. Ashton Rupert H. Johnson, Jr.
Metro Center, One Station Place 777 Mariners Island Blvd.
Stamford, CT 06904 San Mateo, CA 94404
/s/ S. Joseph Fortunato /s/ David W. Garbellano
S. Joseph Fortunato David W. Garbellano
Park Avenue at Morris County 111 New Montgomery St. #402
P.O. Box 1945 San Francisco, CA 94105
Morristown, NJ 07962-1945
/s/ Frank W.T. LaHaye /s/ Harmon E. Burns
Frank W.T. LaHaye Harmon E. Burns
20833 Stevens Creek Blvd. 777 Mariners Island Blvd.
Suite 102 San Mateo, CA 94404
Cupertino, CA 95014
/s/ Gordon S. Macklin
Gordon S. Macklin
8212 Burning Tree-Road
Bethesda, MD 20817
AGREEMENT AND DECLARATION OF TRUST
of
FRANKLIN REAL ESTATE SECURITIES TRUST
a Delaware Business Trust
Dated: September 14, 1993
TABLE OF CONTENTS
FRANKLIN REAL ESTATE SECURITIES TRUST
AGREEMENT AND DECLARATION OF TRUST
Page No.
ARTICLE I Name and Definitions
1. Name
2. Definitions
(a) Trust
(b) Trust Property
(c) Trustees
(d) Shares
(e) Shareholder
(f) Person
(g) 1940 Act
(h) Commission and Principal Underwriter
(i) Declaration of Trust
(j) By-Laws
(k) Interested Person
(1) Investment Manager
(m) Series Company
(n) Series
ARTICLE II Purpose of Trust
ARTICLE III Shares
1. Division of Beneficial Interest
2. Ownership of Shares
3. Investments in the Trust
4. Status of Shares and Limitation of
Personal Liability
5. Power of Board of Trustees to Change
Provisions relating to Shares
6. Establishment and Designation of Series
(a) Assets Belonging to Series
(b) Liabilities Belonging to Series
(c) Dividends, Distributions, Redemptions,
and Repurchases
(d) Voting
(e) Equality
(f) Fractions
(g) Exchange Privilege
(h) Combination of Series
(i) Elimination of Series
7. Indemnification of Shareholders
ARTICLE IV Trustees
1. Number, Election and Tenure
2. Effect of Death, Resignation, etc.
of a Trustee
3. Powers
4. Payment of Expenses by the Trust
5. Payment of Expenses by Shareholders
6. Ownership of Assets of the Trust
7. Service Contracts
ARTICLE V Shareholders' Voting Powers
and Meetings
1. Voting Powers
2. Voting Power and Meetings
3. Quorum and Required Vote
4. Action by Written Consent
5. Record Dates
6. Additional Provisions
ARTICLE VI Net Asset Value, Distributions,
and Redemptions
1. Determination of Net Asset Value, Net
Income and Distributions
2. Redemptions and Repurchases
3. Redemptions at the Option of the Trust
ARTICLE VII Compensation and Limitation of
Liability of Trustees
1. Compensation
2. Limitation of Liability
3. Indemnification
ARTICLE VIII Miscellaneous
1. Trustees, Shareholders, etc.
Not Personally Liable; Notice
2. Trustee's Good Faith Action,
Expert Advice, No Bond or Surety
3. Liability of Third Persons Dealing
with Trustees
4. Termination of Trust or Series
5. Merger and Consolidation
6. Filing of Copies, References, Headings
7. Applicable Law
8. Provisions in Conflict with Law or Regulations
9. Amendments
10. Trust Only
11. Use of the Name "Franklin"
AGREEMENT AND DECLARATION OF TRUST
OF
FRANKLIN REAL STATE SECURITIES TRUST
THIS AGREEMENT AND DECLARATION OF TRUST is made and entered
into as of this 14th day of September, 1993, by the Trustees
named hereunder.
WHEREAS the Trustees desire and have agreed to manage all
property coming into their hands as trustees of a Delaware
business trust in accordance with the provisions hereinafter set
forth,
NOW, THEREFORE, the Trustees hereby direct that this
Agreement and Declaration of Trust be filed with the Secretary of
the state of Delaware and do hereby declare that they will hold
all cash, securities and other assets, which they may from time
to time acquire in any manner as Trustees hereunder, IN TRUST,
and manage and dispose of the same upon the following terms and
conditions for the pro rata benefit of the holders of Shares in
this Trust.
ARTICLE I
Name and Definitions
Section 1. Name. This Trust shall be known as the FRANKLIN
REAL ESTATE SECURITIES TRUST and the Trustees shall conduct the
business of the Trust under that name or any other name as they
may from time to time determine.
Section 2. Definitions. Whenever used herein, unless
otherwise required by the context or specifically provided:
(a) The "Trust" refers to the Delaware business trust
established by this Agreement and Declaration of Trust, as
amended from time to time;
(b) The "Trust Property" means any and all property, real or
personal, tangible or intangible, which is owned or held by or
for the account of the Trust or the Trustees.
(c) "Trustees" refers to the persons who have signed this
Agreement and Declaration of Trust, so long as they continue in
office in accordance with the terms hereof, and all other persons
who may from time to time be duly elected or appointed to serve
on the Board of Trustees in accordance with the provisions
hereof, and reference herein to a Trustee or the Trustees shall
refer to such person or persons in their capacity as trustees
hereunder;
(d) "Shares" means the shares of beneficial interest into
which the beneficial interest in the Trust shall be divided from
time to time and includes fractions of Shares as well as whole
Shares;
(e) "Shareholder" means a record owner of outstanding
Shares;
(f) "Person" means and includes individuals, corporations,
partnerships, trusts, associations, joint ventures and other
entities, whether or not legal entities, and governments and
agencies and political subdivisions thereof, whether domestic or
foreign;
(g) The "1940 Act" refers to the Investment Company Act of
1940 and the Rules and Regulations thereunder, all as amended
from time to time;
(h) The terms "Commission" and "Principal Underwriter" shall
have the meanings given them in the 1940 Act;
(i) "Declaration of Trust" shall mean this Agreement and
Declaration of Trust, as amended or restated from time to time;
(j) "By-Laws" shall mean the By-Laws of the Trust as amended
from time to time;
(k) The term "Interested Person" has the meaning given it in
Section 2(a) (19) of the 1940 Act.
(1) "Investment Manager" means a party furnishing services
to the Trust pursuant to any contract described in Article IV,
Section 7(a) hereof.
(m) "Series Company" refers to the form of registered open-
end investment company described in Section 18(f) (2) of the 1940
Act or in any successor statutory provision; and
(n) "Series" refers to each Series of Shares established and
designated under or in accordance with the provisions of Article
III.
ARTICLE II
Purpose of Trust
The purpose of the Trust is to conduct, operate and carry on
the business of a managed investment company registered under the
1940 Act through one or more portfolios invested primarily in
securities.
ARTICLE III
Shares
Section 1. Division of Beneficial Interest. The beneficial
interest in the Trust shall at all times be divided into an
unlimited number of Shares, with a par value of $.01 per Share.
The Trustees may authorize the division of Shares into separate
Series, and the different Series shall be established and
designated, and the variations in the relative rights and
preferences as between the different Series shall be fixed and
determined, by the Trustees. If no Series shall be established
the Shares shall have the rights and preferences provided for
herein or in Article III, Section 6 hereof, to the extent
relevant and not otherwise provided for herein.
Subject to the provisions of Section 6 of this Article III,
each Share shall have voting rights as provided in Article V
hereof, and holders of the Shares of any Series shall be entitled
to receive dividends, when and as declared with respect thereto
in the manner provided in Article VI, Section 1 hereof. No
Shares shall have any priority or preference over any other Share
of the same Series with respect to dividends or distributions
upon termination of the Trust or of such Series made pursuant to
Article VIII, Section 4 hereof. All dividends and distributions
shall be made ratably among all Shareholders of a particular
Series from the assets belonging to such Series according to the
number of Shares of such Series held of record by such
Shareholder on the record date for any dividend or distribution
or on the date of termination, as the case may be. Shareholders
shall have no preemptive or other right to subscribe to any
additional Shares or other securities issued by the Trust or any
Series. The Trustees may from time to time divide or combine the
Shares of any particular Series into a greater or lesser number
of shares of that Series without thereby changing the
proportionate beneficial interest of the Shares of that Series in
the assets belonging to that series or in any way affecting the
rights of Shares of any other Series.
Section 2. Ownership of Shares. The ownership of Shares
shall be recorded on the books of the Trust or a transfer or
similar agent for the Trust, which books shall be maintained
separately for the Shares of each Series. No certificates
certifying the ownership of Shares shall be issued except as the
Board of Trustees may otherwise determine from time to time. The
Trustees may make such rules as they consider appropriate for the
transfer of Shares of each Series and similar matters. The
record books of the Trust as kept by the Trust or any transfer or
similar agent, as the case may be, shall be conclusive as to who
are the Shareholders of each Series and as to the number of
Shares of each Series held from time to time by each.
Section 3. Investments in the Trust. The Trustees may
accept investments in the Trust from such Persons, at such times,
on such terms, and for such consideration as they from time to
time authorize.
Section 4. Status of Shares and Limitation of Personal
Liability Shares shall be deemed to be personal property giving
only the rights provided in this instrument. Every Shareholder by
virtue of having become a Shareholder shall be held to have
expressly assented and agreed to the terms hereof and to have
become a party hereto. The death of a Shareholder during the
existence of the Trust shall not operate to terminate the Trust,
nor entitle the representative of any deceased Shareholder to an
accounting or to take any action in court or elsewhere against
the Trust or the Trustees, but entitles such representative only
to the rights of said deceased Shareholder under this Trust.
Ownership of Shares shall not entitle the Shareholder to any
title in or to the whole or any part of the Trust Property or
right to call for a partition or division of the same or for an
accounting, nor shall the ownership of Shares constitute the
Shareholders as partners. Neither the Trust nor the Trustees, nor
any officer, employee or agent of the Trust shall have any power
to bind personally any Shareholders, nor, except as specifically
provided herein, to call upon any Shareholder for the payment of
any sum of money or assessment whatsoever other than such as the
Shareholder may at any time personally agree to pay.
Section 5. Power of Board of Trustees to Change Provisions
Relating to Shares. Notwithstanding any other provision of this
Declaration of Trust and without limiting the power of the Board
of Trustees to amend the Declaration of Trust as provided
elsewhere herein, the Board of Trustees shall have the power to
amend this Declaration of Trust, at any time and from time to
time, in such manner as the Board of Trustees may determine in
their sole discretion, without the need for Shareholder action,
so as to add to, delete, replace or otherwise modify any
provisions relating to the Shares contained in this Declaration
of Trust, provided that before adopting any such amendment
without Shareholder approval the Board of Trustees shall
determine that it is consistent with the fair and equitable
treatment of all Shareholders or that Shareholder approval is not
otherwise required by the 1940 Act or other applicable law.
Without limiting the generality of the foregoing, the Board
of Trustees may, for the above-stated purposes, amend the
Declaration of Trust to amend any of the provisions set forth in
paragraphs (a) through (i) of Section 6 of this Article III.
Section 6. Establishment and Designation of Series. The
establishment and designation of any Series of Shares shall be
effective upon the resolution by a majority of the then Trustees,
setting forth such establishment and designation and the relative
rights and preferences of such Series, or as otherwise provided
in such resolution.
Shares of each Series established pursuant to this Section
6, unless otherwise provided in the resolution establishing such
Series, shall have the following relative rights and preferences:
(a) Assets Belonging to Series. All consideration received
by the Trust for the issue or sale of Shares of a particular
Series, together with all assets in which such consideration is
invested or reinvested, all income, earnings, profits, and
proceeds thereof from whatever source derived, including, without
limitation, any proceeds derived from the sale, exchange or
liquidation of such assets, and any funds or payments derived
from any reinvestment of such proceeds in whatever form the same
may be, shall irrevocably belong to that Series for all purposes,
subject only to the rights of creditors, and shall be so recorded
upon the books of account of the Trust. Such consideration,
assets, income, earnings, profits and proceeds thereof, from
whatever source derived, including, without limitation, any
proceeds derived from the sale, exchange or liquidation of such
assets, and any funds or payments derived from any reinvestment
of such proceeds, in whatever form the same may be, are herein
referred to as "assets belonging to" that Series. In the event
that there are any assets, income, earnings, profits and proceeds
thereof, funds or payments which are not readily identifiable as
belonging to any particular Series (collectively "General
Assets"), the Trustees shall allocate such General Assets to,
between or among any one or more of the Series in such manner and
on such basis as they, in their sole discretion, deem fair and
equitable, and any General Asset so allocated to a particular
Series shall belong to that Series. Each such allocation by the
Trustees shall be conclusive and binding upon the Shareholders of
all Series for all purposes.
(b) Liabilities Belonging to Series. The assets belonging to
each particular Series shall be charged with the liabilities of
the Trust in respect to that Series and all expenses, costs,
charges and reserves attributable to that Series, and any general
liabilities of the Trust which are not readily identifiable as
belonging to any particular Series shall be allocated and charged
by the Trustees to and among any one or more of the Series in
such manner and on such basis as the Trustees in their sole
discretion deem fair and equitable. The liabilities, expenses,
costs, charges, and reserves so charged to a Series are herein
referred to as "liabilities belonging to" that Series. Each
allocation of liabilities, expenses, costs, charges and reserves
by the Trustees shall be conclusive and binding upon the holders
of all Series for all purposes. Under no circumstances shall the
assets allocated or belonging to any particular Series be charged
with liabilities attributable to any other Series. All Persons
who have extended credit which has been allocated to a particular
Series, or who have a claim or contract which has been allocated
to any particular Series, shall look only to the assets of that
particular Series for payment of such credit, claim, or contract.
(c) Dividends, Distributions Redemptions, and Repurchases.
Notwithstanding any other provisions of this Declaration of
Trust, including, without limitation, Article VI, no dividend or
distribution (including, without limitation, any distribution
paid upon termination of the Trust or of any Series) with respect
to, nor any redemption or repurchase of, the Shares of any Series
shall be effected by the Trust other than from the assets
belonging to such Series, nor, except as specifically provided in
Section 7 of this Article III, shall any Shareholder of any
particular Series otherwise have any right or claim against the
assets belonging to any other Series except to the extent that
such Shareholder has such a right or claim hereunder as a
Shareholder of such other Series. The Trustees shall have full
discretion, to the extent not inconsistent with the 1940 Act, to
determine which items shall be treated as income and which items
as capital; and each such determination and allocation shall be
conclusive and binding upon the Shareholders.
(d) Voting. All Shares of the Trust entitled to vote on a
matter shall vote separately by Series. That is, the Shareholders
of each Series shall have the right to approve or disapprove
matters affecting the Trust and each respective Series as if the
Series were separate companies. There are, however, two
exceptions to voting by separate Series. First, if the 1940 Act
requires all Shares of the Trust to be voted in the aggregate
without differentiation between the separate Series, then all the
Trust's Shares shall be entitled to vote on a one-vote-per-Share
basis. Second, if any matter affects only the interests of some
but not all Series, then only the Shareholders of such affected
Series shall be entitled to vote on the matter.
(e) Equality. All the Shares of each particular Series shall
represent an equal proportionate interest in the assets belonging
to that Series (subject to the liabilities belonging to that
Series), and each Share of any particular Series shall be equal
to each other Share of that Series.
(f) Fractions. Any fractional Share of a Series shall carry
proportionately all the rights and obligations of a whole share
of that Series, including rights with respect to voting, receipt
of dividends and distributions, redemption of Shares and
termination of the Trust.
(g) Exchange Privilege. The Trustees shall have the
authority to provide that the holders of Shares of any Series
shall have the right to exchange said Shares for Shares of one or
more other Series of Shares in accordance with such requirements
and procedures as may be established by the Trustees.
(h) Combination of Series. The Trustees shall have the
authority, without the approval of the Shareholders of any Series
unless otherwise required by applicable law, to combine the
assets and liabilities belonging to any two or more Series into
assets and liabilities belonging to a single Series.
(i) Elimination of Series. At any time that there are no
Shares outstanding of any particular Series previously
established and designated, the Trustees may by resolution of a
majority of the then Trustees abolish that Series and rescind the
establishment and designation thereof.
Section 7. Indemnification of Shareholders. In case any
Shareholder or former Shareholder shall be held to be personally
liable solely by reason of his or her being or having been a
Shareholder and not because of his or her acts or omissions or
for some other reason, the Shareholder or former Shareholder (or
his or her heirs, executors, administrators, or other legal
representatives or in the case of a corporation or other entity,
its corporate or other general successor) shall be entitled out
of the assets of the Trust to be held harmless from and
indemnified against all loss and expense arising from such
liability.
ARTICLE IV
The Board of Trustees
Section 1. Number, Election and Tenure. The number of
Trustees constituting the Board of Trustees shall be fixed from
time to time by a written instrument signed or by resolution
approved at a duly constituted meeting by a majority of the Board
of Trustees, provided, however, that the number of Trustees shall
in no event be less than one nor more than 15. The Board of
Trustees, by action of a majority of the then Trustees at a duly
constituted meeting, may fill vacancies in the Board of Trustees
or remove Trustees with or without cause. Each Trustee shall
serve during the continued lifetime of the Trust until he dies,
resigns, is declared bankrupt or incompetent by a court of
appropriate jurisdiction, or is removed, or, if sooner, until the
next meeting of Shareholders called for the purpose of electing
Trustees and until the election and qualification of his
successor. Any Trustee may resign at any time by written
instrument signed by him and delivered to any officer of the
Trust or to a meeting of the Trustees. Such resignation shall be
effective upon receipt unless specified to be effective at some
other time. Except to the extent expressly provided in a written
agreement with the Trust, no Trustee resigning and no Trustee
removed shall have any right to any compensation for any period
following his resignation or removal, or any right to damages on
account of such removal. The Shareholders may fix the number of
Trustees and elect Trustees at any meeting of Shareholders called
by the Trustees for that purpose.
Section 2. Effect of Death, Resignation, etc. of a Trustee.
The death, declination, resignation, retirement, removal, or
incapacity of one or more Trustees, or all of them, shall not
operate to annul the Trust or to revoke any existing agency
created pursuant to the terms of this Declaration of Trust.
Whenever a vacancy in the Board of Trustees shall occur, until
such vacancy is filled as provided in Article IV, Section 1, the
Trustees in office, regardless of their number, shall have all
the powers granted to the Trustees and shall discharge all the
duties imposed upon the Trustees by this Declaration of Trust. As
conclusive evidence of such vacancy, a written instrument
certifying the existence of such vacancy may be executed by an
officer of the Trust or by a majority of the Board of Trustees.
In the event of the death, declination, resignation, retirement,
removal, or incapacity of all the then Trustees within a short
period of time and without the opportunity for at least one
Trustee being able to appoint additional Trustees to fill
vacancies, the Trust's investment adviser or investment advisers
jointly, if there is more than one, are empowered to appoint new
Trustees subject to the provisions of Section 16(a) of the 1940
Act.
Section 3. Powers. Subject to the provisions of this
Declaration of Trust, the business of the Trust shall be managed
by the Board of Trustees, and such Board shall have all powers
necessary or convenient to carry out that responsibility
including the power to engage in securities transactions of all
kinds on behalf of the Trust. Without limiting the foregoing, the
Trustees may: adopt By-Laws not inconsistent with this
Declaration of Trust providing for the regulation and management
of the affairs of the Trust and may amend and repeal them to the
extent that such ByLaws do not reserve that right to the
Shareholders; fill vacancies in or remove from their number, and
may elect and remove such officers and appoint and terminate such
agents as they consider appropriate; appoint from their own
number and establish and terminate one or more committees
consisting of two or more Trustees which may exercise the powers
and authority of the Board of Trustees to the extent that the
Trustees determine; employ one or more custodians of the assets
of the Trust and may authorize such custodians to employ
subcustodians and to deposit all or any part of such assets in a
system or systems for the central handling of securities or with
a Federal Reserve Bank, retain a transfer agent or a shareholder
servicing agent, or both; provide for the issuance and
distribution of Shares by the Trust directly or through one or
more Principal Underwriters or otherwise; redeem, repurchase and
transfer Shares pursuant to applicable law; set record dates for
the determination of Shareholders with respect to various
matters; declare and pay dividends and distributions to
Shareholders of each Series from the assets of such Series; and
in general delegate such authority as they consider desirable to
any officer of the Trust, to any committee of the Trustees and to
any agent or employee of the Trust or to any such custodian,
transfer or shareholder servicing agent, or Principal
Underwriter. Any determination as to what is in the interests of
the Trust made by the Trustees in good faith shall be conclusive.
In construing the provisions of this Declaration of Trust, the
presumption shall be in favor of a grant of power to the
Trustees.
Without limiting the foregoing, the Board of Trustees shall
have power and authority:
(a) To invest and reinvest cash, to hold cash uninvested,
and to subscribe for, invest in, reinvest in, purchase or
otherwise acquire, own, hold, pledge, sell, assign, transfer,
exchange, distribute, write options on, lend or otherwise deal in
or dispose of contracts for the future acquisition or delivery of
fixed income or other securities, and securities of every nature
and kind, including, without limitation, all types of bonds,
debentures, stocks, negotiable or non-negotiable instruments,
obligations, evidences of indebtedness, certificates of deposit
or indebtedness, commercial paper, repurchase agreements,
bankers' acceptances, and other securities of any kind, issued,
created, guaranteed, or sponsored by any and all Persons,
including, without limitation, states, territories, and
possessions of the United States and the District of Columbia and
any political subdivision, agency, or instrumentality thereof,
any foreign government or any political subdivision of the U.S.
Government or any foreign government, or any international
instrumentality, or by any bank or savings institution, or by any
corporation or organization organized under the laws of the
United States or of any state, territory, or possession thereof,
or by any corporation or organization organized under any foreign
law, or in "when issued" contracts for any such securities, to
change the investments of the assets of the Trust; and to
exercise any and all rights, powers, and privileges of ownership
or interest in respect of any and all such investments of every
kind and description, including, without limitation, the right to
consent and otherwise act with respect thereto, with power to
designate one or more Persons, to exercise any of said rights,
powers, and privileges in respect of any of said instruments;
(b) To sell, exchange, lend, pledge, mortgage, hypothecate,
lease, or write options with respect to or otherwise deal in any
property rights relating to any or all of the assets of the
Trust;
(c) To vote or give assent, or exercise any rights of
ownership, with respect to stock or other securities or property;
and to execute and deliver proxies or powers of attorney to such
person or persons as the Trustees shall deem proper, granting to
such person or persons such power and discretion with relation to
securities or property as the Trustees shall deem proper;
(d) To exercise powers and right of subscription or
otherwise which in any manner arise out of ownership of
securities;
(e) To hold any security or property in a form not
indicating any trust, whether in bearer, unregistered or other
negotiable form, or in its own name or in the name of a custodian
or subcustodian or a nominee or nominees or otherwise;
(f) To consent to or participate in any plan for the
reorganization, consolidation or merger of any corporation or
issuer of any security which is held in the Trust; to consent to
any contract, lease, mortgage, purchase or sale of property by
such corporation or issuer; and to pay calls or subscriptions
with respect to any security held in the Trust;
(g) To join with other security holders in acting through a
committee, depositary, voting trustee or otherwise, and in that
connection to deposit any security with, or transfer any security
to, any such committee, depositary or trustee, and to delegate to
them such power and authority with relation to any security
(whether or not so deposited or transferred) as the Trustees
shall deem proper, and to agree to pay, and to pay, such portion
of the expenses and compensation of such committee, depositary or
trustee as the Trustees shall deem proper;
(h) To compromise, arbitrate or otherwise adjust claims in
favor of or against the Trust or any matter in controversy,
including but not limited to claims for taxes;
(i) To enter into joint ventures, general or limited
partnerships and any other combinations or associations;
(j) To borrow funds or other property in the name of the
Trust exclusively for Trust purposes;
(k) To endorse or guarantee the payment of any notes or
other obligations of any Person; to make contracts of guaranty or
suretyship, or otherwise assume liability for payment thereof;
(1) To purchase and pay for entirely out of Trust Property
such insurance as they may deem necessary or appropriate for the
conduct of the business, including, without limitation, insurance
policies insuring the assets of the Trust or payment of
distributions and principal on its portfolio investments, and
insurance policies insuring the Shareholders, Trustees, officers,
employees, agents, investment advisers, principal underwriters,
or independent contractors of the Trust, individually against all
claims and liabilities of every nature arising by reason of
holding, being or having held any such office or position, or by
reason of any action alleged to have been taken or omitted by any
such Person as Trustee, officer, employee, agent, investment
adviser, principal underwriter, or independent contractor,
including any action taken or omitted that may be determined to
constitute negligence, whether or not the Trust would have the
power to indemnify such Person against liability; and
(m) To adopt, establish and carry out pension, profit-
sharing, share bonus, share purchase, savings, thrift and other
retirement, incentive and benefit plans, trusts and provisions,
including the purchasing of life insurance and annuity contracts
as a means of providing such retirement and other benefits, for
any or all of the Trustees, officers, employees and agents of the
Trust.
The Trustees shall not be limited to investing in
obligations maturing before the possible termination of the Trust
or one or more of its Series. The Trustees shall not in any way
be bound or limited by any present or future law or custom in
regard to investment by fiduciaries. The Trustees shall not be
required to obtain any court order to deal with any assets of the
Trust or take any other action hereunder.
Section 4. Payment of Expenses by the Trust. The Trustees
are authorized to pay or cause to be paid out of the principal or
income of the Trust, or partly out of the principal and partly
out of income, as they deem fair, all expenses, fees, charges,
taxes and liabilities incurred or arising in connection with the
Trust, or in connection with the management thereof, including,
but not limited to, the Trustees' compensation and such expenses
and charges for the services of the Trust's officers, employees,
investment adviser or manager, principal underwriter, auditors,
counsel, custodian, transfer agent, Shareholder servicing agent,
and such other agents or independent contractors and such other
expenses and charges as the Trustees may deem necessary or proper
to incur.
Section 5. Payment of Expenses by Shareholders. The Trustees
shall have the power, as frequently as they may determine, to
cause each Shareholder, or each Shareholder of any particular
Series, to pay directly, in advance or arrears, for charges of
the Trust's custodian or transfer, Shareholder servicing or
similar agent, an amount fixed from time to time by the Trustees,
by setting off such charges due from such Shareholder from
declared but unpaid dividends owed such Shareholder and/or by
reducing the number of shares in the account of such Shareholder
by that number of full and/or fractional Shares which represents
the outstanding amount of such charges due from such Shareholder.
Section 6. Ownership of Assets of the Trust. Title to all of
the assets of the Trust shall at all times be considered as
vested in the Trustees as joint tenants except that the Trustees
shall have power to cause legal title to any Trust Property to be
held by or in the name of one or more of the Trustees, or in the
name of the Trust, or in the name of any other Person as nominee,
on such terms as the Trustees may determine. The right, title and
interest of the Trustees in the Trust Property shall vest
automatically in each Person who may hereafter become a Trustee.
Upon the resignation, removal or death of a Trustee he shall
automatically cease to have any right, title or interest in any
of the Trust Property, and the right, title and interest of such
Trustee in the Trust Property shall vest automatically in the
remaining Trustees. Such vesting and cessation of title shall be
effective whether or not conveyancing documents have been
executed and delivered.
Section 7. Service Contracts.
(a) Subject to such requirements and restrictions as may be
set forth in the By-Laws, the Trustees may, at any time and from
time to time, contract for exclusive or nonexclusive advisory,
management and/or administrative services for the Trust or for
any Series with any corporation, trust, association or other
organization; and any such contract may contain such other terms
as the Trustees may determine, including without limitation,
authority for the Investment Manager, Investment Adviser or
Administrator to determine from time to time without prior
consultation with the Trustees what investments shall be
purchased, held, sold or exchanged and what portion, if any, of
the assets of the Trust shall be held uninvested and to make
changes in the Trust's investments, or such other activities as
may specifically be delegated to such party.
(b) The Trustees may also, at any time and from time to
time, contract with any corporation, trust, association or other
organization, appointing it exclusive or nonexclusive distributor
or Principal Underwriter for the Shares of one or more of the
Series. Every such contract shall comply with such requirements
and restrictions as may be set forth in the By-Laws; and any such
contract may contain such other terms as the Trustees may
determine.
(c) The Trustees are also empowered, at any time and from
time to time, to contract with any corporations, trusts,
associations or other organizations, appointing it or them the
custodian, transfer agent and/or shareholder servicing agent for
the Trust or one or more of its Series. Every such contract shall
comply with such requirements and restrictions as may be set
forth in the By-Laws or stipulated by resolution of the Trustees.
(d) The Trustees are further empowered, at any time and from
time to time, to contract with any entity to provide such other
services to the Trust or one or more of the Series, as the
Trustees determine to be in the best interests of the Trust and
the applicable Series.
(e) The fact that:
(i) any of the Shareholders, Trustees, or officers of
the Trust is a shareholder, director, officer, partner,
trustee, employee, manager, adviser, principal underwriter,
distributor, or affiliate or agent of or for any
corporation, trust, association, or other organization, or
for any parent or affiliate of any organization with which
an advisory, management or administration contract, or
principal underwriter's or distributor's contract, or
transfer, shareholder servicing or other type of service
contract may have been or may hereafter be made, or that any
such organization, or any parent or affiliate thereof, is a
Shareholder or has an interest in the Trust, or that
(ii) any corporation, trust, association or other
organization with which an advisory, management or
administration contract or principal underwriter's or
distributor's contract, or transfer, shareholder servicing
or other type of service contract may have been or may
hereafter be made also has an advisory, management or
administration contract, or principal underwriter's or
distributor's contract, or transfer, shareholder servicing
or other service contract with one or more other
corporations, trust, associations, or other organizations,
or has other business or interests,
shall not affect the validity of any such contract or disqualify
any Shareholder, Trustee or officer of the Trust from voting upon
or executing the same, or create any liability or accountability
to the Trust or its Shareholders, provided approval of each such
contract is made pursuant to the requirements of the 1940 Act.
ARTICLE V
Shareholders' Voting Powers and Meetings
Section 1. Voting Powers. Subject to the provisions of
Article III, Section 6(d), the Shareholders shall have power to
vote only (i) for the election of Trustees as provided in Article
IV, Section 1, (ii) to the same extent as the stockholders of a
Delaware business corporation as to whether or not a court
action, proceeding or claim should or should not be brought or
maintained derivatively or as a class action on behalf of the
Trust or the Shareholders, (iii) with respect to the termination
of the Trust or any Series to the extent and as provided in
Article VIII, Section 4, and (iv) with respect to such additional
matters relating to the Trust as may be required by this
Declaration of Trust, the By-Laws or any registration of the
Trust with the Commission (or any successor agency) or any state,
or as the Trustees may consider necessary or desirable. Each
whole Share shall be entitled to one vote as to any matter on
which it is entitled to vote and each fractional Share shall be
entitled to a proportionate fractional vote. There shall be no
cumulative voting in the election of Trustees. Shares may be
voted in person or by proxy. A proxy with respect to Shares held
in the name of two or more persons shall be valid if executed by
any one of them unless at or prior to exercise of the proxy the
Trust receives a specific written notice to the contrary from any
one of them. A proxy purporting to be executed by or on behalf of
a Shareholder shall be deemed valid unless challenged at or prior
to its exercise and the burden of proving invalidity shall rest
on the challenger. At any time when no Shares of a Series are
outstanding, the Trustees may exercise all rights of Shareholders
of that Series with respect to matters affecting that Series,
take any action required by law, this Declaration of Trust or the
ByLaws, to be taken by the Shareholders.
Section 2. Voting Power and Meetings. Meetings of the
Shareholders may be called by the Trustees for the purpose of
electing Trustees as provided in Article IV, Section 1 and for
such other purposes as may be prescribed by law, by this
Declaration of Trust or by the By-Laws. Meetings of the
Shareholders may also be called by the Trustees from time to time
for the purpose of taking action upon any other matter deemed by
the Trustees to be necessary or desirable. A meeting of
Shareholders may be held at any place designated by the Trustees.
Written notice of any meeting of Shareholders shall be given or
caused to be given by the Trustees by mailing such notice at
least seven (7) days before such meeting, postage prepaid,
stating the time and place of the meeting, to each Shareholder at
the Shareholder's address as it appears on the records of the
Trust. Whenever notice of a meeting is required to be given to a
Shareholder under this Declaration of Trust or the By-Laws, a
written waiver thereof, executed before or after the meeting by
such Shareholder or his attorney thereunto authorized and filed
with the records of the meeting, shall be deemed equivalent to
such notice.
Section 3. Quorum and Required Vote. Except when a larger
quorum is required by applicable law, by the By-Laws or by this
Declaration of Trust, forty percent (40%) of the Shares entitled
to vote shall constitute a quorum at a Shareholders' meeting.
When any one or more Series is to vote as a single class separate
from any other Shares which are to vote on the same matters as a
separate class or classes, forty percent (40%) of the Shares of
each such Series entitled to vote shall constitute a quorum at a
Shareholder's meeting of that Series. Any meeting of Shareholders
may be adjourned from time to time by a majority of the votes
properly cast upon the question of adjourning a meeting to
another date and time, whether or not a quorum is present, and
the meeting may be held as adjourned within a reasonable time
after the date set for the original meeting without further
notice. Subject to the provisions of Article III, Section 6(d) l
when a quorum is present at any meeting, a majority of the Shares
voted shall decide any questions and a plurality shall elect a
Trustee, except when a larger vote is required by any provision
of this Declaration of Trust or the By-Laws or by applicable law.
Section 4. Action by Written Consent. Any action taken by
Shareholders may be taken without a meeting if Shareholders
holding a majority of the Shares entitled to vote on the matter
(or such larger proportion thereof as shall be required by any
express provision of this Declaration of Trust or by the By-Laws)
and holding a majority (or such larger proportion as aforesaid)
of the Shares of any Series entitled to vote separately on the
matter consent to the action in writing and such written consents
are filed with the records of the meetings of Shareholders. Such
consent shall be treated for all purposes as a vote taken at a
meeting of Shareholders.
Section 5. Record Dates. For the purpose of determining the
Shareholders of any Series who are entitled to vote or act at any
meeting or any adjournment thereof, the Trustees may from time to
time fix a time, which shall be not more than ninety (90) days
before the date of any meeting of Shareholders, as the record
date for determining the Shareholders of such Series having the
right to notice of and to vote at such meeting and any
adjournment thereof, and in such case only Shareholders of record
on such record date shall have such right, notwithstanding any
transfer of shares on the books of the Trust after the record
date. For the purpose of determining the Shareholders of any
Series who are entitled to receive payment of any dividend or of
any other distribution, the Trustees may from time to time fix a
date, which shall be before the date for the payment of such
dividend or such other payment, as the record date for
determining the Shareholders of such Series having the right to
receive such dividend or distribution. Without fixing a record
date the Trustees may for voting and/or distribution purposes
close the register or transfer books for one or more Series for
all or any part of the period between a record date and a meeting
of Shareholders or the payment of a distribution. Nothing in this
Section shall be construed as precluding the Trustees from
setting different record dates for different Series.
Section 6. Additional Provisions. The By-Laws may include
further provisions for Shareholders' votes and meetings and
related matters.
ARTICLE VI
Net Asset Value, Distributions, and Redemptions
Section 1. Determination of Net Asset Value, Net Income, and
Distributions. Subject to Article III, Section 6 hereof, the
Trustees, in their absolute discretion, may prescribe and shall
set forth in the By-laws or in a duly adopted vote of the
Trustees such bases and time for determining the per Share or net
asset value of the Shares of any Series or net income
attributable to the Shares of any Series, or the declaration and
payment of dividends and distributions on the Shares of any
Series, as they may deem necessary or desirable.
Section 2. Redemptions and Repurchases. The Trust shall
purchase such Shares as are offered by any Shareholder for
redemption, upon the presentation of a proper instrument of
transfer together with a request directed to the Trust or a
Person designated by the Trust that the Trust purchase such
Shares or in accordance with such other procedures for redemption
as the Trustees may from time to time authorize; and the Trust
will pay therefor the net asset value thereof, in accordance with
the ByLaws and applicable law. Payment for said Shares shall be
made by the Trust to the Shareholder within seven days after the
date on which the request is made in proper form. The obligation
set forth in this Section 2 is subject to the provision that in
the event that any time the New York Stock Exchange is closed for
other than weekends or holidays, or if permitted by the Rules of
the Commission during periods when trading on the Exchange is
restricted or during any emergency which makes it impracticable
for the Trust to dispose of the investments of the applicable
Series or to determine fairly the value of the net assets
belonging to such Series or during any other period permitted by
order of the Commission for the protection of investors, such
obligations may be suspended or postponed by the Trustees.
The redemption price may in any case or cases be paid wholly
or partly in kind if the Trustees determine that such payment is
advisable in the interest of the remaining Shareholders of the
Series for which the Shares are being redeemed. Subject to the
foregoing, the fair value, selection and quantity of securities
or other property so paid or delivered as all or part of the
redemption price may be determined by or under authority of the
Trustees. In no case shall the Trust be liable for any delay of
any corporation or other Person in transferring securities
selected for delivery as all or part of any payment in kind.
Section 3. Redemptions at the Option of the Trust. The Trust
shall have the right at its option and at any time to redeem
Shares of any Shareholder at the net asset value thereof as
described in Section 1 of this Article VI: (i) if at such time
such Shareholder owns Shares of any Series having an aggregate
net asset value of less than an amount determined from time to
time by the Trustees prior to the acquisition of said Shares; or
(ii) to the extent that such Shareholder owns Shares of a
particular Series equal to or in excess of a percentage of the
outstanding Shares of that Series determined from time to time by
the Trustees; or (iii) to the extent that such Shareholder owns
Shares equal to or in excess of a percentage, determined from
time to time by the Trustees, of the outstanding Shares of the
Trust or of any Series.
ARTICLE VII
Compensation and Limitation of Liability of Trustees
Section 1. Compensation. The Trustees as such shall be
entitled to reasonable compensation from the Trust, and they may
fix the amount of such compensation. Nothing herein shall in any
way prevent the employment of any Trustee for advisory,
management, legal, accounting, investment banking or other
services and payment for the same by the Trust.
Section 2. Limitation of Liability. The Trustees shall not
be responsible or liable in any event for any neglect or
wrongdoing of any officer, agent, employee, manager or Principal
Underwriter of the Trust, nor shall any Trustee be responsible
for the act or omission of any other Trustee, but nothing herein
contained shall protect any Trustee against any liability to
which he would otherwise be subject by reason of wilful
misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of his office.
Every note, bond, contract, instrument, certificate or
undertaking and every other act or thing whatsoever issued,
executed or done by or on behalf of the Trust or the Trustees or
any of them in connection with the Trust shall be conclusively
deemed to have been issued, executed or done only in or with
respect to their or his capacity as Trustees or Trustee, and such
Trustees or Trustee shall not be personally liable thereon.
Section 3. Indemnification. The Trustees shall be entitled
and empowered to the fullest extent permitted by law to purchase
with Trust assets insurance for and to provide by resolution or
in the By-Laws for indemnification out of Trust assets for
liability and for all expenses reasonably incurred or paid or
expected to be paid by a Trustee or officer in connection with
any claim, action, suit or proceeding in which he becomes
involved by virtue of his capacity or former capacity with the
Trust. The provisions, including any exceptions and limitations
concerning indemnification, may be set forth in detail in the By-
Laws or in a resolution of the Board of Trustees.
ARTICLE VIII
Miscellaneous
Section 1. Trustees, Shareholders, etc. Not Personally
Liable; Notice. All Persons extending credit to, contracting with
or having any claim against the Trust or any Series shall look
only to the assets of the Trust, or, to the extent that the
liability of the Trust may have been expressly limited by
contract to the assets of a particular Series, only to the assets
belonging to the relevant Series, for payment under such credit,
contract or claim; and neither the Shareholders nor the Trustees,
nor any of the Trust's officers, employees or agents, whether
past, present or future, shall be personally liable therefor.
Nothing in this Declaration of Trust shall protect any Trustee
against any liability to which such Trustee would otherwise be
subject by reason of wilful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the
conduct of the office of Trustee.
Every note, bond, contract, instrument, certificate or
undertaking made or issued on behalf of the Trust by the Board of
Trustees, by any officers or officer or otherwise may include a
notice that this Declaration of Trust is on file with the
Secretary of the state of Delaware and may recite that the note,
bond, contract, instrument, certificate, or undertaking was
executed or made by or on behalf of the Trust or by them as
Trustee or Trustees or as officers or officer or otherwise and
not individually and that the obligations of such instrument are
not binding upon any of them or the Shareholders individually but
are binding only upon the assets and property of the Trust or
upon the assets belonging to the Series for the benefit of which
the Trustees have caused the note, bond, contract, instrument,
certificate or undertaking to be made or issued, and may contain
such further recital as he or they may deem appropriate, but the
omission of any such recital shall not operate to bind any
Trustee or Trustees or officer or officers or Shareholders or any
other person individually.
Section 2. Trustee's Good Faith Action, Expert Advice, No
Bond or Surety. The exercise by the Trustees of their powers and
discretions hereunder shall be binding upon everyone interested.
A Trustee shall be liable solely for his own wilful misfeasance,
bad faith, gross negligence or reckless disregard of the duties
involved In the conduct of the office of Trustee, and shall not
be liable for errors of judgment or mistakes of fact or law. The
Trustees may take advice of counsel or other experts with respect
to the meaning and operation of this Declaration of Trust, and
shall be under no liability for any act or omission in accordance
with such advice nor for failing to follow such advice. The
Trustees shall not be required to give any bond as such, nor any
surety if a bond is required.
Section 3. Liability of Third Persons Dealing with Trustees.
No Person dealing with the Trustees shall be bound to make any
inquiry concerning the validity of any transaction made or to be
made by the Trustees or to see to the application of any payments
made or property transferred to the Trust or upon its order.
Section 4. Termination of Trust or Series. Unless terminated
as provided herein, the Trust shall continue without limitation
of time. The Trust may be terminated at any time by vote of at
least two-thirds (66-2/3%) of the Shares of each Series entitled
to vote, voting separately by Series, or by the Trustees by
written notice to the Shareholders. Any Series may be terminated
at any time by vote of at least two-thirds (66-2/3%) of the
Shares of that Series or by the Trustees by written notice to the
Shareholders of that Series.
Upon termination of the Trust (or any Series, as the case
may be), after paying or otherwise providing for all charges,
taxes, expenses and liabilities belonging, severally, to each
Series (or the applicable Series, as the case may be), whether
due or accrued or anticipated as may be determined by the
Trustees, the Trust shall, in accordance with such procedures as
the Trustees consider appropriate, reduce the remaining assets
belonging. severally, to each Series (or the applicable Series,
as the case may be), to distributable form in cash or shares or
other securities, or any combination thereof, and distribute the
proceeds belonging to each Series (or the applicable Series, as
the case may be), to the Shareholders of that Series, as a
Series, ratably according to the number of Shares of that Series
held by the several Shareholders on the date of termination.
Section 5. Merger and Consolidation. The Trustees may cause
the Trust or one or more of its Series to be merged into or
consolidated with another Trust or company or the Shares
exchanged under or pursuant to any state or Federal statute, if
any, or otherwise to the extent permitted by law. Such merger or
consolidation or Share exchange must be authorized by vote of a
majority of the outstanding Shares of the Trust, as a whole, or
any affected Series, as may be applicable; provided that in all
respects not governed by statute or applicable law, the Trustees
shall have power to prescribe the procedure necessary or
appropriate to accomplish a sale of assets, merger or
consolidation.
Section 6. Filing of Copies, References, Headings. The
original or a copy of this instrument and of each amendment
hereto shall be kept at the office of the Trust where it may be
inspected by any Shareholder. A copy of this instrument and of
each amendment hereto shall be filed by the Trust with the
Secretary of the state of Delaware and with any other
governmental office where such filing may from time to time be
required. Anyone dealing with the Trust may rely on a certificate
by an officer of the Trust as to whether or not any such
amendments have been made and as to any matters in connection
with the Trust hereunder; and, with the same effect as if it were
the original, may rely on a copy certified by an officer of the
Trust to be a copy of this instrument or of any such amendments.
In this instrument and in any such amendment, references to this
instrument, and all expressions like "herein", "hereof" and
"hereunder", shall be deemed to refer to this instrument as
amended or affected by any such amendments. Headings are placed
herein for convenience of reference only and shall not be taken
as a part hereof or control or affect the meaning, construction
or effect of this instrument. Whenever the singular number is
used herein, the same shall include the plural; and the neuter,
masculine and feminine genders shall include each other, as
applicable. This instrument may be executed in any number of
counterparts each of which shall be deemed an original.
Section 7. Applicable Law. This Agreement and Declaration of
Trust is created under and is to be governed by and construed and
administered according to the laws of state of Delaware. The
Trust shall be of the type commonly called a Delaware business
trust, and without limiting the provisions hereof, the Trust may
exercise all powers which are ordinarily exercised by such a
trust.
Section 8. Provisions in Conflict with Law or Regulations.
(a) The provisions of the Declaration of Trust are
severable, and if the Trustees shall determine, with the advice
of counsel, that any of such provisions is in conflict with the
1940 Act, the regulated investment company provisions of the
Internal Revenue Code or with other applicable laws and
regulations, the conflicting provision shall be deemed never to
have constituted a part of the Declaration of Trust; provided,
however, that such determination shall not affect any of the
remaining provisions of the Declaration of Trust or render
invalid or improper any action taken or omitted prior to such
determination.
(b) If any provision of the Declaration of Trust shall
be held invalid or unenforceable in any jurisdiction, such
invalidity or unenforceability shall attach only to such
provision in such jurisdiction and shall not in any manner affect
such provision in any other jurisdiction or any other provision
of the Declaration of Trust in any jurisdiction.
Section 9. Amendments. This Declaration of Trust may be
amended at any time by an instrument in writing signed by a
majority of the then Trustees.
Section 10. Trust Only. It is the intention of the Trustees
to create only the relationship of Trustee and beneficiary
between the Trustees and each Shareholder from time to time. It
is not the intention of the Trustees to create a general
partnership, limited partnership, joint stock association,
corporation, bailment, or any form of legal relationship other
than a trust. Nothing in this Agreement and Declaration of Trust
shall be construed to make the Shareholders, either by themselves
or with the Trustees, partners or members of a joint stock
association.
Section 11. Use of the Name "Franklin." Franklin Advisers,
Inc., as the proposed Manager of the Trust's assets, has
consented to the use by the Trust of the identifying word
"Franklin" as part of the name of the Trust and in the name of
any Series of Shares. Such consent is conditioned upon the
employment of the Manager, or an affiliate of said Company, as
Manager of the Trust and said Series. The name or identifying
words "Franklin or any variation thereof may be used from time to
time in other connections and for other purposes by the Manager
or affiliated entities. The Manager has the right to require the
Trust to cease using "Franklin" in the name of the Trust and in
the names of its Series if the Trust and said Series cease to
employ, for any reason, the Manager, or an affiliate of said
Company, as the Manager or adviser of the Trust or such Series.
Future names adopted by the Trust for itself and its Series shall
be the property of the Manager and its affiliates, and the use of
such names shall be subject to the same conditions set forth in
this Section insofar as such name or identifying words require
the consent of the Manager.
IN WITNESS WHEREOF, the Trustees named below do hereby set
their hands as of the 14th day of September, 1993.
/s/ Frank H. Abbott, III /s/ Charles B. Johnson
Frank H. Abbott, III Charles B. Johnson
1045 Sansome Street 777 Mariners Island Blvd.
San Francisco, CA 94111 San Mateo, CA 94404
/s/ Harris J. Ashton /s/ Rupert H. Johnson, Jr.
Harris J. Ashton Rupert H. Johnson, Jr.
Metro Center, One Station Place 777 Mariners Island Blvd.
Stamford, CT 06904 San Mateo, CA 94404
/s/ S. Joseph Fortunato /s/ David W. Garbellano
S. Joseph Fortunato David W. Garbellano
Park Avenue at Morris County 111 New Montgomery St. #402
P.O. Box 1945 San Francisco, CA 94105
Morristown, NJ 07962-1945
/s/ Frank W.T. LaHaye /s/ Harmon E. Burns
Frank W.T. LaHaye Harmon E. Burns
20833 Stevens Creek Blvd. 777 Mariners Island Blvd.
Suite 102 San Mateo, CA 94404
Cupertino, CA 95014
/s/ Gordon S. Macklin
Gordon S. Macklin
8212 Burning Tree Road
Bethesda, MD 20817
CERTIFICATE OF AMENDMENT
OF
AGREEMENT AND DECLARATION OF TRUST
OF
FRANKLIN REAL ESTATE SECURITIES TRUST
The undersigned certify that:
1. They constitute a majority of the Trustees of
FRANKLIN REAL ESTATE SECURITIES TRUST, a Delaware business trust
(the "Trust").
2. They hereby adopt the following amendment to the
Agreement and Declaration of Trust of the Trust, which deletes in
its entirety the Section of the Agreement and Declaration of
Trust entitled "Section 1. Division of Beneficial Interest." of
Article III and replaces such Section of Article III with the
following:
"Section 1. Division of Beneficial Interest. The
beneficial interest in the Trust shall at all times be
divided into an unlimited number of Shares, with a par
value of $.01 per Share. The Trustees may authorize the
division of the Shares into separate Series and the
division of Series into separate classes or sub-series
of Shares (subject to any applicable rule, regulation
or order of the commission or other applicable law or
regulation). The different Series and classes shall be
established and designated and shall have such
preference, conversion or other rights, voting powers,
restrictions, limitations as to dividends,
qualifications, terms and conditions or redemption and
other characteristics as the Trustees may determine.
Notwithstanding the provisions of Section 6(d) of this
Article III or any other provision of this Agreement
and Declaration of Trust, if any matter submitted to
shareholders for a vote affects only the interests of
one class of a Series then only such affected class
shall be entitled to vote on the matter. Each Share of
a Series shall have equal rights with each other Share
of that Series with respect to the assets of the Trust
pertaining to that Series. Notwithstanding any other
provision of this Agreement and Declaration of Trust
the dividends payable to the holders of any Series (or
class) (subject to any applicable rule, regulation or
order of the Commission or any other applicable law or
regulation) shall be determined by the Trustees and
need not be individually declared, but may be declared
and paid in accordance with a formula adopted herein,
all references in this Agreement and Declaration of
Trust to Shares or Series of Shares shall apply without
discrimination to the Shares of each Series.
Shareholders shall have no preemptive right to
subscribe to any additional Shares or other securities
issued by the Trust or any Series or class. The
Trustees may from time to time divide or combine the
Shares of any particular Series or class into a greater
or lesser number of Shares of that Series or class
without thereby changing the proportionate beneficial
interest of the Shares of that Series or class in the
assets belonging to that Series or class or in any way
affecting the rights of Shares of any other Series or
class."
3. It is the determination of the Trustees that
approval of the shareholders of the Trust is not required by the
Investment Company Act of 1940, as amended, or other applicable
law. This Amendment is made pursuant to Article III, Section 5
of this Agreement and Declaration of Trust which empowers the
Trustees to change provisions relating to Shares of the Trust.
We declared under penalty of perjury that the matters
set forth in this certificate are true and correct of our own
knowledge.
Dated February 16, 1995
/s/ Frank H. Abbott, III /s/ Charles B. Johnson
Frank H. Abbott, III Charles B. Johnson
/s/ Harris J. Ashton /s/ Rupert H. Johnson, Jr.
Harris J. Ashton Rupert H. Johnson, Jr.
/s/ Harmon E. Burns /s/ Frank W. T. LaHaye
Harmon E. Burns Frank W. T. LaHaye
/s/ S. Joseph Fortunato /s/ Gordon S. Macklin
S. Joseph Fortunato Gordon S. Macklin
/s/ David W. Garbellano
David W. Garbellano
BY-LAWS
OF
FRANKLIN REAL ESTATE SECURITIES TRUST
A Delaware Business Trust
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICE. The Board of Trustees shall fix
and, from time to time, may change the location of the principal
executive office of the Trust at any place within or outside the
State of Delaware.
Section 2. OTHER OFFICES. The Board of Trustees may at any
time establish branch or subordinate offices at any place or
places where the Trust intends to do business.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section I. PLACE OF MEETINGS. Meetings of shareholders shall
be held at any place within or outside the State of Delaware
designated by the Board of Trustees. In the absence of any such
designation, shareholders' meetings shall be held at the
principal executive office of the Trust.
Section 2. CALL OF MEETING. A meeting of the shareholders
may be called at any time by the Board of Trustees or by the
Chairman of the Board or by the President.
Section 3. NOTICE OF SHAREHOLDERS' MEETING. All notices of
meetings of shareholders shall be sent or otherwise given in
accordance with Section 4 of this Article II not less than seven
(7) nor more than seventy-five (75) days before the date of the
meeting. The notice shall specify (i) the place, date and hour of
the meeting, and (ii) the general nature of the business to be
transacted. The notice of any meeting at which trustees are to be
elected also shall include the name of any nominee or nominees
whom at the time of the notice are intended to be presented for
election.
If action is proposed to be taken at any meeting for
approval of (i) a contract or transaction in which a trustee has
a direct or indirect financial interest, (ii) an amendment of the
Declaration of Trust, (iii) a reorganization of the Trust, or
(iv) a voluntary dissolution of the Trust, the notice shall also
state the general nature of that proposal.
Section 4. MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE.
Notice of any meeting of shareholders shall be given either
personally or by first-class mail or telegraphic or other written
communication, charges prepaid, addressed to the shareholder at
the address of that shareholder appearing on the books of the
Trust or its transfer agent or given by the shareholder to the
Trust for the purpose of notice. If no such address appears on
the Trust's books or is given, notice shall be deemed to have
been given if sent to that shareholder by first-class mail or
telegraphic or other written communication to the Trust's
principal executive office, or if published at least once in a
newspaper of general circulation in the county where that office
is located. Notice shall be deemed to have been given at the time
when delivered personally or deposited in the mail or sent by
telegram or other means of written communication.
If any notice addressed to a shareholder at the address of
that shareholder appearing on the books of the Trust is returned
to the Trust by the United States Postal Service marked to
indicate that the Postal Service is unable to deliver the notice
to the shareholder at that address, all future notices or reports
shall be deemed to have been duly given without further mailing
if these shall be available to the shareholder on written demand
of the shareholder at the principal executive office of the Trust
for a period of one year from the date of the giving of the
notice.
An affidavit of the mailing or other means of giving any
notice of any shareholder's meeting shall be executed by the
secretary, assistant secretary or any transfer agent of the Trust
giving the notice and shall be filed and maintained in the minute
book of the Trust.
Section 5. ADJOURNED MEETING; NOTICE. Any shareholder's
meeting, whether or not a quorum is present, may be adjourned
from time to time by the vote of the majority of the shares
represented at that meeting, either in person or by proxy.
When any meeting of shareholders is adjourned to another
time or place, notice need not be given of the adjourned meeting
at which the adjournment is taken, unless a new record date of
the adjourned meeting is fixed or unless the adjournment is for
more than sixty (60) days from the date set for the original
meeting, in which case the Board of Trustees shall set a new
record date. Notice of any such adjourned meeting shall be given
to each shareholder of record entitled to vote at the adjourned
meeting in accordance with the provisions of Sections 3 and 4 of
this Article II. At any adjourned meeting, the Trust may transact
any business which might have been transacted at the original
meeting.
Section 6. VOTING. The shareholders entitled to vote at any
meeting of shareholders shall be determined in accordance with
the provisions of the Declaration of Trust, as in effect at such
time. The shareholders' vote may be by voice vote or by ballot,
provided, however, that any election for trustees must be by
ballot if demanded by any shareholder before the voting has
begun. On any matter other than elections of trustees, any
shareholder may vote part of the shares in favor of the proposal
and refrain from voting the remaining shares or vote them against
the proposal, but if the shareholder fails to specify the number
of shares which the shareholder is voting affirmatively, it will
be conclusively presumed that the shareholder's approving vote is
with respect to the total shares that the shareholder is entitled
to vote on such proposal.
Section 7. WAIVER OF NOTICE BY CONSENT OF ABSENT
SHAREHOLDERS. The transactions of the meeting of shareholders,
however called and noticed and wherever held, shall be as valid
as though had at a meeting duly held after regular call and
notice if a quorum be present either in person or by proxy and if
either before or after the meeting, each person entitled to vote
who was not present in person or by proxy signs a written waiver
of notice or a consent to a holding of the meeting or an approval
of the minutes. The waiver of notice or consent need not specify
either the business to be transacted or the purpose of any
meeting of shareholders.
Attendance by a person at a meeting shall also constitute a
waiver of notice of that meeting, except when the person objects
at the beginning of the meeting to the transaction of any
business because the meeting is not lawfully called or convened
and except that attendance at a meeting is not a waiver of any
right to object to the consideration of matters not included in
the notice of the meeting if that objection is expressly made at
the beginning of the meeting.
Section 8. SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A
MEETING. Any action which may be taken at any meeting of
shareholders may be taken without a meeting and without prior
notice if a consent in writing setting forth the action so taken
is signed by the holders of outstanding shares having not less
than the minimum number of votes that would be necessary to
authorize or take that action at a meeting at which all shares
entitled to vote on that action were present and voted. All such
consents shall be filed with the Secretary of the Trust and shall
be maintained in the Trust's records. Any shareholder giving a
written consent or the shareholder's proxy holders or a
transferee of the shares or a personal representative of the
shareholder or their respective proxy holders may revoke the
consent by a writing received by the Secretary of the Trust
before written consents of the number of shares required to
authorize the proposed action have been filed with the Secretary.
If the consents of all shareholders entitled to vote have
not been solicited in writing and if the unanimous written
consent of all such shareholders shall not have been received,
the Secretary shall give prompt notice of the action approved by
the shareholders without a meeting. This notice shall be given in
the manner specified in Section 4 of this Article II. In the case
of approval of (i) contracts or transactions in which a trustee
has a direct or indirect financial interest, (ii) indemnification
of agents of the Trust, and (iii) a reorganization of the Trust,
the notice shall be given at least ten (10) days before the
consummation of any action authorized by that approval.
Section 9. RECORD DATE FOR SHAREHOLDER NOTICE; VOTING AND
GIVING CONSENTS. For purposes of determining the shareholders
entitled to notice of any meeting or to vote or entitled to give
consent to action without a meeting, the Board of Trustees may
fix in advance a record date which shall not be more than ninety
(90) days nor less than seven (7) days before the date of any
such meeting as provided in the Declaration of Trust.
If the Board of Trustees does not so fix a record date:
(a) The record date for determining shareholders entitled to
notice of or to vote at a meeting of shareholders shall be at the
close of business on the business day next preceding the day on
which notice is given or if notice is waived, at the close of
business on the business day next preceding the day on which the
meeting is held.
(b) The record date for determining shareholders entitled to
give consent to action in writing without a meeting, (i) when no
prior action by the Board of Trustees has been taken, shall be
the day on which the first written consent is given, or (ii) when
prior action of the Board of Trustees has been taken, shall be at
the close of business on the day on which the Board of Trustees
adopt the resolution relating to that action or the seventy-fifth
day before the date of such other action, whichever is later.
Section 10. PROXIES. Every person entitled to vote for
trustees or on any other matter shall have the right to do so
either in person or by one or more agents authorized by a written
proxy signed by the person and filed with the Secretary of the
Trust. A proxy shall be deemed signed if the shareholder's name
is placed on the proxy (whether by manual signature, typewriting,
telegraphic transmission or otherwise) by the shareholder or the
shareholder's attorney-in-fact. A validly executed proxy which
does not state that it is irrevocable shall continue in full
force and effect unless (i) revoked by the person executing it
before the vote pursuant to that proxy by a writing delivered to
the Trust stating that the proxy is revoked or by a subsequent
proxy executed by or attendance at the meeting and voting in
person by the person executing that proxy; or (ii) written notice
of the death or incapacity of the maker of that proxy is received
by the Trust before the vote pursuant to that proxy is counted;
provided however, that no proxy shall be valid after the
expiration of eleven (11) months from the date of the proxy
unless otherwise provided in the proxy. The revocability of a
proxy that states on its face that it is irrevocable shall be
governed by the provisions of the General Corporation Law of the
State of California.
Section 11. INSPECTORS OF ELECTION. Before any meeting of
shareholders, the Board of Trustees may appoint any persons other
than nominees for office to act as inspectors of election at the
meeting or its adjournment. If no inspectors of election are so
appointed, the chairman of the meeting may and on the request of
any shareholder or a shareholder's proxy shall, appoint
inspectors of election at the meeting. The number of inspectors
shall be either one (1) or three (3). If inspectors are appointed
at a meeting on the request of one or more shareholders or
proxies, the holders of a majority of shares or their proxies
present at the meeting shall determine whether one (1) or three
(3) inspectors are to be appointed. If any person appointed as
inspector fails to appear or fails or refuses to act, the
chairman of the meeting may and on the request of any shareholder
or a shareholder's proxy, shall appoint a person to fill the
vacancy.
These inspectors shall:
(a) Determine the number of shares outstanding and the
voting power of each, the shares represented at the meeting, the
existence of a quorum and the authenticity, validity and effect
of proxies;
(b) Receive votes, ballots or consents;
(c) Hear and determine all challenges and questions in any
way arising in connection with the right to vote;
(d)Count and tabulate all votes or consents;
(e)Determine when the polls shall close;
(f)Determine the result; and
(g)Do any other acts that may be proper to conduct the
election or vote with fairness to all shareholders.
ARTICLE III
TRUSTEES
Section 1. POWERS. Subject to the applicable provisions of
the Declaration of Trust and these By-Laws relating to action
required to be approved by the shareholders or by the outstanding
shares, the business and affairs of the Trust shall be managed
and all powers shall be exercised by or under the direction of
the Board of Trustees.
Section 2. NUMBER AND QUALIFICATION OF TRUSTEES. The exact
number of trustees shall be set forth in the Agreement and
Declaration of Trust, until changed by a duly adopted amendment
to the Declaration of Trust.
Section 3. VACANCIES. Vacancies in the Board of Trustees may
be filled by a majority of the remaining trustees, though less
than a quorum, or by a sole remaining trustee, unless the Board
of Trustees calls a meeting of shareholders for the purposes of
electing trustees. In the event that at any time less than a
majority of the trustees holding office at that time were so
elected by the holders of the outstanding voting securities of
the Trust, the Board of Trustees shall forthwith cause to be held
as promptly as possible, and in any event within sixty (60) days,
a meeting of such holders for the purpose of electing trustees to
fill any existing vacancies in the Board of Trustees, unless such
period is extended by order of the United States Securities and
Exchange Commission.
Notwithstanding the above, whenever and for so long as the
Trust is a participant in or otherwise has in effect a Plan under
which the Trust may be deemed to bear expenses of distributing
its shares as that practice is described in Rule 12b-1 under the
Investment Company Act of 1940, then the selection and nomination
of the trustees who are not interested persons of the Trust (as
that term is defined in the Investment Company Act of 1940) shall
be, and is, committed to the discretion of such disinterested
trustees.
Section 4. PLACE OF MEETINGS AND MEETINGS BY TELEPHONE. All
meetings of the Board of Trustees may be held at any place within
or outside the State of Delaware that has been designated from
time to time by resolution of the Board. In the absence of such a
designation, regular meetings shall be held at the principal
executive office of the Trust. Any meeting, regular or special,
may be held by conference telephone or similar communication
equipment, so long as all trustees participating in the meeting
can hear one another and all such trustees shall be deemed to be
present in person at the meeting.
Section 5. REGULAR MEETINGS. Regular meetings of the Board
of Trustees shall be held without call at such time as shall from
time to time be fixed by the Board of Trustees. Such regular
meetings may be held without notice.
Section 6. SPECIAL MEETINGS. Special meetings of the Board
of Trustees for any purpose or purposes may be called at any time
by the chairman of the board or the president or any vice
president or the secretary or any two (2) trustees.
Notice of the time and place of special meetings shall be
delivered personally or by telephone to each trustee or sent by
first-class mail or telegram, charges prepaid, addressed to each
trustee at that trustee's address as it is shown on the records
of the Trust. In case the notice is mailed, it shall be deposited
in the United States mail at least seven (7) days before the time
of the holding of the meeting. In case the notice is delivered
personally, by telephone, to the telegraph company, or by express
mail or similar service, it shall be given at least forty-
eight(48) hours before the time of the holding of the meeting.
Any oral notice given personally or by telephone may be
communicated either to the trustee or to a person at the office
of the trustee who the person giving the notice has reason to
believe will promptly communicate it to the trustee. The notice
need not specify the purpose of the meeting or the place if the
meeting is to be held at the principal executive office of the
Trust.
Section 7. QUORUM. A majority of the authorized number of
trustees shall constitute a quorum for the transaction of
business, except to adjourn as provided in Section 10 of this
Article III. Every act or decision done or made by a majority of
the trustees present at a meeting duly held at which a quorum is
present shall be regarded as the act of the Board of Trustees,
subject to the provisions of the Declaration of Trust. A meeting
at which a quorum is initially present may continue to transact
business notwithstanding the withdrawal of trustees if any action
taken is approved by a least a majority of the required quorum
for that meeting.
Section 8. WAIVER OF NOTICE. Notice of any meeting need not
be given to any trustee who either before or after the meeting
signs a written waiver of notice, a consent to holding the
meeting, or an approval of the minutes. The waiver of notice or
consent need not specify the purpose of the meeting. All such
waivers, consents, and approvals shall be filed with the records
of the Trust or made a part of the minutes of the meeting. Notice
of a meeting shall also be deemed given to any trustee who
attends the meeting without protesting before or at its
commencement the lack of notice to that trustee.
Section 9. ADJOURNMENT. A majority of the trustees present,
whether or not constituting a quorum, may adjourn any meeting to
another time and place.
Section 10. NOTICE OF ADJOURNMENT. Notice of the time and
place of holding an adjourned meeting need not be given unless
the meeting is adjourned for more than forty-eight (48) hours, in
which case notice of the time and place shall be given before the
time of the adjourned meeting in the manner specified in Section
7 of this Article III to the trustees who were present at the
time of the adjournment.
Section 11. ACTION WITHOUT A MEETING. Any action required or
permitted to be taken by the Board of Trustees may be taken
without a meeting if a majority of the members of the Board of
Trustees shall individually or collectively consent in writing to
that action. Such action by written consent shall have the same
force and effect as a majority vote of the Board of Trustees.
Such written consent or consents shall be filed with the minutes
of the proceedings of the Board of Trustees.
Section 12. FEES AND COMPENSATION OF TRUSTEES. Trustees and
members of committees may receive such compensation, if any, for
their services and such reimbursement of expenses as may be fixed
or determined by resolution of the Board of Trustees. This
Section 12 shall not be construed to preclude any trustee from
serving the Trust in any other capacity as an officer, agent,
employee, or otherwise and receiving compensation for those
services.
Section 13. DELEGATION OF POWER TO OTHER TRUSTEES. Any
Trustee may, by power of attorney, delegate his power for a
period not exceeding six (6) months at any one time to any other
Trustee or Trustees; provided that in no case shall fewer than
two (2) Trustees personally exercise the powers granted to the
Trustees under this Declaration of Trust except as otherwise
expressly provided herein or by resolution of the Board of
Trustees.
ARTICLE IV
COMMITTEES
Section 1. COMMITTEES OF TRUSTEES. The Board of Trustees may
by resolution adopted by a majority of the authorized number of
trustees designate one or more committees, each consisting of two
(2) or more trustees, to serve at the pleasure of the Board. The
Board may designate one or more trustees as alternate members of
any committee who may replace any absent member at any meeting of
the committee. Any committee to the extent provided in the
resolution of the Board, shall have the authority of the Board,
except with respect to:
(a) the approval of any action which under applicable law
also requires shareholders' approval or approval of the
outstanding shares, or requires approval by a majority of the
entire Board or certain members of said Board;
(b) the filling of vacancies on the Board of Trustees or in
any committee;
(c) the fixing of compensation of the trustees for serving
on the Board of Trustees or on any committee;
(d) the amendment or repeal of the Declaration of Trust or
of the By-Laws or the adoption of new By-Laws;
(e) the amendment or repeal of any resolution of the Board
of Trustees which by its express terms is not so amendable or
repealable;
(f) a distribution to the shareholders of the Trust, except
at a rate or in a periodic amount or within a designated range
determined by the Board of Trustees; or
(g) the appointment of any other committees of the Board of
Trustees or the members of these committees.
Section 2. MEETINGS AND ACTION OF COMMITTEES. Meetings and
action of committees shall be governed by and held and taken in
accordance with the provisions of Article III of these By-Laws,
with such changes in the context thereof as are necessary to
substitute the committee and its members for the Board of
Trustees and its members, except that the time of regular
meetings of committees may be determined either by resolution of
the Board of Trustees or by resolution of the committee. Special
meetings of committees may also be called by resolution of the
Board of Trustees, and notice of special meetings of committees
shall also be given to all alternate members who shall have the
right to attend all meetings of the committee. The Board of
Trustees may adopt rules for the government of any committee not
inconsistent with the provisions of these By-Laws.
ARTICLE V
OFFICERS
Section 1. OFFICERS. The officers of the Trust shall be a
president, a secretary, and a treasurer. The Trust may also have,
at the discretion of the Board of Trustees, a chairman of the
board, one or more vice presidents, one or more assistant
secretaries, one or more assistant treasurers, and such other
officers as may be appointed in accordance with the provisions of
Section 3 of this Article V. Any number of offices may be held by
the same person.
Section 2. ELECTION OF OFFICERS. The officers of the Trust,
except such officers as be may appointed in accordance with the
provisions of Section 3 or Section 5 of this Article V, shall be
chosen by the Board of Trustees, and each shall serve at the
pleasure of the Board of Trustees, subject to the rights, if any,
of an officer under any contract of employment.
Section 3. SUBORDINATE OFFICERS. The Board of Trustees may
appoint and may empower the President to appoint such other
officers as the business of the Trust may require, each of whom
shall hold office for such period, have such authority and
perform such duties as are provided in these By-Laws or as the
Board of Trustees may from time to time determine.
Section 4. REMOVAL AND RESIGNATION OF OFFICERS. Subject to
the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without
cause, by the Board of Trustees at any regular or special meeting
of the Board of Trustees or except in the case of an officer upon
whom such power of removal may be conferred by the Board of
Trustees.
Any officer may resign at any time by giving written notice
to the Trust. Any resignation shall take effect at the date of
the receipt of that notice or at any later time specified in that
notice; and unless otherwise specified in that notice, the
acceptance of the resignation shall not be necessary to make it
effective. Any resignation is without prejudice to the rights, if
any, of the Trust under any contract to which the officer is a
party.
Section 5. VACANCIES IN OFFICES. A vacancy in any office
because of death, resignation, removal, disqualification or other
cause shall be filled in the manner prescribed in these By-Laws
for regular appointment to that office.
Section 6. CHAIRMAN OF THE BOARD. The chairman of the board,
if such an officer is elected, shall if present preside at
meetings of the Board of Trustees and exercise and perform such
other powers and duties as may be from time to time assigned to
him by the Board of Trustees or prescribed by the By-Laws.
Section 7. PRESIDENT. Subject to such supervisory powers, if
any, as may be given by the Board of Trustees to the chairman of
the board, if there be such an officer, the president shall be
the chief executive officer of the Trust and shall, subject to
the control of the Board of Trustees, have general supervision,
direction and control of the business and the officers of the
Trust. He shall preside at all meetings of the shareholders and
in the absence of the chairman of the board or if there be none,
at all meetings of the Board of Trustees. He shall have the
general powers and duties of management usually vested in the
office of president of a corporation and shall have such other
powers and duties as may be prescribed by the Board of Trustees
or these By-Laws.
Section 8. VICE PRESIDENTS. In the absence or disability of
the president, the vice presidents, if any, in order of their
rank as fixed by the Board of Trustees or if not ranked, a vice
president designated by the Board of Trustees, shall perform all
the duties of the president and when so acting shall have all
powers of and be subject to all the restrictions upon the
president. The vice presidents shall have such other powers and
perform such other duties as from time to time may be prescribed
for them respectively by the Board of Trustees or by these ByLaws
and the president or the chairman of the board.
Section 9. SECRETARY. The secretary shall keep or cause to
be kept at the principal executive office of the Trust or such
other place as the Board of Trustees may direct a book of minutes
of all meetings and actions of trustees, committees of trustees
and shareholders with the time and place of holding, whether
regular or special, and if special, how authorized, the notice
given, the names of those present at trustees' meetings or
committee meetings, the number of shares present or represented
at shareholders' meetings, and the proceedings.
The secretary shall keep or cause to be kept at the
principal executive office of the Trust or at the office of the
Trust's transfer agent or registrar, as determined by resolution
of the Board of Trustees, a share register or a duplicate share
register showing the names of all shareholders and their
addresses, the number and classes of shares held by each, the
number and date of certificates issued for the same and the
number and date of cancellation of every certificate surrendered
for cancellation.
The secretary shall give or cause to be given notice of all
meetings of the shareholders and of the Board of Trustees
required by these By-Laws or by applicable law to be given and
shall have such other powers and perform such other duties as may
be prescribed by the Board of Trustees or by these By-Laws.
Section 10. TREASURER. The treasurer shall be the chief
financial officer of the Trust and shall keep and maintain or
cause to be kept and maintained adequate and correct books and
records of accounts of the properties and business transactions
of the Trust, including accounts of its assets, liabilities,
receipts, disbursements, gains, losses, capital, retained
earnings and shares. The books of account shall at all reasonable
times be open to inspection by any trustee.
The treasurer shall deposit all monies and other valuables
in the name and to the credit of the Trust with such depositaries
as may be designated by the Board of Trustees. He shall disburse
the funds of the Trust as may be ordered by the Board of
Trustees, shall render to the president and trustees, whenever
they request it, an account of all of his transactions as chief
financial officer and of the financial condition of the Trust and
shall have other powers and perform such other duties as may be
prescribed by the Board of Trustees or these By-Laws.
ARTICLE VI
INDEMNIFICATION OF TRUSTEES, OFFICERS,
EMPLOYEES AND OTHER AGENTS
Section 1. AGENTS, PROCEEDINGS AND EXPENSES. For the purpose
of this Article, "agent" means any person who is or was a
trustee, officer, employee or other agent of this Trust or is or
was serving at the request of this Trust as a trustee, director,
officer, employee or agent of another foreign or domestic
corporation, partnership, joint venture, trust or other
enterprise or was a trustee, director, officer, employee or agent
of a foreign or domestic corporation which was a predecessor of
another enterprise at the request of such predecessor entity;
"proceeding" means any threatened, pending or completed action or
proceeding, whether civil, criminal, administrative or
investigative; and "expenses" includes without limitation
attorney's fees and any expenses of establishing a right to
indemnification under this Article.
Section 2. ACTIONS OTHER THAN BY TRUST. This Trust shall
indemnify any person who was or is a party or is threatened to be
made a party to any proceeding (other than an action by or in the
right of this Trust) by reason of the fact that such person is or
was an agent of this Trust, against expenses, judgments, fines,
settlements and other amounts actually and reasonably incurred in
connection with such proceeding if that person acted in good
faith and in a manner that person reasonably believed to be in
the best interests of this Trust and in the case of a criminal
proceeding, had no reasonable cause to believe the conduct of
that person was unlawful. The termination of any proceeding by
judgment, order, settlement, conviction or upon a plea of nolo
contendere or its equivalent shall not of itself create a
presumption that the person did not act in good faith and in a
manner which the person reasonably believed to be in the best
interests of this Trust or that the person had reasonable cause
to believe that the person's conduct was unlawful.
Section 3. ACTIONS BY THE TRUST. This Trust shall indemnify
any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action by or in the
right of this Trust to procure a judgment in its favor by reason
of the fact that the person is or was an agent of this Trust,
against expenses actually and reasonably incurred by that person
in connection with the defense or settlement of that action if
that person acted in good faith, in a manner that person believed
to be in the best interests of this Trust and with such care,
including reasonable inquiry, as an ordinarily prudent person in
a like position would use under similar circumstances.
Section 4. EXCLUSION OF INDEMNIFICATION. Notwithstanding any
provision to the contrary contained herein, there shall be no
right to indemnification for any liability arising by reason of
willful misfeasance, bad faith, gross negligence, or the reckless
disregard of the duties involved in the conduct of the agent's
office with this Trust.
No indemnification shall be made under Sections 2 or 3 of
this Article:
(a) In respect of any claim, issue or matter as to which
that person shall have been adjudged to be liable in the
performance of that person's duty to this Trust, unless and only
to the extent that the court in which that action was brought
shall determine upon application that in view of all the
circumstances of the case, that person was not liable by reason
of the disabling conduct set forth in the preceding paragraph and
is fairly and reasonably entitled to indemnity for the expenses
which the court shall determine; or
(b) In respect of any claim, issue, or matter as to which
that person shall have been adjudged to be liable on the basis
that personal benefit was improperly received by him, whether or
not the benefit resulted from an action taken in the person's
official capacity; or
(c) Of amounts paid in settling or otherwise disposing of a
threatened or pending action, with or without court approval, or
of expenses incurred in defending a threatened or pending action
which is settled or otherwise disposed of without court approval,
unless the required approval set forth in Section 6 of this
Article is obtained.
Section 5. SUCCESSFUL DEFENSE BY AGENT. To the extent that
an agent of this Trust has been successful on the merits in
defense of any proceeding referred to in Sections 2 or 3 of this
Article or in defense of any claim, issue or matter therein,
before the court or other body before whom the proceeding was
brought, the agent shall be indemnified against expenses actually
and reasonably incurred by the agent in connection therewith,
provided that the Board of Trustees, including a majority who are
disinterested, non-party trustees, also determines that based
upon a review of the facts, the agent was not liable by reason of
the disabling conduct referred to in Section 4 of this Article.
Section 6. REQUIRED APPROVAL. Except as provided in Section
5 of this Article, any indemnification under this Article shall
be made by this Trust only if authorized in the specific case on
a determination that indemnification of the agent is proper in
the circumstances because the agent has met the applicable
standard of conduct set forth in Sections 2 or 3 of this Article
and is not prohibited from indemnification because of the
disabling conduct set forth in Section 4 of this Article, by:
(a) A majority vote of a quorum consisting of trustees who
are not parties to the proceeding and are not interested persons
of the Trust (as defined in the Investment Company Act of 1940);
or
(b) A written opinion by an independent legal counsel.
Section 7. ADVANCE OF EXPENSES. Expenses incurred in
defending any proceeding may be advanced by this Trust before the
final disposition of the proceeding on receipt of an undertaking
by or on behalf of the agent to repay the amount of the advance
unless it shall be determined ultimately that the agent is
entitled to be indemnified as authorized in this Article,
provided the agent provides a security for his undertaking, or a
majority of a quorum of the disinterested, non-party trustees, or
an independent legal counsel in a written opinion, determine that
based on a review of readily available facts, there is reason to
believe that said agent ultimately will be found entitled to
indemnification.
Section 8. OTHER CONTRACTUAL RIGHTS. Nothing contained in
this Article shall affect any right to indemnification to which
persons other than trustees and officers of this Trust or any
subsidiary hereof may be entitled by contract or otherwise.
Section 9. LIMITATIONS. No indemnification or advance shall
be made under this Article, except as provided in Sections 5
or 6 in any circumstances where it appears:
(a) That it would be inconsistent with a provision of the
Agreement and Declaration of Trust, a resolution of the
shareholders, or an agreement in effect at the time of accrual of
the alleged cause of action asserted in the proceeding in which
the expenses were incurred or other amounts were paid which
prohibits or otherwise limits indemnification; or
(b) That it would be inconsistent with any condition
expressly imposed by a court in approving a settlement.
Section 10. INSURANCE. Upon and in the event of a
determination by the Board of Trustees of this Trust to purchase
such insurance, this Trust shall purchase and maintain insurance
on behalf of any agent of this Trust against any liability
asserted against or incurred by the agent in such capacity or
arising out of the agent's status as such, but only to the extent
that this Trust would have the power to indemnify the agent
against that liability under the provisions of this Article.
Section 11. FIDUCIARIES OF EMPLOYEE BENEFIT PLAN. This
Article does not apply to any proceeding against any trustee,
investment manager or other fiduciary of an employee benefit plan
in that person's capacity as such, even though that person may
also be an agent of this Trust as defined in Section 1 of this
Article. Nothing contained in this Article shall limit any right
to indemnification to which such a trustee, investment manager,
or other fiduciary may be entitled by contract or otherwise which
shall be enforceable to the extent permitted by applicable law
other than this Article.
ARTICLE VII
RECORDS AND REPORTS
Section 1. MAINTENANCE AND INSPECTION OF SHARE REGISTER.
This Trust shall keep at its principal executive office or at the
office of its transfer agent or registrar, if either be appointed
and as determined by resolution of the Board of Trustees, a
record of its shareholders, giving the names and addresses of all
shareholders and the number and series of shares held by each
shareholder.
Section 2. MAINTENANCE AND INSPECTION OF BY-LAWS. The Trust
shall keep at its principal executive office the original or a
copy of these By-Laws as amended to date, which shall be open to
inspection by the shareholders at all reasonable times during
office hours.
Section 3. MAINTENANCE AND INSPECTION OF OTHER RECORDS. The
accounting books and records and minutes of proceedings of the
shareholders and the Board of Trustees and any committee or
committees of the Board of Trustees shall be kept at such place
or places designated by the Board of Trustees or in the absence
of such designation, at the principal executive office of the
Trust. The minutes shall be kept in written form and the
accounting books and records shall be kept either in written form
or in any other form capable of being converted into written
form. The minutes and accounting books and records shall be open
to inspection upon the written demand of any shareholder or
holder of a voting trust certificate at any reasonable time
during usual business hours for a purpose reasonably related to
the holder's interests as a shareholder or as the holder of a
voting trust certificate. The inspection may be made in person or
by an agent or attorney and shall include the right to copy and
make extracts.
Section 4. INSPECTION BY TRUSTEES. Every trustee shall have
the absolute right at any reasonable time to inspect all books,
records, and documents of every kind and the physical properties
of the Trust. This inspection by a trustee may be made in person
or by an agent or attorney and the right of inspection includes
the right to copy and make extracts of documents.
Section 5. FINANCIAL STATEMENTS. A copy of any financial
statements and any income statement of the Trust for each
quarterly period of each fiscal year and accompanying balance
sheet of the Trust as of the end of each such period that has
been prepared by the Trust shall be kept on file in the principal
executive office of the Trust for at least twelve (12) months and
each such statement shall be exhibited at all reasonable times to
any shareholder demanding an examination of any such statement or
a copy shall be mailed to any such shareholder.
The quarterly income statements and balance sheets referred
to in this section shall be accompanied by the report, if any, of
any independent accountants engaged by the Trust or the
certificate of an authorized officer of the Trust that the
financial statements were prepared without audit from the books
and records of the Trust.
ARTICLE VIII
GENERAL MATTERS
Section 1. CHECKS, DRAFTS, EVIDENCE OF INDEBTEDNESS. All
checks, drafts, or other orders for payment of money, notes or
other evidences of indebtedness issued in the name of or payable
to the Trust shall be signed or endorsed by such person or
persons and in such manner as from time to time shall be
determined by resolution of the Board of Trustees.
Section 2. CONTRACTS AND INSTRUMENTS; HOW EXECUTED. The
Board of Trustees, except as otherwise provided in these By-Laws,
may authorize any officer or officers, agent or agents, to enter
into any contract or execute any instrument in the name of and on
behalf of the Trust and this authority may be general or confined
to specific instances; and unless so authorized or ratified by
the Board of Trustees or within the agency power of an officer,
no officer, agent, or employee shall have any power or authority
to bind the Trust by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
Section 3. CERTIFICATES FOR SHARES. A certificate or
certificates for shares of beneficial interest in any series of
the Trust may be issued to a shareholder upon his request when
such shares are fully paid. All certificates shall be signed in
the name of the Trust by the chairman of the board or the
president or vice president and by the treasurer or an assistant
treasurer or the secretary or any assistant secretary, certifying
the number of shares and the series of shares owned by the
shareholders. Any or all of the signatures on the certificate may
be facsimile. In case any officer, transfer agent, or registrar
who has signed or whose facsimile signature has been placed on a
certificate shall have ceased to be that officer, transfer agent,
or registrar before that certificate is issued, it may be issued
by the Trust with the same effect as if that person were an
officer, transfer agent or registrar at the date of issue.
Notwithstanding the foregoing, the Trust may adopt and use a
system of issuance, recordation and transfer of its shares by
electronic or other means.
Section 4. LOST CERTIFICATES. Except as provided in this
Section 4, no new certificates for shares shall be issued to
replace an old certificate unless the latter is surrendered to
the Trust and cancelled at the same time. The Board of Trustees
may in case any share certificate or certificate for any other
security is lost, stolen, or destroyed, authorize the issuance of
a replacement certificate on such terms and conditions as the
Board of Trustees may require, including a provision for
indemnification of the Trust secured by a bond or other adequate
security sufficient to protect the Trust against any claim that
may be made against it, including any expense or liability on
account of the alleged loss, theft, or destruction of the
certificate or the issuance of the replacement certificate.
Section 5. REPRESENTATION OF SHARES OF OTHER ENTITIES HELD
BY TRUST. The chairman of the board, the president or any vice
president or any other person authorized by resolution of the
Board of Trustees or by any of the foregoing designated officers,
is authorized to vote or represent on behalf of the Trust any and
all shares of any corporation, partnership, trusts, or other
entities, foreign or domestic, standing in the name of the Trust.
The authority granted may be exercised in person or by a proxy
duly executed by such designated person.
Section 6. FISCAL YEAR. The fiscal year of the Trust shall
be fixed and refixed or changed from time to time by resolution
of the Trustees. The fiscal year of the Trust shall be the
taxable year of each Series of the Trust.
ARTICLE IX
AMENDMENTS
Section 1. AMENDMENT BY SHAREHOLDERS. These By-Laws may be
amended or repealed by the affirmative vote or written consent of
a majority of the outstanding shares entitled to vote, except as
otherwise provided by applicable law or by the Declaration of
Trust or these By-Laws.
Section 2. AMENDMENT BY TRUSTEES. Subject to the right of
shareholders as provided in Section 1 of this Article to adopt,
amend or repeal By-Laws, and except as otherwise provided by law
or by the Declaration of Trust, these By-Laws may be adopted,
amended, or repealed by the Board of Trustees.
FRANKLIN REAL ESTATE SECURITIES TRUST
on behalf of
FRANKLIN REAL ESTATE SECURITIES FUND
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT made between REAL ESTATE
SECURITIES TRUST, a Delaware business trust (the "Trust"), on
behalf of FRANKLIN REAL ESTATE SECURITIES FUND (the "Fund"), a
series of the Trust, and FRANKLIN ADVISERS, INC., a California
corporation, (the "Manager").
WHEREAS, the Trust has been organized and intends to operate
as an investment company registered under the Investment Company
Act of 1940 (the "1940 Act") for the purpose of investing and
reinvesting its assets in securities, as set forth in its
Agreement and Declaration of Trust, its By-Laws and its
Registration Statements under the 1940 Act and the Securities Act
of 1933, all as heretofore and hereafter amended and
supplemented; and the Trust desires to avail itself of the
services, information, advice, assistance and facilities of an
investment manager and to have an investment manager perform
various management, statistical, research, investment advisory
and other services for the Fund; and,
WHEREAS, the Manager is registered as an investment adviser
under the Investment Advisers Act of 1940, is engaged in the
business of rendering management, investment advisory,
counselling and supervisory services to investment companies and
other investment counselling clients, and desires to provide
these services to the Fund.
NOW THEREFORE, in consideration of the terms and conditions
hereinafter set forth, it is mutually agreed as follows:
l. Employment of the Manager. The Trust hereby employs the
Manager to manage the investment and reinvestment of the Fund's
assets and to administer its affairs, subject to the direction of
the Board of Trustees and the officers of the Trust, for the
period and on the terms hereinafter set forth. The Manager
hereby accepts such employment and agrees during such period to
render the services and to assume the obligations herein set
forth for the compensation herein provided. The Manager shall
for all purposes herein be deemed to be an independent contractor
and shall, except as expressly provided or authorized (whether
herein or otherwise), have no authority to act for or represent
the Fund or the Trust in any way or otherwise be deemed an agent
of the Fund or the Trust.
2. Obligations of and Services to be Provided by the
Manager. The Manager undertakes to provide the services
hereinafter set forth and to assume the following obligations:
A. Administrative Services. The Manager shall furnish
to the Fund adequate (i) office space, which may be space within
the offices of the Manager or in such other place as may be
agreed upon from time to time, (ii) office furnishings,
facilities and equipment as may be reasonably required for
managing the affairs and conducting the business of the Fund,
including conducting correspondence and other communications with
the shareholders of the Fund, maintaining all internal
bookkeeping, accounting and auditing services and records in
connection with the Fund's investment and business activities.
The Manager shall employ or provide and compensate the executive,
secretarial and clerical personnel necessary to provide such
services. The Manager shall also compensate all officers and
employees of the Trust who are officers or employees of the
Manager or its affiliates.
B. Investment Management Services.
(a) The Manager shall manage the Fund's assets
subject to and in accordance with the investment objectives and
policies of the Fund and any directions which the Trust's Board
of Trustees may issue from time to time. In pursuance of the
foregoing, the Manager shall make all determinations with respect
to the investment of the Fund's assets and the purchase and sale
of its investment securities, and shall take such steps as may be
necessary to implement the same. Such determinations and
services shall include determining the manner in which any voting
rights, rights to consent to corporate action and any other
rights pertaining to the Fund's investment securities shall be
exercised. The Manager shall render or cause to be rendered
regular reports to the Trust, at regular meetings of its Board of
Trustees and at such other times as may be reasonably requested
by the Trust's Board of Trustees, of (i) the decisions made with
respect to the investment of the Fund's assets and the purchase
and sale of its investment securities, (ii) the reasons for such
decisions and (iii) the extent to which those decisions have been
implemented.
(b) The Manager, subject to and in accordance
with any directions which the Trust's Board of Trustees may issue
from time to time, shall place, in the name of the Fund, orders
for the execution of the Fund's securities transactions. When
placing such orders, the Manager shall seek to obtain the best
net price and execution for the Fund, but this requirement shall
not be deemed to obligate the Manager to place any order solely
on the basis of obtaining the lowest commission rate if the other
standards set forth in this section have been satisfied. The
parties recognize that there are likely to be many cases in which
different brokers are equally able to provide such best price and
execution and that, in selecting among such brokers with respect
to particular trades, it is desirable to choose those brokers who
furnish research, statistical, quotations and other information
to the Fund and the Manager in accordance with the standards set
forth below. Moreover, to the extent that it continues to be
lawful to do so and so long as the Board of Trustees determines
that the Fund will benefit, directly or indirectly, by doing so,
the Manager may place orders with a broker who charges a
commission for that transaction which is in excess of the amount
of commission that another broker would have charged for
effecting that transaction, provided that the excess commission
is reasonable in relation to the value of "brokerage and research
services" (as defined in Section 28(e) (3) of the Securities
Exchange Act of 1934) provided by that broker.
Accordingly, the Trust and the Manager agree that
the Manager shall select brokers for the execution of the Fund's
transactions from among:
(i) Those brokers and dealers who provide
quotations and other services to the Fund,
specifically including the quotations necessary to
determine the Fund's net assets, in such amount of
total brokerage as may reasonably be required in
light of such services; and
(ii) Those brokers and dealers who supply
research, statistical and other data to the
Manager or its affiliates which the Manager or its
affiliates may lawfully and appropriately use in
their investment advisory capacities, which relate
directly to securities, actual or potential, of
the Fund, or which place the Manager in a better
position to make decisions in connection with the
management of the Fund's assets and securities,
whether or not such data may also be useful to the
Manager and its affiliates in managing other
portfolios or advising other clients, in such
amount of total brokerage as may reasonably be
required. Provided that the Trust's officers are
satisfied that the best execution is obtained, the
sale of shares of the Fund may also be considered
as a factor in the selection of broker-dealers to
execute the Fund's portfolio transactions.
(c) When the Manager has determined that the Fund
should tender securities pursuant to a "tender offer
solicitation," Franklin/Templeton Distributors, Inc.
("Distributors") shall be designated as the "tendering dealer" so
long as it is legally permitted to act in such capacity under the
federal securities laws and rules thereunder and the rules of any
securities exchange or association of which Distributors may be a
member. Neither the Manager nor Distributors shall be obligated
to make any additional commitments of capital, expense or
personnel beyond that already committed (other than normal
periodic fees or payments necessary to maintain its corporate
existence and membership in the National Association of
Securities Dealers, Inc.) as of the date of this Agreement. This
Agreement shall not obligate the Manager or Distributors (i) to
act pursuant to the foregoing requirement under any circumstances
in which they might reasonably believe that liability might be
imposed upon them as a result of so acting, or (ii) to institute
legal or other proceedings to collect fees which may be
considered to be due from others to it as a result of such a
tender, unless the Trust on behalf of the Fund shall enter into
an agreement with the Manager and/or Distributors to reimburse
them for all such expenses connected with attempting to collect
such fees, including legal fees and expenses and that portion of
the compensation due to their employees which is attributable to
the time involved in attempting to collect such fees.
(d) The Manager shall render regular reports to
the Trust, not more frequently than quarterly, of how much total
brokerage business has been placed by the Manager, on behalf of
the Fund, with brokers falling into each of the categories
referred to above and the manner in which the allocation has been
accomplished.
(e) The Manager agrees that no investment
decision will be made or influenced by a desire to provide
brokerage for allocation in accordance with the foregoing, and
that the right to make such allocation of brokerage shall not
interfere with the Manager's paramount duty to obtain the best
net price and execution for the Fund.
C. Provision of Information Necessary for Preparation of
Securities Registration Statements, Amendments and Other Materials.
The Manager, its officers and employees will make available and
provide accounting and statistical information required by the Fund
in the preparation of registration statements, reports and other
documents required by federal and state securities laws and with
such information as the Fund may reasonably request for use in the
preparation of such documents or of other materials necessary or
helpful for the underwriting and distribution of the Fund's shares.
D. Other Obligations and Services. The Manager shall
make its officers and employees available to the Board of Trustees
and officers of the Trust for consultation and discussions regarding
the administration and management of the Fund and its investment
activities.
3. Expenses of the Fund. It is understood that the Fund will
pay all of its own expenses other than those expressly assumed by
the Manager herein, which expenses payable by the Fund shall
include:
A. Fees and expenses paid to the Manager as provided
herein;
B. Expenses of all audits by independent public
accountants;
C. Expenses of transfer agent, registrar, custodian,
dividend disbursing agent and shareholder record-keeping services,
including the expenses of issue, repurchase or redemption of its
shares;
D. Expenses of obtaining quotations for calculating the
value of the Fund's net assets;
E. Salaries and other compensations of executive officers
of the Trust who are not officers, directors, stockholders or
employees of the Manager or its affiliates;
F. Taxes levied against the Fund;
G. Brokerage fees and commissions in connection with the
purchase and sale of securities for the Fund;
H. Costs, including the interest expense, of borrowing
money;
I. Costs incident to meetings of the Board of Trustees
and shareholders of the Fund, reports to the Fund's shareholders,
the filing of reports with regulatory bodies and the maintenance
of the Fund's and the Trust's legal existence;
J. Legal fees, including the legal fees related to the
registration and continued qualification of the Fund's shares for
sale;
K. Trustees' fees and expenses to trustees who are not
directors, officers, employees or stockholders of the Manager or
any of its affiliates;
L. Costs and expense of registering and maintaining
the registration of the Fund and its shares under federal and any
applicable state laws; including the printing and mailing of
prospectuses to its shareholders;
M. Trade association dues; and
N. The Fund's pro rata portion of fidelity bond,
errors and omissions, and trustees and officer liability
insurance premiums.
4. Compensation of the Manager. The Fund shall pay a
management fee in cash to the Manager based upon a percentage of
the value of the Fund's net assets, calculated as set forth
below, as compensation for the services rendered and obligations
assumed by the Manager, during the preceding month, on the first
business day of the month in each year.
A. For purposes of calculating such fee, the value of
the net assets of the Fund shall be determined in the same manner
as that Fund uses to compute the value of its net assets in
connection with the determination of the net asset value of its
shares, all as set forth more fully in the Fund's current
prospectus and statement of additional information. The rate of
the management fee payable by the Fund shall be calculated daily
at the following annual rates:
.625 of 1% of the value of net assets up to and
including $100,000,000;
.50 of 1% of the value of net assets over
$100,000,000 up to and including $250,000,000;
.45 of 1% of the value of net assets over
$250,000,000 up to and including $10,000,000,000;
.44 of 1% of the value of net assets over
$10,000,000,000 up to and including
$12,500,000,000;
.42 of 1% of the value of net assets over
$12,500,000,000 up to and including
$15,000,000,000; and
.40 of 1% of the value of net assets in excess of
$15,000,000,000.
B. The management fee payable by the Fund shall be
reduced or eliminated to the extent that Distributors has
actually received cash payments of tender offer solicitation fees
less certain costs and expenses incurred in connection therewith
and to the extent necessary to comply with the limitations on
expenses which may be borne by the Fund as set forth in the laws,
regulations and administrative interpretations of those states in
which the Fund's shares are registered. The Manager may, from
time to time, voluntarily reduce or waive any management fee due
to it hereunder.
C. If this Agreement is terminated prior to the end of
any month, the accrued management fee shall be paid to the date
of termination.
5. Activities of the Manager. The services of the Manager
to the Fund hereunder are not to be deemed exclusive, and the
Manager and any of its affiliates shall be free to render similar
services to others. Subject to and in accordance with the
Agreement and Declaration of Trust and By-Laws of the Trust and
Section 10(a) of the 1940 Act, it is understood that trustees,
officers, agents and shareholders of the Trust are or may be
interested in the Manager or its affiliates as directors,
officers, agents or stockholders; that directors, officers,
agents or stockholders of the Manager or its affiliates are or
may be interested in the Trust as trustees, officers, agents,
shareholders or otherwise; that the Manager or its affiliates may
be interested in the Fund as shareholders or otherwise; and that
the effect of any such interests shall be governed by said
Agreement and Declaration of Trust, By-Laws and the 1940 Act.
6. Liabilities of the Manager.
A. In the absence of willful misfeasance, bad faith,
gross negligence, or reckless disregard of obligations or duties
hereunder on the part of the Manager, the Manager shall not be
subject to liability to the Trust or the Fund or to any
shareholder of the Fund for any act or omission in the course of,
or connected with, rendering services hereunder or for any losses
that may be sustained in the purchase, holding or sale of any
security by the Fund.
B. Notwithstanding the foregoing, the Manager agrees
to reimburse the Trust for any and all costs, expenses, and
counsel and trustees' fees reasonably incurred by the Trust in
the preparation, printing and distribution of proxy statements,
amendments to its Registration Statement, holdings of meetings of
its shareholders or trustees, the conduct of factual
investigations, any legal or administrative proceedings
(including any applications for exemptions or determinations by
the Securities and Exchange Commission) which the Trust incurs as
the result of action or inaction of the Manager or any of its
affiliates or any of their officers, directors, employees or
stockholders where the action or inaction necessitating such
expenditures (i) is directly or indirectly related to any
transactions or proposed transaction in the stock or control of
the Manager or its affiliates (or litigation related to any
pending or proposed or future transaction in such shares or
control) which shall have been undertaken without the prior,
express approval of the Trust's Board of Trustees; or, (ii) is
within the control of the Manager or any of its affiliates or any
of their officers, directors, employees or stockholders. The
Manager shall not be obligated pursuant to the provisions of this
Subparagraph 6(B), to reimburse the Trust for any expenditures
related to the institution of an administrative proceeding or
civil litigation by the Trust or a shareholder seeking to recover
all or a portion of the proceeds derived by any stockholder of
the Manager or any of its affiliates from the sale of his shares
of the Manager, or similar matters. So long as this Agreement is
in effect, the Manager shall pay to the Trust the amount due for
expenses subject to this Subparagraph 6(B) within 30 days after a
bill or statement has been received by the Manager therefor.
This provision shall not be deemed to be a waiver of any claim
the Trust may have or may assert against the Manager or others
for costs, expenses or damages heretofore incurred by the Trust
or for costs, expenses or damages the Trust may hereafter incur
which are not reimbursable to it hereunder.
C. No provision of this Agreement shall be construed
to protect any trustee or officer of the Trust, or director or
officer of the Manager, from liability in violation of Sections
17(h) and (i) of the 1940 Act.
7. Renewal and Termination.
A. This Agreement shall become effective on the date
written below and shall continue in effect for two (2) years
thereafter, unless sooner terminated as hereinafter provided and
shall continue in effect thereafter for periods not exceeding one
(1) year so long as such continuation is approved at least
annually (i) by a vote of a majority of the outstanding voting
securities of each Fund or by a vote of the Board of Trustees of
the Trust, and (ii) by a vote of a majority of the Trustees of
the Trust who are not parties to the Agreement (other than as
Trustees of the Trust), cast in person at a meeting called for
the purpose of voting on the Agreement.
B. This Agreement:
(i) may at any time be terminated without the
payment of any penalty either by vote of the Board of Trustees of
the Trust or by vote of a majority of the outstanding voting
securities of the Fund on 60 days' written notice to the Manager;
(ii) shall immediately terminate with respect to
the Fund in the event of its assignment; and
(iii) may be terminated by the Manager on 60
days' written notice to the Fund.
C. As used in this Paragraph the terms "assignment,"
"interested person" and "vote of a majority of the outstanding
voting securities" shall have the meanings set forth for any such
terms in the 1940 Act.
D. Any notice under this Agreement shall be given in
writing addressed and delivered, or mailed post-paid, to the
other party at any office of such party.
8. Severability. If any provision of this Agreement shall
be held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected
thereby.
9. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed and effective on the 3rd day of January, 1994.
FRANKLIN REAL ESTATE SECURITIES TRUST
By: /s/ Rupert H. Johnson, Jr.
FRANKLIN ADVISERS, INC.
By: /s/ Harmon E. Burns
Executive Vice President
FRANKLIN REAL ESTATE SECURITIES TRUST
777 Mariners Island Blvd.
San Mateo, California 94404
Franklin/Templeton Distributors, Inc.
777 Mariners Island Blvd.
San Mateo, California 94404
Re: Amended and Restated Distribution Agreement
Gentlemen:
We (the "Fund") are a corporation or business trust operating as
an open-end management investment company or "mutual fund", which
is registered under the Investment Company Act of 1940 (the "1940
Act") and whose shares are registered under the Securities Act of
1933 (the "1933 Act"). We desire to issue one or more series or
classes of our authorized but unissued shares of capital stock or
beneficial interest (the "Shares") to authorized persons in
accordance with applicable Federal and State securities laws.
The Fund's Shares may be made available in one or more separate
series, each of which may have one or more classes.
You have informed us that your company is registered as a broker-
dealer under the provisions of the Securities Exchange Act of
1934 and that your company is a member of the National
Association of Securities Dealers, Inc. You have indicated your
desire to act as the exclusive selling agent and distributor for
the Shares. We have been authorized to execute and deliver this
Distribution Agreement ("Agreement") to you by a resolution of
our Board of Directors or Trustees ("Board") passed at a meeting
at which a majority of Board members, including a majority who
are not otherwise interested persons of the Fund and who are not
interested persons of our investment adviser, its related
organizations or with you or your related organizations, were
present and voted in favor of the said resolution approving this
Agreement.
1. Appointment of Underwriter. Upon the execution of this
Agreement and in consideration of the agreements on your part
herein expressed and upon the terms and conditions set forth
herein, we hereby appoint you as the exclusive sales agent for
our Shares and agree that we will deliver such Shares as you may
sell. You agree to use your best efforts to promote the sale of
Shares, but are not obligated to sell any specific number of
Shares.
However, the Fund and each series retain the right to make
direct sales of its Shares without sales charges consistent with
the terms of the then current prospectus and applicable law, and
to engage in other legally authorized transactions in its Shares
which do not involve the sale of Shares to the general public.
Such other transactions may include, without limitation,
transactions between the Fund or any series or class and its
shareholders only, transactions involving the reorganization of
the Fund or any series, and transactions involving the merger or
combination of the Fund or any series with another corporation or
trust.
2. Independent Contractor. You will undertake and
discharge your obligations hereunder as an independent contractor
and shall have no authority or power to obligate or bind us by
your actions, conduct or contracts except that you are authorized
to promote the sale of Shares. You may appoint sub-agents or
distribute through dealers or otherwise as you may determine from
time to time, but this Agreement shall not be construed as
authorizing any dealer or other person to accept orders for sale
or repurchase on our behalf or otherwise act as our agent for any
purpose.
3. Offering Price. Shares shall be offered for sale at a
price equivalent to the net asset value per share of that series
and class plus any applicable percentage of the public offering
price as sales commission or as otherwise set forth in our then
current prospectus. On each business day on which the New York
Stock Exchange is open for business, we will furnish you with the
net asset value of the Shares of each available series and class
which shall be determined in accordance with our then effective
prospectus. All Shares will be sold in the manner set forth in
our then effective prospectus and statement of additional
information, and in compliance with applicable law.
4. Compensation.
A. Sales Commission. You shall be entitled to charge
a sales commission on the sale or redemption, as appropriate, of
each series and class of each Fund's Shares in the amount of any
initial, deferred or contingent deferred sales charge as set
forth in our then effective prospectus. You may allow any sub-
agents or dealers such commissions or discounts from and not
exceeding the total sales commission as you shall deem advisable,
so long as any such commissions or discounts are set forth in our
current prospectus to the extent required by the applicable
Federal and State securities laws. You may also make payments to
sub-agents or dealers from your own resources, subject to the
following conditions: (a) any such payments shall not create any
obligation for or recourse against the Fund or any series or
class, and (b) the terms and conditions of any such payments are
consistent with our prospectus and applicable federal and state
securities laws and are disclosed in our prospectus or statement
of additional information to the extent such laws may require.
B. Distribution Plans. You shall also be entitled to
compensation for your services as provided in any Distribution
Plan adopted as to any series and class of any Fund's Shares
pursuant to Rule 12b-1 under the 1940 Act.
5. Terms and Conditions of Sales. Shares shall be offered
for sale only in those jurisdictions where they have been
properly registered or are exempt from registration, and only to
those groups of people which the Board may from time to time
determine to be eligible to purchase such shares.
6. Orders and Payment for Shares. Orders for Shares shall
be directed to the Fund's shareholder services agent, for
acceptance on behalf of the Fund. At or prior to the time of
delivery of any of our Shares you will pay or cause to be paid to
the custodian of the Fund's assets, for our account, an amount in
cash equal to the net asset value of such Shares. Sales of
Shares shall be deemed to be made when and where accepted by the
Fund's shareholder services agent. The Fund's custodian and
shareholder services agent shall be identified in its prospectus.
7. Purchases for Your Own Account. You shall not purchase
our Shares for your own account for purposes of resale to the
public, but you may purchase Shares for your own investment
account upon your written assurance that the purchase is for
investment purposes and that the Shares will not be resold except
through redemption by us.
8. Sale of Shares to Affiliates. You may sell our Shares
at net asset value to certain of your and our affiliated persons
pursuant to the applicable provisions of the federal securities
statutes and rules or regulations thereunder (the "Rules and
Regulations"), including Rule 22d-1 under the 1940 Act, as
amended from time to time.
9. Allocation of Expenses. We will pay the expenses:
(a) Of the preparation of the audited and certified
financial statements of our company to be included
in any Post-Effective Amendments ("Amendments") to
our Registration Statement under the 1933 Act or
1940 Act, including the prospectus and statement
of additional information included therein;
(b) Of the preparation, including legal fees, and
printing of all Amendments or supplements filed
with the Securities and Exchange Commission,
including the copies of the prospectuses included
in the Amendments and the first 10 copies of the
definitive prospectuses or supplements thereto,
other than those necessitated by your (including
your "Parent's") activities or Rules and
Regulations related to your activities where such
Amendments or supplements result in expenses which
we would not otherwise have incurred;
(c) Of the preparation, printing and distribution of
any reports or communications which we send to our
existing shareholders; and
(d) Of filing and other fees to Federal and State
securities regulatory authorities necessary to
continue offering our Shares.
You will pay the expenses:
(a) Of printing the copies of the prospectuses and any
supplements thereto and statements of additional
information which are necessary to continue to
offer our Shares;
(b) Of the preparation, excluding legal fees, and
printing of all Amendments and supplements to our
prospectuses and statements of additional
information if the Amendment or supplement arises
from your (including your "Parent's") activities
or Rules and Regulations related to your
activities and those expenses would not otherwise
have been incurred by us;
(c) Of printing additional copies, for use by you as
sales literature, of reports or other
communications which we have prepared for
distribution to our existing shareholders; and
(d) Incurred by you in advertising, promoting and
selling our Shares.
10. Furnishing of Information. We will furnish to you such
information with respect to each series and class of Shares, in
such form and signed by such of our officers as you may
reasonably request, and we warrant that the statements therein
contained, when so signed, will be true and correct. We will
also furnish you with such information and will take such action
as you may reasonably request in order to qualify our Shares for
sale to the public under the Blue Sky Laws of jurisdictions in
which you may wish to offer them. We will furnish you with
annual audited financial statements of our books and accounts
certified by independent public accountants, with semi-annual
financial statements prepared by us, with registration statements
and, from time to time, with such additional information
regarding our financial condition as you may reasonably request.
11. Conduct of Business. Other than our currently
effective prospectus, you will not issue any sales material or
statements except literature or advertising which conforms to the
requirements of Federal and State securities laws and regulations
and which have been filed, where necessary, with the appropriate
regulatory authorities. You will furnish us with copies of all
such materials prior to their use and no such material shall be
published if we shall reasonably and promptly object.
You shall comply with the applicable Federal and State
laws and regulations where our Shares are offered for sale and
conduct your affairs with us and with dealers, brokers or
investors in accordance with the Rules of Fair Practice of the
National Association of Securities Dealers, Inc.
12. Redemption or Repurchase Within Seven Days. If Shares
are tendered to us for redemption or repurchase by us within
seven business days after your acceptance of the original
purchase order for such Shares, you will immediately refund to us
the full sales commission (net of allowances to dealers or
brokers) allowed to you on the original sale, and will promptly,
upon receipt thereof, pay to us any refunds from dealers or
brokers of the balance of sales commissions reallowed by you. We
shall notify you of such tender for redemption within 10 days of
the day on which notice of such tender for redemption is received
by us.
13. Other Activities. Your services pursuant to this
Agreement shall not be deemed to be exclusive, and you may render
similar services and act as an underwriter, distributor or dealer
for other investment companies in the offering of their shares.
14. Term of Agreement. This Agreement shall become
effective on the date of its execution, and shall remain in
effect for a period of two (2) years. The Agreement is renewable
annually thereafter, with respect to the Fund or, if the Fund has
more than one series, with respect to each series, for successive
periods not to exceed one year (i) by a vote of (a) a majority of
the outstanding voting securities of the Fund or, if the Fund has
more than one series, of each series, or (b) by a vote of the
Board, and (ii) by a vote of a majority of the members of the
Board who are not parties to the Agreement or interested persons
of any parties to the Agreement (other than as members of the
Board), cast in person at a meeting called for the purpose of
voting on the Agreement.
This Agreement may at any time be terminated by the
Fund or by any series without the payment of any penalty, (i)
either by vote of the Board or by vote of a majority of the
outstanding voting securities of the Fund or any series on 90
days' written notice to you; or (ii) by you on 90 days' written
notice to the Fund; and shall immediately terminate with respect
to the Fund and each series in the event of its assignment.
15. Suspension of Sales. We reserve the right at all times
to suspend or limit the public offering of Shares upon two days'
written notice to you.
16. Miscellaneous. This Agreement shall be subject to the
laws of the State of California and shall be interpreted and
construed to further promote the operation of the Fund as an open-
end investment company. This Agreement shall supersede all
Distribution Agreements and Amendments previously in effect
between the parties. As used herein, the terms "Net Asset
Value," "Offering Price," "Investment Company," "Open-End
Investment Company," "Assignment," "Principal Underwriter,"
"Interested Person," "Parent," "Affiliated Person," and "Majority
of the Outstanding Voting Securities" shall have the meanings set
forth in the 1933 Act or the 1940 Act and the Rules and
Regulations thereunder.
Nothing herein shall be deemed to protect you against any
liability to us or to our securities holders to which you would
otherwise be subject by reason of willful misfeasance, bad faith
or gross negligence in the performance of your duties hereunder,
or by reason of your reckless disregard of your obligations and
duties hereunder.
If the foregoing meets with your approval, please acknowledge
your acceptance by signing each of the enclosed copies, whereupon
this will become a binding agreement as of the date set forth
below.
Very truly yours,
FRANKLIN REAL ESTATE SECURITIES TRUST
By: /s/ Deborah R. Gatzek
Accepted:
Franklin/Templeton Distributors, Inc.
By: /s/ Greg Johnson
DATED: April 23, 1995
(logo) DEALER AGREEMENT
Franklin Templeton
DISTRIBUTORS, INC. Effective May 1, 1995
Dear Securities Dealer:
Franklin/Templeton Distributors, Inc. ("we" or "us") invites
you to participate in the distribution of shares of the Franklin
and Templeton mutual funds (the "Funds") for which we now or in
the future serve as principal underwriter, subject to the terms
of this Agreement. We will notify you from time to time of the
Funds which are eligible for distribution and the terms of
compensation under this Agreement. This Agreement supersedes any
prior dealer agreements between us, as stated in paragraph 18,
below.
1. Licensing.
(a) You represent that you are a member in good standing of
the National Association of Securities Dealers, Inc.
("NASD") and are presently licensed to the extent
necessary by the appropriate regulatory agency of each
state in which you will offer and sell shares of the
Funds. You agree that termination or suspension of such
membership with the NASD, or of your license to do
business by any state or federal regulatory agency, at
any time shall terminate or suspend this Agreement
forthwith and shall require you to notify us in writing
of such action. If you are not a member of the NASD but
are a dealer subject to the laws of a foreign country,
you agree to conform to the rules of fair practice of
such association. This Agreement is in all respects
subject to Rule 26 of the Rules of Fair Practice of the
NASD which shall control any provision to the contrary in
this Agreement.
(b) You agree to notify us immediately in writing if at any
time you are not a member in good standing of the
Securities Investor Protection Corporation ("SIPC").
2. Sales of Fund Shares. You may offer and sell shares of each
Fund and class only at the public offering price which shall be
applicable to, and in effect at the time of, each transaction.
The procedures relating to all orders and the handling of them
shall be subject to the terms of the then current prospectus and
statement of additional information (hereafter, the "prospectus")
and new account application, including amendments, for each such
Fund, and our written instructions from time to time. This
Agreement is not exclusive, and either party may enter into
similar agreements with third parties
3. Duties of Dealer: In General. You agree:
(a) To act as principal, or as agent on behalf of your
customers, in all transactions in shares of the Funds
except as provided in paragraph 4 hereof. You shall not
have any authority to act as agent for the issuer (the
Funds), for the Principal Underwriter, or for any other
dealer in any respect, nor will you represent to any
third party that you have such authority or are acting in
such capacity.
(b) To purchase shares only from us or from your customers.
(c) To enter orders for the purchase of shares of the Funds
only from us and only for the purpose of covering
purchase orders you have already received from your
customers or for your own bona fide investment.
(d) To maintain records of all sales and redemptions of
shares made through you and to furnish us with copies of
such records on request.
(e) To distribute prospectuses and reports to your customers
in compliance with applicable legal requirements, except
to the extent that we expressly undertake to do so on
your behalf,
(f) That you will not withhold placing customers' orders for
shares so as to profit yourself as a result of such
withholding or place orders for shares in amounts just
below the point at which sales charges are reduced so as
to benefit from a higher sales charge applicable to an
amount below the breakpoint.
(g) That if any shares confirmed to you hereunder are
repurchased or redeemed by any of the Funds within seven
business days after such confirmation of your original
order, you shall forthwith refund to us the full
concession allowed to you on such orders. We shall
forthwith pay to the appropriate Fund our share, if any,
of the "charge" on the original sale and shall also pay
to such Fund the refund from you as herein provided. We
shall notify you of such repurchase or redemption within
a reasonable time after settlement. Termination or
cancellation of this Agreement shall not relieve you or
us from the requirements of this subparagraph.
(h) That if payment for the shares purchased is not received
within the time customary or the time required by law for
such payment, the sale may be canceled forthwith without
any responsibility or liability on our part or on the
part of the Funds, or at our option, we may sell the
shares which you ordered back to the Funds, in which
latter case we may hold you responsible for any loss to
the Funds or loss of profit suffered by us resulting from
your failure to make payment as aforesaid. We shall have
no liability for any check or other item returned unpaid
to you after you have paid us on behalf of a purchaser.
We may refuse to liquidate the investment unless we
receive the purchaser's signed authorization for the
liquidation.
(i) That you shall assume responsibility for any loss to the
Funds caused by a correction made subsequent to trade
date, provided such correction was not based on any
error, omission or negligence on our part, and that you
will immediately pay such loss to the Funds upon
notification.
(j) That if on a redemption which you have ordered,
instructions in proper form, including outstanding
certificates, are not received within the time customary
or the time required by law, the redemption may be
canceled forthwith without any responsibility or
liability on our part or on the part of any Fund, or at
our option, we may buy the shares redeemed on behalf of
the Fund, in which latter case we may hold you
responsible for any loss to the Fund or loss of profit
suffered by us resulting from your failure to settle the
redemption.
4. Duties of Dealer: Retirement Accounts. In connection with
orders for the purchase of shares on behalf of an Individual
Retirement Account, Self-Employed Retirement Plan or other
retirement accounts. by mail, telephone, or wire, you shall act
as agent for the custodian or trustee of such plans (solely with
respect to the time of receipt of the application and payments),
and you shall not place such an order until you have received
from your customer payment for such purchase and, if such
purchase represents the first contribution to such a plan, the
completed documents necessary to establish the plan. You agree to
indemnify us and Franklin Templeton Trust Company and/or
Templeton Funds Trust Company as applicable for any claim, loss,
or liability resulting from incorrect investment instructions
received from you which cause a tax liability or other tax
penalty.
5. Conditional Orders; Certificates. We will not accept from you
any conditional orders for shares of any of the Funds. Delivery
of certificates for shares purchased shall be made by the Funds
only against constructive receipt of the purchase price, subject
to deduction for your concession and our portion of the sales
charge, if any, on such sale. No certificates will be issued
unless specifically requested.
6. Dealer Compensation.
(a) On each purchase of shares by you from us, the total
sales charges and your dealer concessions shall be as
stated in each Fund's then current prospectus, subject to
NASD rules and applicable state and federal laws. Such
sales charges and dealer concessions are subject to
reductions under a variety of circumstances as described
in the Funds' prospectuses. For an investor to obtain
these reductions, we must be notified at the time of the
sale that the sale qualifies for the reduced charge. If
you fail to notify us of the applicability of a reduction
in the sales charge at the time the trade is placed,
neither we nor any of the Funds will be liable for
amounts necessary to reimburse any investor for the
reduction which should have been effected.
(b) In accordance with the Funds' prospectuses, we or our
affiliates may, but are not obligated to, make payments
to dealers from our own resources as compensation for
certain sales which are made at net asset value and are
not subject to any contingent deferred sales charges
("Qualifying Sales"). If you notify us of a Qualifying
Sale, we may make a contingent advance payment up to the
maximum amount available for payment on the sale. If any
of the shares purchased in a Qualifying Sale are redeemed
within twelve months of the end of the month of purchase,
we shall be entitled to recover any advance payment
attributable to the redeemed shares by reducing any
account payable or other monetary obligation we may owe
to you or by making demand upon you for repayment in
cash. We reserve the right to withhold advances to any
dealer, if for any reason we believe that we may not be
able to recover unearned advances from such dealer. In
addition, dealers will generally be required to enter
into a supplemental agreement with us with respect to
such compensation and the repayment obligation prior to
receiving any payments.
7. Redemptions. Redemptions or repurchases of shares will be made
at the net asset value of such shares, less any applicable
deferred sales or redemption charges, in accordance with the
applicable prospectuses. Except as permitted by applicable law,
you agree not to purchase any shares from your customers at a
price lower than the redemption or repurchase prices then
computed by the Funds. You shall, however, be permitted to sell
shares for the account of the record owner to the Funds at the
repurchase price then currently in effect for such shares and may
charge the owner a fair commission for handling the transaction.
8. Exchanges. Telephone exchange orders will be effective only
for shares in plan balance (uncertificated shares) or for which
share certificates have been previously deposited and may be
subject to any fees or other restrictions set forth in the
applicable prospectuses. You may charge the shareholder a fair
commission for handling an exchange transaction. Exchanges from a
Fund sold with no sales charge to a Fund which carries a sales
charge, and exchanges from a Fund sold with a sales charge to a
Fund which carries a higher sales charge may be subject to a
sales charge in accordance with the terms of each Fund's
prospectus. You will be obligated to comply with any additional
exchange policies described in each Fund's prospectus. including
without limitation any policy restricting or prohibiting "Timing
Accounts" as therein defined.
9. Transaction Processing. All orders are subject to acceptance
by us and by the Fund or its transfer agent, and become effective
only upon confirmation by us. If required by law, each
transaction shall be confirmed in writing on a fully disclosed
basis and if confirmed by us, a copy of each confirmation shall
be sent simultaneously to you if you so request. All sales are
made subject to receipt of shares by us from the Funds. We
reserve the right in our discretion, without notice, to suspend
the sale of shares or withdraw the offering of shares entirely.
Telephone orders will be effected at the price(s) next computed
on the day they are received from you if, as set forth in each
Fund's current prospectus, they are received prior to the time
the price of its shares is calculated. Orders received after that
time will be effected at the price(s) computed on the next
business day. All orders must be accompanied by payment in U.S.
dollars. Orders payable by check must be drawn payable in U.S.
dollars on a U.S. bank, for the full amount of the investment.
10. Multiple Classes. We may from time to time provide to you
written compliance guidelines or standards relating to the sale
or distribution of Funds offering multiple classes of shares with
different sales charges and distribution-related operating
expenses. In addition, you will be bound by any applicable rules
or regulations of government agencies or self-regulatory
organizations generally affecting the sale or distribution of
mutual funds offering multiple classes of shares.
11. Rule 12b-1 Plans. You are also invited to participate in all
Plans adopted by the Funds (the "Plan Funds") pursuant to Rule
12b-1 under the 1940 Act.
To the extent you provide administrative and other services,
including, but not limited to, furnishing personal and other
services and assistance to your customers who own shares of a
Plan Fund, answering routine inquiries regarding a Fund,
assisting in changing account designations and addresses,
maintaining such accounts or such other services as a Fund may
require, to the extent permitted by applicable statutes, rules,
or regulations, we shall pay you a Rule 12b-1 servicing fee. To
the extent that you participate in the distribution of Fund
shares which are eligible for a Rule 12b-1 distribution fee, we
shall also pay you a Rule 12b-1 distribution fee. All Rule 12b-1
servicing and distribution fees shall be based on the value of
shares attributable to customers of your firm and eligible for
such payment, and shall be calculated on the basis and at the
rates set forth in the compensation schedule then in effect.
Without prior approval by a majority of the outstanding shares of
a Fund, the aggregate annual fees paid to you pursuant to each
Plan shall not exceed the amounts stated as the "annual maximums"
in each Fund's prospectus, which amount shall be a specified
percent of the value of the Fund's net assets held in your
customers' accounts which are eligible for payment pursuant to
this Agreement (determined in the same manner as each Fund uses
to compute its net assets as set forth in its effective
Prospectus).
You shall furnish us and each Fund with such information as
shall reasonably be requested by the Boards of Directors,
Trustees or Managing General Partners (hereinafter referred to as
"Directors") of such Funds with respect to the fees paid to you
pursuant to the Schedule. We shall furnish to the Boards of
Directors of the Plan Funds, for their review on a quarterly
basis, a written report of the amounts expended under the Plans
and the purposes for which such expenditures were made.
The Plans and provisions of any agreement relating to such
Plans must be approved annually by a vote of the Plan Funds'
Directors, including such persons who are not interested persons
of the Plan Funds and who have no financial interest in the Plans
or any related agreement ("Rule 12b-1 Directors"). The Plans or
the provisions of this Agreement relating to such Plans may be
terminated at any time by the vote of a majority of the Plan
Funds' Boards of Directors, including Rule 12b-1 Directors, or by
a vote of a majority of the outstanding shares of the Plan Funds,
on sixty (60) days' written notice, without payment of any
penalty. The Plans or the provisions of this Agreement may also
be terminated by any act that terminates the Underwriting
Agreement between us and the Plan Funds, and/or the management or
administration agreement between Franklin Advisers, Inc. or
Templeton Investment Counsel, Inc. or their affiliates and the
Plan Funds. In the event of the termination of the Plans for any
reason, the provisions of this Agreement relating to the Plans
will also terminate.
Continuation of the Plans and provisions of this Agreement
relating to such Plans are conditioned on Rule 12b-1 Directors
being ultimately responsible for selecting and nominating any new
Rule 12b-1 Directors. Under Rule 12b-t, 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, Ran Funds
are permitted to implement or continue Plans or the provisions of
this Agreement relating to such Plans from year-to-year only if,
based on certain legal considerations, the Boards of Directors
are able to conclude that the Plans will benefit the Plan Funds.
Absent such yearly determination the Plans and the provisions of
this Agreement relating to the Plans must be terminated as set
forth above. In addition, any obligation assumed by a Fund
pursuant to this Agreement shall be limited in all cases to the
assets of such Fund and no person shall seek satisfaction thereof
from shareholders of a Fund. You agree to waive payment of any
amounts payable to you by us under a Fund's Plan of Distribution
pursuant to Rule 12b-1 until such time as we are in receipt of
such fee from the Fund.
The provisions of the Rule 12b-1 Plans between the Plan Funds
and us, insofar as they relate to Plans, shall control over the
provisions of this Agreement in the event of any inconsistency.
12. Registration of Shares. Upon request, we shall notify you of
the states or other jurisdictions in which each Fund's shares are
currently registered or qualified for sale to the public. We
shall have no obligation to register or qualify, or to maintain
registration or qualification of, Fund shares in any state or
other jurisdiction. We shall have no responsibility, under the
laws regulating the sale of securities in any U.S. or foreign
jurisdiction, for the qualification or status of persons selling
Fund shares or for the manner of sale of Fund shares. Except as
stated in this paragraph, we shall not, in any event, be liable
or responsible for the issue, form, validity, enforceability and
value of such shares or for any matter in connection therewith,
and no obligation not expressly assumed by us in this Agreement
shall be implied. Nothing in this Agreement, however, shall be
deemed to be a condition, stipulation or provision binding any
person acquiring any security to waive compliance with any
provision of the Securities Act of 1933, or of the rules and
regulations of the Securities and Exchange Commission, or to
relieve the parties hereto from any liability arising under the
Securities Act of 1933.
13. Additional Registrations. If it is necessary to register or
qualify the shares in any foreign jurisdictions in which you
intend to offer the shares of any Funds, it will be your
responsibility to arrange for and to pay the costs of such
registration or qualification; prior to any such registration or
qualification, you will notify us of your intent and of any
limitations that might be imposed on the Funds, and you agree not
to proceed with such registration or qualification without the
written consent of the Funds and of ourselves.
14. Fund Information. No person is authorized to give any
information or make any representations concerning shares of any
Fund except those contained in the Fund's current prospectus or
in materials issued by us as information supplemental to such
prospectus. We will supply prospectuses, reasonable quantities of
supplemental sale literature, sales bulletins, and additional
information as issued. You agree not to use other advertising or
sales material relating to the Funds except that which (a)
conforms to the requirements of any applicable laws or
regulations of any government or authorized agency in the U.S. or
any other country, having jurisdiction over the offering or sale
of shares of the Funds, and (b) is approved in writing by us in
advance of such use. Such approval may be withdrawn by us in
whole or in part upon notice to you, and you shall, upon receipt
of such notice, immediately discontinue the use of such sales
literature, sales material and advertising. You are not
authorized to modify or translate any such materials without our
prior written consent.
15. Indemnification. You further agree to indemnify, defend and
hold harmless the Principal Underwriter, the Funds, their
officers, directors and employees from any and all losses,
claims, liabilities and expenses arising out of (1) any alleged
violation of any statute or regulation (including without
limitation the securities laws and regulations of the United
States or any state or foreign country) or any alleged tort or
breach of contract, in or related to the offer and sale by you of
shares of the Funds pursuant to this Agreement (except to the
extent that our negligence or failure to follow correct
instructions received from you is the cause of such loss, claim,
liability or expense), (2) any redemption or exchange pursuant to
telephone instructions received from you or your agent or
employees, or (3) the breach by you of any of the terms and
conditions of this Agreement.
16. Termination; Succession; Amendment. Each party to this
Agreement may cancel its participation in this Agreement by
giving written notice to the other parties. Such notice shall be
deemed to have been given and to be effective on the date on
which it was either delivered personally to the other parties or
any officer or member thereof, or was mailed postpaid or
delivered to a telegraph office for transmission to the other
parties' Chief Legal Officers at the addresses shown herein or in
the most recent NASD Manual. This Agreement shall terminate
immediately upon the appointment of a Trustee under the
Securities Investor Protection Act or any other act of insolvency
by you. The termination of this Agreement by any of the foregoing
means shall have no effect upon transactions entered into prior
to the effective date of termination. A trade placed by you
subsequent to your voluntary termination of this Agreement will
not serve to reinstate the Agreement. Reinstatement, except in
the case of a temporary suspension of a dealer, will only be
effective upon written notification by us. Unless terminated,
this Agreement shall be binding upon each party's successors or
assigns. This Agreement may be amended by us at any time by
written notice to you and your placing of an order or acceptance
of payments of any kind after the effective date and receipt of
notice of any such Amendment shall constitute your acceptance of
such Amendment.
17. Setoff; Dispute Resolution. Should any of your concession
accounts with us have a debit balance, we may offset and recover
the amount owed from any other account you have with us, without
notice or demand to you. In the event of a dispute concerning any
provision of this Agreement, either party may require the dispute
to be submitted to binding arbitration under the commercial
arbitration rules of the NASD or the American Arbitration
Association. Judgment upon any arbitration award may be entered
by any state or federal court having jurisdiction. This Agreement
shall be construed in accordance with the laws of the State of
California, not including any provision which would require the
general application of the law of another jurisdiction.
18. Acceptance; Cumulative Effect. This Agreement is cumulative
and supersedes any agreement previously in effect. It shall be
binding upon the parties hereto when signed by us and accepted by
you. If you have a current dealer agreement with us, your first
trade or acceptance of payments from us after receipt of this
Agreement, as it may be amended pursuant to paragraph 16, above,
shall constitute your acceptance of its terms. Otherwise, your
signature below shall constitute your acceptance of its terms.
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
By: /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
CUSTODY AGREEMENT
THIS CUSTODY AGREEMENT ("Agreement") is made and
entered into as of January 3, 1994, by and between FRANKLIN REAL
ESTATE SECURITIES TRUST, a Delaware business trust (the "Trust"),
and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, a
banking association organized under the laws of the United States
(the "Custodian").
RECITALS
A. The Trust is an investment company registered under
the Investment Company Act of 1940, as amended (the "Investment
Company Act") that invests and reinvests, on behalf of its
series, in Domestic Securities and Foreign Securities.
B. The Custodian is, and has represented to the Trust
that the Custodian is, a "bank" as that term is defined in
Section 2(a)(5) of the Investment Company Act of 1940, as amended
and is eligible to receive and maintain custody of investment
company assets pursuant to Section 17(f) and Rule 17f-2
thereunder.
C. The Trust and the Custodian desire to provide for
the retention of the Custodian as a custodian of the assets of
the Trust and such subsequent series as the parties hereto may
determine from time-to-time, on the terms and subject to the
provisions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual
covenants and agreements contained herein, and for other good and
valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto agree as follows:
Section 1. DEFINITIONS
For purposes of this Agreement, the following terms
shall have the respective meanings specified below:
"Agreement" shall mean this Custody Agreement.
"Board of Trustees" shall mean the Board of Trustees of
the Trust.
"Business Day" with respect to any Domestic Security
means any day, other than a Saturday or Sunday, that is not a day
on which banking institutions are authorized or required by law
to be closed in The City of New York and, with respect to Foreign
Securities, a London Business Day. "London Business Day" shall
mean any day on which dealings and deposits in U.S. dollars are
transacted in the London interbank market.
"Custodian" shall mean Bank of America National Trust
and Savings Association.
"Domestic Securities" shall have the meaning provided
in Subsection 2.1 hereof.
"Executive Committee" shall mean the executive
committee of the Board of Trustees.
"Foreign Custodian" shall have the meaning provided in
Section 4.1 hereof.
"Foreign Securities" shall have the meaning provided in
Section 2.1 hereof.
"Foreign Securities Depository" shall have the meaning
provided in Section 4.1 hereof.
"Trust" shall mean the Franklin Real Estate Securities
Trust and any separate series of the Trust hereinafter organized.
"Investment Company Act" shall mean the Investment
Company Act of 1940, as amended.
"Securities" shall have the meaning provided in Section
2.1 hereof.
"Securities System" shall have the meaning provided in
Section 3.1 hereof.
"Securities System Account" shall have the meaning provided
in Subsection 3.8(a) hereof.
"Shares" shall mean shares of beneficial interest of the
Trust.
"Subcustodian" shall have the meaning provided in Subsection
3.7 hereof, but shall not include any Foreign Custodian.
"Transfer Agent" shall mean the duly appointed and acting
transfer agent for the Trust.
"Writing" shall mean a communication in writing, a
communication by telex, the Custodian's Global Custody
Instruction SystemTM, facsimile transmission, bankwire or other
teleprocess or electronic instruction system acceptable to the
Custodian.
Section 2. APPOINTMENT OF CUSTODIAN; DELIVERY OF ASSETS
2.1 Appointment of Custodian. The Trust hereby
appoints and designates the Custodian as a custodian of the
assets of the Trust including cash, securities the Trust desires
to be held within the United States ("Domestic Securities") and
securities it desires to be held outside the United States
("Foreign Securities"). Domestic Securities and Foreign
Securities are sometimes referred to herein, collectively, as
"Securities." The Custodian hereby accepts such appointment and
designation and agrees that it shall maintain custody of the
assets of the Trust delivered to it hereunder in the manner
provided for herein.
2.2 Delivery of Assets. The Trust agrees to deliver
to the Custodian Securities and cash owned by the Trust, payments
of income, principal or capital distributions received by the
Trust with respect to Securities owned by the Trust from time to
time, and the consideration received by it for such Shares or
other securities of the Trust as may be issued and sold from time
to time. The Custodian shall have no responsibility whatsoever
for any property or assets of the Trust held or received by the
Trust and not delivered to the Custodian pursuant to and in
accordance with the terms hereof. All Securities accepted by the
Custodian on behalf of the Trust under the terms of this
Agreement shall be in "street name" or other good delivery form
as determined by the Custodian.
2.3 Subcustodians. Upon receipt of Proper
Instructions and a certified copy of a resolution of the Board of
Trustees or of the Executive Committee certified by the Secretary
or an Assistant Secretary of the Trust, the Custodian may from
time to time appoint one or more Subcustodians or Foreign
Custodians to hold assets of the Trust in accordance with the
provisions of this Agreement.
2.4 No Duty to Manage. The Custodian, a Subcustodian
or a Foreign Custodian shall not have any duty or responsibility
to manage or recommend investments of the assets of the Trust
held by them or to initiate any purchase, sale or other
investment transaction in the absence of Proper Instructions or
except as otherwise specifically provided herein.
Section 3. DUTIES OF THE CUSTODIAN WITH RESPECT TO ASSETS OF
THE TRUST HELD BY THE CUSTODIAN
3.1 Holding Securities. The Custodian shall hold and
physically segregate from any property owned by the Custodian,
for the account of the Trust, all non-cash property delivered by
the Trust to the Custodian hereunder other than Securities which,
pursuant to Subsection 3.8 hereof, are held through a registered
clearing agency, a registered securities depository, the Federal
Reserve's book-entry securities system (referred to herein,
individually, as a "Securities System"), or held by a
Subcustodian, Foreign Custodian or in a Foreign Securities
Depository.
3.2 Delivery of Securities. Except as otherwise
provided in Subsection 3.5 hereof, the Custodian, upon receipt of
Proper Instructions, shall release and deliver Securities owned
by the Trust and held by the Custodian in the following cases or
as otherwise directed in Proper Instructions:
(a) except as otherwise provided herein, upon
sale of such Securities for the account of the Trust and receipt
by the Custodian, a Subcustodian or a Foreign Custodian of
payment therefor;
(b) upon the receipt of payment by the Custodian,
a Subcustodian or a Foreign Custodian in connection with any
repurchase agreement related to such Securities entered into by
the Trust;
(c) in the case of a sale effected through a
Securities System, in accordance with the provisions of
Subsection 3.8 hereof;
(d) to a tender agent or other authorized agent
in connection with (i) a tender or other similar offer for
Securities owned by the Trust, or (ii) a tender offer or
repurchase by the Trust of its own Shares;
(e) to the issuer thereof or its agent when such
Securities are called, redeemed, retired or otherwise become
payable; provided, that in any such case, the cash or other
consideration is to be delivered to the Custodian, a Subcustodian
or a Foreign Custodian;
(f) to the issuer thereof, or its agent, for
transfer into the name or nominee name of the Trust, the name or
nominee name of the Custodian, the name or nominee name of any
Subcustodian or Foreign Custodian; or for exchange for a
different number of bonds, certificates or other evidence
representing the same aggregate face amount or number of units;
provided that, in any such case, the new Securities are to be
delivered to the Custodian, a Subcustodian or Foreign Custodian;
(g) to the broker selling the same for
examination in accordance with the "street delivery" custom;
(h) for exchange or conversion pursuant to any
plan of merger, consolidation, recapitalization, or
reorganization of the issuer of such Securities, or pursuant to a
conversion of such Securities; provided that, in any such case,
the new Securities and cash, if any, are to be delivered to the
Custodian or a Subcustodian;
(i) in the case of warrants, rights or similar
securities, the surrender thereof in connection with the exercise
of such warrants, rights or similar Securities or the surrender
of interim receipts or temporary Securities for definitive
Securities; provided that, in any such case, the new Securities
and cash, if any, are to be delivered to the Custodian, a
subcustodian or a Foreign Custodian;
(j) for delivery in connection with any loans of
Securities made by the Trust, but only against receipt by the
Custodian, a Subcustodian or a Foreign Custodian of adequate
collateral as determined by the Trust (and identified in Proper
Instructions communicated to the Custodian), which may be in the
form of cash or obligations issued by the United States
government, its agencies or instrumentalities, except that in
connection with any loans for which collateral is to be credited
to the account of the Custodian, a Subcustodian or a Foreign
Custodian in the Federal Reserve's book-entry securities system,
the Custodian will not be held liable or responsible for the
delivery of Securities owned by the Trust prior to the receipt of
such collateral;
(k) for delivery as security in connection with
any borrowings by the Trust requiring a pledge of assets by the
Trust, but only against receipt by the Custodian, a Subcustodian
or a Foreign Custodian of amounts borrowed;
(l) for delivery in accordance with the
provisions of any agreement among the Trust, the Custodian, a
Subcustodian or a Foreign Custodian and a broker-dealer relating
to compliance with the rules of registered clearing corporations
and of any registered national securities exchange, or of any
similar organization or organizations, regarding escrow or other
arrangements in connection with transactions by the Trust;
(m) for delivery in accordance with the
provisions of any agreement among the Trust, the Custodian, a
Subcustodian or a Foreign Custodian and a futures commission
merchant, relating to compliance with the rules of the Commodity
Futures Trading Commission and/or any contract market, or any
similar organization or organizations, regarding account deposits
in connection with transactions by the Trust;
(n) upon the receipt of instructions from the
Transfer Agent for delivery to the Transfer Agent or to the
holders of Shares in connection with distributions in kind in
satisfaction of requests by holders of Shares for repurchase or
redemption; and
(o) for any other proper purpose, but only upon
receipt of proper Instructions, and a certified copy of a
resolution of the Trustees or of the Executive Committee
certified by the Secretary or an Assistant Secretary of the
Trust, specifying the securities to be delivered, setting forth
the purpose for which such delivery is to be made, declaring such
purpose to be a proper purpose, and naming the person or persons
to whom delivery of such securities shall be made.
3.3 Registration of Securities. Securities held by
the Custodian, a Subcustodian or a Foreign Custodian (other than
bearer Securities) shall be registered in the name or nominee
name of the Trust, in the name or nominee name of the Custodian
or in the name or nominee name of any Subcustodian or Foreign
Custodian. The Trust agrees to hold the Custodian, any such
nominee, Subcustodian or Foreign Custodian harmless from any
liability as a holder of record of such Securities.
3.4 Bank Accounts. The Custodian shall open and
maintain a separate bank account or accounts for the Trust,
subject only to draft or order by the Custodian acting pursuant
to the terms of this Agreement, and shall hold in such account or
accounts, subject to the provisions hereof, all cash received by
it hereunder from or for the account of the Trust, other than
cash maintained by the Trust in a bank account established and
used in accordance with Rule 17f-3 under the Investment Company
Act. Funds held by the Custodian for the Trust may be deposited
by it to its credit as Custodian in the banking departments of
the Custodian, a Subcustodian or a Foreign Custodian. It is
understood and agreed by the Custodian and the Trust that the
rate of interest, if any, payable on such funds (including
foreign currency deposits) that are deposited with the Custodian
may not be a market rate of interest and that the rate of
interest payable by the Custodian to the Trust shall be agreed
upon by the Custodian and the Trust from time to time. Such
funds shall be deposited by the Custodian in its capacity as
Custodian and shall be withdrawable by the Custodian only in that
capacity.
3.5 Collection of Income; Trade Settlement; Crediting
of Accounts. The Custodian shall collect income payable with
respect to Securities owned by the Trust, settle Securities
trades for the account of the Trust and credit and debit the
Trust's account with the Custodian in connection therewith as
follows:
(a) Upon receipt of Proper Instructions, the
Custodian shall effect the purchase of a Security by charging the
account of the Trust on the contractual settlement date. The
Custodian shall have no liability of any kind to any person,
including the Trust, if the Custodian effects payment on behalf
of the Trust as provided for herein or in Proper Instructions,
and the seller or selling broker fails to deliver the Securities
purchased.
(b) Upon receipt of Proper Instructions, the
Custodian shall effect the sale of a Security by delivering a
certificate or other indicia of ownership, and shall credit the
account of the Trust with the proceeds of such sale on the
contractual settlement date. The Custodian shall have no
liability of any kind to any person, including the Trust, if the
Custodian delivers such a certificate(s) or other indicia of
ownership as provided for herein or in Proper Instructions, and
the purchaser or purchasing broker fails to effect payment to
the Trust within a reasonable time period, as determined by the
Custodian in its sole discretion. In such event, the Custodian
shall be entitled to reimbursement of the amount so credited to
the account of the Trust in connection with such sale.
(c) The Trust is responsible for ensuring that
the Custodian receives timely and accurate Proper Instructions to
enable the Custodian to effect settlement of any purchase or
sale. If the Custodian does not receive such instructions within
the required time period, the Custodian shall have no liability
of any kind to any person, including the Trust, for failing to
effect settlement on the contractual settlement date. However,
the Custodian shall use its best reasonable efforts to effect
settlement as soon as possible after receipt of Proper
Instructions.
(d) The Custodian shall credit the account of the
Trust with interest income payable on interest bearing Securities
on payable date. Interest income on cash balances will be
credited monthly to the account of the Trust on the first
Business Day (on which the Custodian is open for business)
following the end of each month. Dividends and other amounts
payable with respect to Domestic Securities and Foreign
Securities shall be credited to the account of the Trust when
received by the Custodian. The Custodian shall not be required
to commence suit or collection proceedings or resort to any
extraordinary means to collect such income and other amounts
payable with respect to Securities owned by the Trust. The
collection of income due the Trust on Domestic Securities loaned
pursuant to the provisions of Subsection 3.2(j) shall be the
responsibility of the Trust. The Custodian will have no duty or
responsibility in connection therewith, other than to provide the
Trust with such information or data as may be necessary to assist
the Trust in arranging for the timely delivery to the Custodian
of the income to which the Trust is entitled. The Custodian
shall have no liability to any person, including the Trust, if
the Custodian credits the account of the Trust with such income
or other amounts payable with respect to Securities owned by the
Trust (other than Securities loaned by the Trust pursuant to
Subsection 3.2(j) hereof) and the Custodian subsequently is
unable to collect such income or other amounts from the payors
thereof within a reasonable time period, as determined by the
Custodian in its sole discretion. In such event, the Custodian
shall be entitled to reimbursement of the amount so credited to
the account of the Trust.
3.6 Payment of Trust Monies. Upon receipt of Proper
Instructions the Custodian shall pay out monies of the Trust in
the following cases or as otherwise directed in Proper
Instructions:
(a) upon the purchase of Securities, futures
contracts or options on futures contracts for the account of the
Trust but only, except as otherwise provided herein, (i) against
the delivery of such securities, or evidence of title to futures
contracts or options on futures contracts, to the Custodian or a
Subcustodian registered pursuant to Subsection 3.3 hereof or in
proper form for transfer; (ii) in the case of a purchase effected
through a Securities System, in accordance with the conditions
set forth in Subsection 3.8 hereof; or (iii) in the case of
repurchase agreements entered into between the Trust and the
Custodian, another bank or a broker-dealer (A) against delivery
of the Securities either in certificated form to the Custodian or
a Subcustodian or through an entry crediting the Custodian's
account at the appropriate Federal Reserve Bank with such
Securities or (B) against delivery of the confirmation evidencing
purchase by the Trust of Securities owned by the Custodian or
such broker-dealer or other bank along with written evidence of
the agreement by the Custodian or such broker-dealer or other
bank to repurchase such Securities from the Trust;
(b) in connection with conversion, exchange or
surrender of Securities owned by the Trust as set forth in
Subsection 3.2 hereof;
(c) for the redemption or repurchase of Shares
issued by the Trust;
(d) for the payment of any expense or liability
incurred by the Trust, including but not limited to the following
payments for the account of the Trust: custodian fees, interest,
taxes, management, accounting, transfer agent and legal fees and
operating expenses of the Trust whether or not such expenses are
to be in whole or part capitalized or treated as deferred
expenses; and
(e) for the payment of any dividends or
distributions declared by the Board of Trustees with respect to
the Shares.
3.7 Appointment of Subcustodians. The Custodian may,
upon receipt of Proper Instructions, appoint another bank or
trust company, which is itself qualified under the Investment
Company Act to act as a custodian (a "Subcustodian"), as the
agent of the Custodian to carry out such of the duties of the
Custodian hereunder as a Custodian may from time to time direct;
provided, however, that the appointment of any Subcustodian shall
not relieve the Custodian of its responsibilities or liabilities
hereunder.
3.8 Deposit of Securities in Securities Systems. The
Custodian may deposit and/or maintain Domestic Securities owned
by the Trust in a Securities System in accordance with applicable
Federal Reserve Board and Securities and Exchange Commission
rules and regulations, if any, and subject to the following
provisions:
(a) the Custodian may hold Domestic Securities of
the Trust in the Depository Trust Company or the Federal
Reserve's book entry system or, upon receipt of Proper
Instructions, in another Securities System provided that such
securities are held in an account of the Custodian in the
Securities System ("Securities System Account") which shall not
include any assets of the Custodian other than assets held as a
fiduciary, custodian or otherwise for customers;
(b) the records of the Custodian with respect to
Domestic Securities of the Trust which are maintained in a
Securities System shall identify by book-entry those Domestic
Securities belonging to the Trust;
(c) the Custodian shall pay for Domestic
Securities purchased for the account of the Trust upon (i)
receipt of advice from the Securities System that such securities
have been transferred to the Securities System Account, and (ii)
the making of an entry on the records of the Custodian to
reflect such payment and transfer for the account of the Trust.
The Custodian shall transfer Domestic Securities sold for the
account of the Trust upon (A) receipt of advice from the
Securities System that payment for such securities has been
transferred to the Securities System Account, and (B) the making
of an entry on the records of the Custodian to reflect such
transfer and payment for the account of the Trust. Copies of all
advices from the Securities System of transfers of Domestic
Securities for the account of the Trust shall be maintained for
the Trust by the Custodian and be provided to the Trust at its
request. Upon request, the Custodian shall furnish the Trust
confirmation of each transfer to or from the account of the Trust
in the form of a written advice or notice; and
(d) upon request, the Custodian shall provide the
Trust with any report obtained by the Custodian on the Securities
System's accounting system, internal accounting control and
procedures for safeguarding domestic securities deposited in the
Securities System.
3.9 Segregated Account. The Custodian shall upon
receipt of Proper Instructions establish and maintain a
segregated account or accounts for and on behalf of the Trust,
into which account or accounts may be transferred cash and/or
Securities, including Securities maintained in an account by the
Custodian pursuant to Section 3.8 hereof, (i) in accordance with
the provisions of any agreement among the Trust, the Custodian
and a broker-dealer or futures commission merchant, relating to
compliance with the rules of registered clearing corporations and
of any national securities exchange (or the Commodity Futures
Trading Commission or any registered contract market), or of any
similar organization or organizations, regarding escrow or other
arrangements in connection with transactions by the Trust, (ii)
for purposes of segregating cash or securities in connection with
options purchased, sold or written by the Trust or commodity
futures contracts or options thereon purchased or sold by the
Trust and (iii) for other proper corporate purposes, but only, in
the case of this clause (iii), upon receipt of, in addition to
Proper Instructions, a certified copy of a resolution of the
Board of Trustees or of the Executive Committee certified by the
Secretary or an Assistant Secretary, setting forth the purpose or
purposes of such segregated account and declaring such purposes
to be proper corporate purposes.
3.10 Ownership Certificates for Tax Purposes. The
Custodian shall execute ownership and other certificates and
affidavits for all federal and state tax purposes in connection
with receipt of income or other payments with respect to domestic
securities of the Trust held by it and in connection with
transfers of such securities.
3.11 Proxies. The Custodian shall, with respect to
the Securities held hereunder, promptly deliver to the Trust all
proxies, all proxy soliciting materials and all notices relating
to such Securities. If the Securities are registered otherwise
than in the name of the Trust or a nominee of the Trust, the
Custodian shall use its best reasonable efforts, consistent with
applicable law, to cause all proxies to be promptly executed by
the registered holder of such Securities in accordance with
Proper Instructions.
3.12 Communications Relating to Trust Portfolio
Securities. The Custodian shall transmit promptly to the Trust
all written information (including, without limitation, pendency
of calls and maturities of Securities and expirations of rights
in connection therewith and notices of exercise of put and call
options written by the Trust and the maturity of futures
contracts purchased or sold by the Trust) received by the
Custodian from issuers of Securities being held for the Trust.
With respect to tender or exchange offers, the Custodian shall
transmit promptly to the Trust all written information received
by the Custodian from issuers of the Securities whose tender or
exchange is sought and from the party (or its agents) making the
tender or exchange offer. If the Trust desires to take action
with respect to any tender offer, exchange offer or any other
similar transaction, the Trust shall notify the Custodian at
least three Business Days prior to the date of which the
Custodian is to take such action.
3.13 Reports by Custodian. Custodian shall each
business day furnish the Trust with a statement summarizing all
transactions and entries for the account of the Fund for the
preceding day. At the end of every month Custodian shall furnish
the Trust with a list of the portfolio securities showing the
quantity of each issue owned, the cost of each issue and the
market value of each issue at the end of each month. Such
monthly report shall also contain separate listings of (a)
unsettled trades and (b) when-issued securities. Custodian shall
furnish such other reports as may be mutually agreed upon from
time-to-time.
Section 4. CERTAIN DUTIES OF THE CUSTODIAN WITH RESPECT TO
ASSETS OF THE TRUST HELD OUTSIDE THE UNITED STATES
4.1 Custody outside the United States. The Trust
authorizes the Custodian to hold Foreign Securities and cash in
custody accounts which have been established by the Custodian
with (i) its foreign branches, (ii) foreign banking institutions,
foreign branches of United States banks and subsidiaries of
United States banks or bank holding companies (each a "Foreign
Custodian") and (iii) Foreign Securities depositories or clearing
agencies (each a "Foreign Securities Depository"); provided,
however, that the Board of Trustees or the Executive Committee
has approved in advance the use of each such Foreign Custodian
and Foreign Securities Depository and the contract between the
Custodian and each Foreign Custodian and that such approval is
set forth in Proper Instructions and a certified copy of a
resolution of the Board of Trustees or of the Executive Committee
certified by the Secretary or an Assistant Secretary of the
Trust. Unless expressly provided to the contrary in this Section
4, custody of Foreign Securities and assets held outside the
United States by the Custodian, a Foreign Custodian or through a
Foreign Securities Depository shall be governed by Section 3
hereof.
4.2 Assets to be Held. The Custodian shall limit the
securities and other assets maintained in the custody of its
foreign branches, Foreign Custodians and Foreign Securities
Depositories to: (i) "foreign securities", as defined in
paragraph (c) (1) of Rule 17f-5 under the Investment Company Act,
and (ii) cash and cash equivalents in such amounts as the
Custodian or the Trust may determine to be reasonably necessary
to effect the Trust's Foreign Securities transactions.
4.3 Foreign Securities Depositories. Except as may
otherwise be agreed upon in writing by the Custodian and the
Trust, assets of the Trust shall be maintained in Foreign
Securities Depositories only through arrangements implemented by
the Custodian or Foreign Custodians pursuant to the terms hereof.
4.4 Segregation of Securities. The Custodian shall
identify on its books and records as belonging to the Trust, the
Foreign Securities of the Trust held by each Foreign Custodian.
4.5 Agreements with Foreign Custodians. Each
agreement with a Foreign Custodian shall provide generally that:
(a) the Trust's assets will not be subject to any right, charge,
security interest, lien or claim of any kind in favor of the
Foreign Custodian or its creditors, except a claim of payment for
their safe custody or administration; (b) beneficial ownership
for the Trust's assets will be freely transferable without the
payment of money or value other than for custody or
administration; (c) adequate records will be maintained
identifying the assets as belonging to the Trust; (d) the
independent public accountants for the Trust, will be given
access to the records of the Foreign Custodian relating to the
assets of the Trust or confirmation of the contents of those
records; (e) the disposition of assets of the Trust held by the
Foreign Custodian will be subject only to the instructions of the
Custodian or its agents; (f) the Foreign Custodian shall
indemnify and hold harmless the Custodian and the Trust from and
against any loss, damage, cost, expense, liability or claim
arising out of or in connection with the Foreign Custodian's
performance of its obligations under such agreement; (g) to the
extent practicable, the Trust's assets will be adequately insured
in the event of loss; and (h) the Custodian will receive periodic
reports with respect to the safekeeping of the Trust's assets,
including notification of any transfer to or from the Trust's
account.
4.6 Access of Independent Accountants of the Trust.
Upon request of the Trust, the Custodian will use its best
reasonable efforts to arrange for the independent accountants of
the Trust to be afforded access to the books and records of any
Foreign Custodian insofar as such books and records relate to the
custody by any such Foreign Custodian of assets of the Trust.
4.7 Transactions in Foreign Custody Accounts. Upon
receipt of Proper Instructions, the Custodian shall instruct the
appropriate Foreign Custodian to transfer, exchange or deliver
Foreign Securities owned by the Trust, but, except to the extent
explicitly provided herein, only in any of the cases specified in
Subsection 3.2. Upon receipt of Proper Instructions, the
Custodian shall pay out or instruct the appropriate Foreign
Custodian to pay out monies of the Trust in any of the cases
specified in Subsection 3.6. Notwithstanding anything herein to
the contrary, settlement and payment for Foreign Securities
received for the account of the Trust and delivery of Foreign
Securities maintained for the account of the Trust may be
effected in accordance with the customary or established
securities trading or securities processing practices and
procedures in the jurisdiction or market in which the transaction
occurs, including, without limitation, delivering securities to
the purchaser thereof or to a dealer therefor (or an agent for
such purchaser or dealer) against a receipt with the expectation
of receiving later payment for such securities from such
purchaser or dealer. Foreign Securities maintained in the
custody of a Foreign Custodian may be maintained in the name of
such entity or its nominee name to the same extent as set forth
in Section 3.3 of this Agreement and the Trust agrees to hold any
Foreign Custodian and its nominee harmless from any liability as
a holder of record of such securities.
4.8 Liability of Foreign Custodian. Each agreement
between the Custodian and a Foreign Custodian shall require the
Foreign Custodian to exercise reasonable care in the performance
of its duties and to indemnify and hold harmless the Custodian
and the Trust from and against any loss, damage, cost, expense,
liability or claim arising out of or in connection with the
Foreign Custodian's performance of such obligations. At the
election of the Trust, it shall be entitled to be subrogated to
the rights of the Custodian with respect to any claims against a
Foreign Custodian as a consequence of any such loss, damage,
cost, expense, liability or claim if and to the extent that the
Trust has not been made whole for any such loss, damage, cost,
expense, liability or claim.
4.9 Monitoring Responsibilities.
(a) The Custodian will promptly inform the Trust
in the event that the Custodian learns of a material adverse
change in the financial condition of a Foreign Custodian or is
notified by (i) a foreign banking institution employed as a
Foreign Custodian that there appears to be a substantial
likelihood that its shareholders' equity will decline below $200
million or that its shareholders' equity has declined below $200
million (in each case computed in accordance with generally
accepted United States accounting principles) and denominated in
U.S. dollars, or (ii) a subsidiary of a United States bank or
bank holding company acting as a Foreign Custodian that there
appears to be a substantial likelihood that its shareholders'
equity will decline below $100 million or that its shareholders'
equity has declined below $100 million (in each case computed in
accordance with generally accepted United States accounting
principles) and denominated in U.S. dollars.
(b) The custodian will furnish such information
as may be reasonably necessary to assist the Trust's Board of
Trustees in its annual review and approval of the continuance of
all contracts or arrangements with Foreign Subcustodians.
Section 5. PROPER INSTRUCTIONS
As used in this Agreement, the term "Proper
Instructions" means instructions of the Trust received by the
Custodian via telephone or in Writing which the Custodian
believes in good faith to have been given by Authorized Persons
(as defined below) or which are transmitted with proper testing
or authentication pursuant to terms and conditions which the
Custodian may specify. Any Proper Instructions delivered to the
Custodian by telephone shall promptly thereafter be confirmed in
Writing by an Authorized Person, but the Trust will hold the
Custodian harmless for its failure to send such confirmation in
writing, the failure of such confirmation to conform to the
telephone instructions received or the Custodian's failure to
produce such confirmation at any subsequent time. Unless
otherwise expressly provided, all Proper Instructions shall
continue in full force and effect until cancelled or superseded.
If the Custodian requires test arrangements, authentication
methods or other security devices to be used with respect to
Proper Instructions, any Proper Instructions given by the Trust
thereafter shall be given and processed in accordance with such
terms and conditions for the use of such arrangements, methods or
devices as the Custodian may put into effect and modify from time
to time. The Trust shall safeguard any testkeys, identification
codes or other security devices which the Custodian shall make
available to it. The Custodian may electronically record any
Proper Instructions given by telephone, and any other telephone
discussions, with respect to its activities hereunder. As used
in this Agreement, the term "Authorized Persons" means such
officers or such agents of the Trust as have been designated by a
resolution of the Board of trustees or of the Executive
Committee, a certified copy of which has been provided to the
Custodian, to act on behalf of the Trust under this Agreement.
Each of such persons shall continue to be an Authorized Person
until such time as the Custodian receives Proper Instructions
that any such officer or agent is no longer an Authorized Person.
Section 6. ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY
The Custodian may in its discretion, without express
authority from the Trust:
(a) make payments to itself or others for minor
expenses of handling Securities or other similar items relating
to its duties under this Agreement, provided that all such
payments shall be accounted for to the Trust;
(b) endorse for collection, in the name of the
Trust, checks, drafts and other negotiable instruments; and
(c) in general, attend to all non-discretionary
details in connection with the sale, exchange, substitution,
purchase, transfer and other dealings with the Securities and
property of the Trust except as otherwise provided in Proper
Instructions.
Section 7. EVIDENCE OF AUTHORITY
The Custodian shall be protected in acting upon any
instructions (conveyed by telephone or in Writing), notice,
request, consent, certificate or other instrument or paper
believed by it to be genuine and to have been properly given or
executed by or on behalf of the Trust. The Custodian may receive
and accept a certified copy of a resolution of the Board of
Trustees or Executive Committee as conclusive evidence (a) of the
authority of any person to act in accordance with such resolution
or (b) of any determination or of any action by the Board of
Trustees or Executive Committee as described in such resolution,
and such resolution may be considered as in full force and effect
until receipt by the Custodian of written notice by an Authorized
Person to the contrary.
Section 8. DUTY OF CUSTODIAN TO SUPPLY INFORMATION
The Custodian shall cooperate with and supply necessary
information in its possession (to the extent permissible under
applicable law) to the entity or entities appointed by the Board
of Trustees to keep the books of account of the Trust and/or
compute the net asset value per Share of the outstanding Shares
of the Trust.
Section 9. RECORDS
The Custodian shall create and maintain all records
relating to its activities under this Agreement which are
required with respect to such activities under Section 31 of the
Investment Company Act and Rules 31a-1 and 31a-2 thereunder. All
such records shall be the property of the Trust and shall at all
times during the regular business hours of the Custodian be open
for inspection by duly authorized officers, employees or agents
of the Trust and employees and agents of the Securities and
Exchange Commission. The Custodian shall, at the Trust's
request, supply the Trust with a tabulation of Securities owned
by the Trust and held by the Custodian and shall, when requested
to do so by the Trust and for such compensation as shall be
agreed upon between the Trust and the Custodian, include
certificate numbers in such tabulations.
Section 10. COMPENSATION OF CUSTODIAN
The Custodian shall be entitled to reasonable
compensation for its services and expenses as Custodian, as
agreed upon from time to time between the Trust and the
Custodian.
Section 11. RESPONSIBILITY OF CUSTODIAN
The Custodian shall be responsible for the performance
of only such duties as are set forth herein or contained in
Proper Instructions and shall use reasonable care in carrying out
such duties. The Custodian shall be liable to the Trust for any
loss which shall occur as the result of the failure of a Foreign
Custodian or a Foreign Securities Depository engaged by such
Foreign Custodian or the Custodian to exercise reasonable care
with respect to the safekeeping of securities and other assets of
the Trust to the same extent that the Custodian would be liable
to the Trust if the Custodian itself were holding such securities
and other assets. In the event of any loss to the Trust by
reason of the failure of the Custodian, a Foreign Custodian or a
Foreign Securities Depository engaged by such Foreign Custodian
or the Custodian to utilize reasonable care, the Custodian shall
be liable to the Trust to the extent of the Trust's damages, to
be determined based on the market value of the property which is
the subject of the loss at the date of discovery of such loss and
without reference to any special conditions or circumstances.
The Custodian shall be held to the exercise of reasonable care in
carrying out this Agreement. The Trust agrees to indemnify and
hold harmless the Custodian and its nominees from all taxes,
charges, expenses, assessments, claims and liabilities (including
legal fees and expenses) incurred by any of them in connection
with the performance of this Agreement, except such as may arise
from any negligent action, negligent failure to act or willful
misconduct on the part of the indemnified entity or any Foreign
Custodian or Foreign Securities Depository. The Custodian shall
be entitled to rely, and may act, on advice of counsel (who may
be counsel for the Trust) on all matters and shall be without
liability for any action reasonably taken or omitted pursuant to
such advice. The Custodian need not maintain any insurance for
the benefit of the Trust.
All collections of funds or other property paid or
distributed in respect of Securities held by the Custodian,
agent, Subcustodian or Foreign Custodian hereunder shall be made
at the risk of the Trust. The Custodian shall have no liability
for any loss occasioned by delay in the actual receipt of notice
by the Custodian, agent, Subcustodian or by a Foreign Custodian
of any payment, redemption or other transaction regarding
securities in respect of which the Custodian has agreed to take
action as provided in Section 3 hereof. The Custodian shall not
be liable for any action taken in good faith upon Proper
Instructions or upon any certified copy of any resolution of the
Board of Trustees and may rely on the genuineness of any such
documents which it may in good faith believe to be validly
executed. The Custodian shall not be liable for any loss
resulting from, or caused by, the direction of the Trust to
maintain custody of any Securities or cash in a foreign country
including, but not limited to, losses resulting from
nationalization, expropriation, currency restrictions, civil
disturbance, acts of war or terrorism, insurrection, revolution,
nuclear fusion, fission or radiation or other similar occurrences
or events beyond the control of the Custodian. Finally, the
Custodian shall not be liable for any taxes, including interest
and penalties with respect thereto, that may be levied or
assessed upon or in respect of any assets of the Trust held by
the Custodian.
Section 12. LIMITED LIABILITY OF THE TRUST
The Custodian acknowledges that it has received notice
of and accepts the limitations of the Trust's liability as set
forth in its Agreement and Declaration of Trust. The Custodian
agrees that the Trust's obligation hereunder shall be limited to
the assets of the Trust, and that the Custodian shall not seek
satisfaction of any such obligation from the shareholders of the
Trust nor from any Trustee, officer, employee, or agent of the
Trust.
Section 13. EFFECTIVE PERIOD; TERMINATION
This Agreement shall become effective as of the date of
its execution and shall continue in full force and effect until
terminated as hereinafter provided. This Agreement may be
terminated by the Trust or the Custodian by 60 days notice in
Writing to the other provided that any termination by the Trust
shall be authorized by a resolution of the Board of Trustees, a
certified copy of which shall accompany such notice of
termination, and provided further, that such resolution shall
specify the names of the persons to whom the Custodian shall
deliver the assets of the Trust held by it. If notice of
termination is given by the Custodian, the Trust shall, within 60
days following the giving of such notice, deliver to the
Custodian a certified copy of a resolution of the Board of
Trustees specifying the names of the persons to whom the
Custodian shall deliver assets of the Trust held by it. In
either case the Custodian will deliver such assets to the persons
so specified, after deducting therefrom any amounts which the
Custodian determines to be owed to it hereunder (including all
costs and expenses of delivery or transfer of Trust assets to the
persons so specified). If within 60 days following the giving of
a notice of termination by the Custodian, the Custodian does not
receive from the Trust a certified copy of a resolution of the
Board of Trustees specifying the names of the persons to whom the
Custodian shall deliver the assets of the Trust held by it, the
Custodian, at its election, may deliver such assets to a bank or
trust company doing business in the State of California to be
held and disposed of pursuant to the provisions of this Agreement
or may continue to hold such assets until a certified copy of one
or more resolutions as aforesaid is delivered to the Custodian.
The obligations of the parties hereto regarding the use of
reasonable care, indemnities and payment of fees and expenses
shall survive the termination of this Agreement.
Section 14. MISCELLANEOUS
14.1 Relationship. Nothing contained in this Agreement
shall (i) create any fiduciary, joint venture or partnership
relationship between the Custodian and the Trust or (ii) be
construed as or constitute a prohibition against the provision by
the Custodian or any of its affiliates to the Trust of investment
banking, securities dealing or brokerages services or any other
banking or financial services.
14.2 Further Assurances. Each party hereto shall
furnish to the other party hereto such instruments and other
documents as such other party may reasonably request for the
purpose of carrying out or evidencing the transactions
contemplated by this Agreement.
14.3 Attorneys' Fees. If any lawsuit or other action
or proceeding relating to this Agreement is brought by a party
hereto against the other party hereto, the prevailing party shall
be entitled to recover reasonable attorneys' fees, costs and
disbursements (including allocated costs and disbursements of in-
house counsel), in addition to any other relief to which the
prevailing party may be entitled.
14.4 Notices. Except as otherwise specified herein,
each notice or other communication hereunder shall be in Writing
and shall be delivered to the intended recipient at the following
address (or at such other address as the intended recipient shall
have specified in a written notice given to the other parties
hereto):
if to the Trust :
Franklin Real Estate Securities Trust
c/o Franklin Resources, Inc.
777 Mariners Island Blvd.
San Mateo, CA 94404
Attention: Trust Manager
if to the Custodian:
Bank of America NT&SA
1455 Market Street
16th Floor, Dept. 5014
San Francisco, CA 94104
14.5 Headings. The underlined headings contained
herein are for convenience of reference only, shall not be deemed
to be a part of this Agreement and shall not be referred to in
connection with the interpretation hereof.
14.6 Counterparts. This Agreement may be executed in
counterparts, each of which shall constitute an original and both
of which, when taken together, shall constitute one agreement.
14.7 Governing Law. This Agreement shall be
construed in accordance with, and governed in all respects by,
the laws of the State of California (without giving effect to
principles of conflict of laws).
14.8 Force Majeure. Subject to the provisions of
Section 11 hereof regarding the Custodian's general standard of
care, no failure, delay or default in performance of any
obligation hereunder shall constitute an event of default or a
breach of this agreement, or give rise to any liability
whatsoever on the part of one party hereto to the other, to the
extent that such failure to perform, delay or default arises out
of a cause beyond the control and without negligence of the party
otherwise chargeable with failure, delay or default; including,
but not limited to: action or inaction of governmental, civil or
military authority; fire; strike; lockout or other labor dispute;
flood; war; riot; theft; earthquake; natural disaster; breakdown
of public or common carrier communications facilities; computer
malfunction; or act, negligence or default of the other party.
This paragraph shall in no way limit the right of either party to
this Agreement to make any claim against third parties for any
damages suffered due to such causes.
14.9 Successors and Assigns. This Agreement shall be
binding upon, and shall inure to the benefit of, the parties
hereto and their respective successors and assigns, if any.
14.10 Waiver. No failure on the part of any person to
exercise any power, right, privilege or remedy hereunder, and no
delay on the part of any person in the exercise of any power,
right, privilege or remedy hereunder, shall operate as a waiver
thereof; and no single or partial exercise of any such power,
right, privilege or remedy shall preclude any other or further
exercise thereof or of any other power, right, privilege or
remedy.
14.11 Amendments. This Agreement may not be amended,
modified, altered or supplemented other than by means of an
agreement or instrument executed on behalf of each of the parties
hereto.
14.12 Severability. In the event that any provision
of this Agreement, or the application of any such provision to
any person or set of circumstances, shall be determined to be
invalid, unlawful, void or unenforceable to any extent, the
remainder of this Agreement, and the application of such
provision to persons or circumstances other than those as to
which it is determined to be invalid, unlawful, void or
unenforceable, shall not be impaired or otherwise affected and
shall continue to be valid and enforceable to the fullest extent
permitted by law.
14.13 Parties in Interest. None of the provisions of
this Agreement is intended to provide any rights or remedies to
any person other than the Trust and the Custodian and their
respective successors and assigns, if any.
14.14 Entire Agreement. This Agreement sets forth the
entire understanding of the parties hereto and supersedes all
prior agreements and understandings between the parties hereto
relating to the subject matter hereof.
14.15 Variations of Pronouns. Whenever required by
the context hereof, the singular number shall include the plural,
and vice versa; the masculine gender shall include the feminine
and neuter genders; and the neuter gender shall include the
masculine and feminine genders.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered as of the date first above
written.
"Custodian": BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By /s/ illegible
Its Vice President
"Trust": FRANKLIN REAL ESTATE SECURITIES TRUST
By /s/ Rupert H. Johnson
Its
CONSENT OF INDEPENDENT AUDITORS
To the Board of Trustees
Franklin Real Estate Securities Trust
We consent to the incorporation by reference in Post-
Effective Amendment No. 4 to the Registration Statement of
Franklin Real Estate Securities Trust on Form N-1A File
No.811-8034 and 33-69048 of our report dated June 2, 1995
on our audit of the financial statements and financial
highlights of the Trust, which report is included in the
Annual Report to Shareholders for the year ended April 30,
1995 which is incorporated by reference in the Registration
Statement.
/s/COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
San Francisco, California
June 28, 1995
FRANKLIN
RESOURCES, INC.
(Franklin Logo)
777 Mariners Island Blvd.
P.O. Box 7777
San Mateo, CA 94403-7777
415/312-3000
December 27, 1993
Franklin Real Estate Securities Trust
777 Mariners Island Blvd.
San Mateo, CA 94404
Gentlemen:
We propose to acquire 100,000 shares of beneficial interest
(the "Shares") of the Franklin Real Estate Securities Fund (the
"Fund"), a series of Franklin Real Estate Securities Trust (the
"Trust") at a purchase price of $10 per share for a total of
$1,000,000. We will purchase the Shares in a private offering
prior to the effectiveness of the Form N-1A registration
statement filed by the Fund under the Securities Act of 1933.
The Shares are being purchased pursuant to Section 14 of the
Investment Company Act of 1940 to serve as the seed money for the
Fund prior to the commencement of the public offering of its
shares.
In connection with such purchase, we understand that: (i)
we, the purchaser, intend to acquire the Shares for our own
account as the sole beneficial owner thereof and have no present
intention of redeeming or reselling the Shares so acquired; and
(ii) in the event any of the initial 100,000 Shares are redeemed
during the first five years, the Fund may charge against our
redemption proceeds a pro rata portion of any unamortized
organization expenses which would be borne by such Shares during
the balance of the initial five-year period were they not to be
redeemed.
We consent to the filing of this Investment Letter as an
exhibit to the form N-1A registration of the Fund.
Sincerely,
FRANKLIN RESOURCES, INC.
By: /s/ Harmon E. Burns
Harmon E. Burns
Executive Vice President
FRANKLIN REAL ESTATE SECURITIES TRUST
Preamble to Distribution Plan
The following Distribution Plan (the "Plan") has been
adopted pursuant to Rule l2b-l under the Investment Company Act
of 1940 (the "Act") by Franklin Real Estate Securities Trust (the
"Trust") for the use of a newly organized series entitled
Franklin Real Estate Securities Fund (the "Fund"). The Plan has
been approved by a majority of the Board of Trustees of the Trust
(the "Board of Trustees"), including a majority of the trustees
who are not interested persons of the Trust and who have no
direct or indirect financial interest in the operation of the
Plan (the "non-interested trustees"), cast in person at a meeting
called for the purpose of voting on such Plan.
In reviewing the Plan, the Board of Trustees considered the
schedule and nature of payments and terms of the Management
Agreement between the Trust, on behalf of the Fund, and Franklin
Advisers, Inc. (the "Manager") and the terms of the Underwriting
Agreement between the Trust and Franklin/Templeton Distributors,
Inc. ("Distributors"). The Board of Trustees concluded that the
compensation of the Manager, under the Management Agreement was
fair and not excessive; however, the Board of Trustees also
recognized that uncertainty may exist from time to time with
respect to whether payments to be made by the Fund to the Manager
or to Distributors or others or by the Manager or Distributors to
others may be deemed to constitute distribution expenses.
Accordingly, the Board determined that the Plan should provide
for such payments and that adoption of the Plan would be prudent
and in the best interests of the Fund and its shareholders. Such
approval included a determination that in the exercise of their
reasonable business judgment and in light of their fiduciary
duties, there is a reasonable likelihood that the Plan will
benefit the Fund and its shareholders.
DISTRIBUTION PLAN
l. The Fund shall reimburse Distributors or others for all
expenses incurred by Distributors or others in the promotion and
distribution of the shares of the Fund, including but not limited
to, the printing of prospectuses and reports used for sales
purposes, expenses of preparation and distribution of sales
literature and related expenses, advertisements, and other
distribution-related expenses, including a prorated portion of
Distributors' overhead expenses attributable to the distribution
of Fund shares, as well as any distribution or service fees paid
to securities dealers or their firms or others who have executed
a servicing agreement with the Fund, Distributors or its
affiliates, which form of agreement has been approved from time
to time by the trustees, including the non-interested trustees.
2. The maximum amount which may be reimbursed by the Fund to
Distributors or others pursuant to Paragraph 1 herein shall be
.25 of 1% per annum of the average daily net assets of the Fund.
Said reimbursement shall be made quarterly by the Fund to
Distributors or others .
3. In addition to the payments which the Fund is authorized to
make pursuant to paragraphs 1 and 2 hereof, to the extent that
the Fund, the Manager, Distributors or other parties on behalf of
the Fund, the Manager or Distributors make payments that are
deemed to be payments for the financing of any activity primarily
intended to result in the sale of shares issued by the Fund
within the context of Rule 12b-1 under the Act, then such
payments shall be deemed to have been made pursuant to the Plan.
In no event shall the aggregate asset-based sales charges
which include payments specified in paragraphs 1 and 2, plus any
other payments deemed to be made pursuant to the Plan under this
paragraph, exceed the amount permitted to be paid pursuant to the
Rules of Fair Practice of the National Association of Securities
Dealers, Inc., Article III, Section 26(d).
4. Distributors shall furnish to the Board of Trustees, for
their review, on a quarterly basis, a written report of the
monies reimbursed to it and to others under the Plan, and shall
furnish the Board of Trustees with such other information as the
Board of Trustees may reasonably request in connection with the
payments made under the Plan in order to enable the Board of
Trustees to make an informed determination of whether the Plan
should be continued.
5. The Plan shall continue in effect for a period of more than
one year only so long as such continuance is specifically
approved at least annually by the Board of Trustees, including
the non-interested trustees, cast in person at a meeting called
for the purpose of voting on the Plan.
6. The Plan, and any agreements entered into pursuant to this
Plan, may be terminated at any time, without penalty, by vote of
a majority of the outstanding voting securities of the Fund, or
by vote of the majority of the non-interested trustees, on not
more than sixty (60) days' written notice, or by Distributors on
not more than sixty (60) days' written notice and shall terminate
automatically in the event of any act that constitutes an
assignment of the Management Agreement between the Trust and the
Manager or the Underwriting Agreement between the Trust and
Distributors.
7. The Plan, and any agreements entered into pursuant to this
Plan, may not be amended to increase materially the amount to be
spent for distribution pursuant to Paragraph 2 hereof without
approval by a majority of the Fund's outstanding voting
securities.
8. All material amendments to the Plan, or any agreements
entered into pursuant to this Plan, shall be approved by the non-
interested trustees cast in person at a meeting called for the
purpose of voting on any such amendment.
9. So long as the Plan is in effect, the selection and
nomination of the Trust's non-interested trustees shall be
committed to the discretion of such non-interested trustees.
10. This Plan shall take effect on the 3rd day of January,
1994.
This Plan and the terms and provisions thereof are hereby
accepted and agreed to by the Trust, on behalf of the Fund, and
Distributors as evidenced by their execution hereof.
FRANKLIN REAL ESTATE SECURITIES TRUST
on behalf of Franklin Real Estate Securities Fund
By: /s/ Rupert H. Johnson, Jr.
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
By: /s/ Harmon E. Burns
Executive Vice President
CLASS II DISTRIBUTION PLAN
I. Investment Company: FRANKLIN REAL ESTATE SECURITIES TRUST
II. Fund: FRANKLIN REAL ESTATE SECURITIES FUND
III. Maximum Per Annum Rule 12b-1 Fees for Class II Shares
(as a percentage of average daily net assets of the class)
A. Distribution Fee: 0.75%
B. Service Fee: 0.25%
PREAMBLE TO CLASS II DISTRIBUTION PLAN
The following Distribution Plan (the "Plan") has been
adopted pursuant to Rule 12b-1 under the Investment Company Act
of 1940 (the "Act") by the Investment Company named above
("Investment Company") for the class II shares (the "Class") of
each Fund named above ("Fund"), which Plan shall take effect as
of the date class II shares are first offered (the "Effective
Date of the Plan"). The Plan has been approved by a majority of
the Board of Directors or Trustees of the Investment Company (the
"Board"), including a majority of the Board members who are not
interested persons of the Investment Company and who have no
direct, or indirect financial interest in the operation of the
Plan (the "non-interested Board members"), cast in person at a
meeting called for the purpose of voting on such Plan.
In reviewing the Plan, the Board considered the schedule and
nature of payments and terms of the Management Agreement between
the Investment Company and Franklin Advisers, Inc. and the terms
of the Underwriting Agreement between the Investment Company and
Franklin/Templeton Distributors, Inc. ("Distributors"). The
Board concluded that the compensation of Advisers, under the
Management Agreement, and of Distributors, under the Underwriting
Agreement, was fair and not excessive. The approval of the Plan
included a determination that in the exercise of their reasonable
business judgment and in light of their fiduciary duties, there
is a reasonable likelihood that the Plan will benefit the Fund
and its shareholders.
DISTRIBUTION PLAN
1. (a) The Fund shall pay to Distributors a quarterly fee
not to exceed the above-stated maximum distribution fee per annum
of the Class' average daily net assets represented by shares of
the Class, as may be determined by the Board from time to time.
(b) In addition to the amounts described in (a) above,
the Fund shall pay (i) to Distributors for payment to dealers or
others, or (ii) directly to others, an amount not to exceed the
above-stated maximum service fee per annum of the Class' average
daily net assets represented by shares of the Class, as may be
determined by the Fund's Board from time to time, as a service
fee pursuant to servicing agreements which have been approved
from time to time by the Board, including the non-interested
Board members.
2. (a) Distributors shall use the monies paid to it
pursuant to Paragraph 1(a) above to assist in the distribution
and promotion of shares of the Class. Payments made to
Distributors under the Plan may be used for, among other things,
the printing of prospectuses and reports used for sales purposes,
expenses of preparing and distributing sales literature and
related expenses, advertisements, and other distribution-related
expenses, including a pro-rated portion of Distributors' overhead
expenses attributable to the distribution of Class shares, as
well as for additional distribution fees paid to securities
dealers or their firms or others who have executed agreements
with the Investment Company, Distributors or its affiliates,
which form of agreement has been approved from time to time by
the Trustees, including the non-interested trustees. In
addition, such fees may be used to pay for advancing the
commission costs to dealers or others with respect to the sale of
Class shares.
(b) The monies to be paid pursuant to paragraph 1(b)
above shall be used to pay dealers or others for, among other
things, furnishing personal services and maintaining shareholder
accounts, which services include, among other things, assisting
in establishing and maintaining customer accounts and records;
assisting with purchase and redemption requests; arranging for
bank wires; monitoring dividend payments from the Fund on behalf
of customers; forwarding certain shareholder communications from
the Fund to customers; receiving and answering correspondence;
and aiding in maintaining the investment of their respective
customers in the Class. Any amounts paid under this paragraph
2(b) shall be paid pursuant to a servicing or other agreement,
which form of agreement has been approved from time to time by
the Board.
3. In addition to the payments which the Fund is authorized
to make pursuant to paragraphs 1 and 2 hereof, to the extent that
the Fund, Advisers, Distributors or other parties on behalf of
the Fund, Advisers or Distributors make payments that are deemed
to be payments by the Fund for the financing of any activity
primarily intended to result in the sale of Class shares issued
by the Fund within the context of Rule 12b-1 under the Act, then
such payments shall be deemed to have been made pursuant to the
Plan.
In no event shall the aggregate asset-based sales charges
which include payments specified in paragraphs 1 and 2, plus any
other payments deemed to be made pursuant to the Plan under this
paragraph, exceed the amount permitted to be paid pursuant to the
Rules of Fair Practice of the National Association of Securities
Dealers, Inc., Article III, Section 26(d).
4. Distributors shall furnish to the Board, for its review,
on a quarterly basis, a written report of the monies reimbursed
to it and to others under the Plan, and shall furnish the Board
with such other information as the Board may reasonably request
in connection with the payments made under the Plan in order to
enable the Board to make an informed determination of whether the
Plan should be continued.
5. The Plan shall continue in effect for a period of more
than one year only so long as such continuance is specifically
approved at least annually by the Board, including the non-
interested Board members, cast in person at a meeting called for
the purpose of voting on the Plan.
6. The Plan, and any agreements entered into pursuant to
this Plan, may be terminated at any time, without penalty, by
vote of a majority of the outstanding voting securities of the
Fund or by vote of a majority of the non-interested Board
members, on not more than sixty (60) days' written notice, or by
Distributors on not more than sixty (60) days' written notice,
and shall terminate automatically in the event of any act that
constitutes an assignment of the Management Agreement between the
Fund and Advisers.
7. The Plan, and any agreements entered into pursuant to
this Plan, may not be amended to increase materially the amount
to be spent for distribution pursuant to Paragraph 1 hereof
without approval by a majority of the Fund's outstanding voting
securities.
8. All material amendments to the Plan, or any agreements
entered into pursuant to this Plan, shall be approved by the non-
interested Board members cast in person at a meeting called for
the purpose of voting on any such amendment.
9. So long as the Plan is in effect, the selection and
nomination of the Fund's non-interested Board members shall be
committed to the discretion of such non-interested Board members.
This Plan and the terms and provisions thereof are hereby
accepted and agreed to by the Investment Company and Distributors
as evidenced by their execution hereof.
Date: March 30, 1995
Investment Company
By: /s/ Deborah R. Gatzek
Franklin/Templeton Distributors, Inc.
By: /s/ Greg Johnson
POWER OF ATTORNEY
The undersigned officers and trustees of FRANKLIN REAL ESTATE
SECURITIES TRUST (the "Registrant") hereby appoint HARMON E.
BURNS, DEBORAH R. GATZEK, MARK H. PLAFKER, KAREN L. SKIDMORE and
LARRY L. GREENE (with full power to each of them to act alone)
his attorney-in-fact and agent, in all capacities, to execute,
and to file any of the documents referred to below relating to
Post-Effective Amendments to the Registrant's registration
statement on Form N-1A under the Investment Company Act of 1940,
as amended, and under the Securities Act of 1933 covering the
sale of shares by the Registrant under prospectuses becoming
effective after this date, including any amendment or amendments
increasing or decreasing the amount of securities for which
registration is being sought, with all exhibits and any and all
documents required to be filed with respect thereto with any
regulatory authority. Each of the undersigned grants to each of
said attorneys, full authority to do every act necessary to be
done in order to effectuate the same as fully, to all intents and
purposes as he could do if personally present, thereby ratifying
all that said attorneys-in-fact and agents, may lawfully do or
cause to be done by virtue hereof.
The undersigned officers and trustees hereby execute this Power
of Attorney as of this 17th day of January 1995.
/s/ Rupert H. Johnson, Jr /s/ Charles B. Johnson
Rupert H. Johnson, Jr., Charles B. Johnson,
Principal Executive Officer Trustee
and Trustee
/s/ Frank H. Abbott, III /s/ Harris J. Ashton
Frank H. Abbott, III, Harris J. Ashton,
Trustee Trustee
/s/ Harmon E. Burns /s/ Joseph Fortunato
Harmon E. Burns, S. Joseph Fortunato,
Trustee Trustee
/s/ David W. Garbellano /s/ Frank W. T. LaHaye,
David W. Garbellano, Frank W. T. LaHaye,
Trustee Trustee
/s/ Gordon S. Macklin /s/ Martin L. Flanagan,
Gordon S. Macklin, Martin L. Flanagan,
Trustee Principal Financial Officer
/s/ Diomedes Loo-Tam
Diomedes Loo-Tam,
Principal Accounting Officer
CERTIFICATE OF SECRETARY
I, Deborah R. Gatzek, certify that I am Secretary of
Franklin Real Estate Securities Trust (the "Trust").
As Secretary of the Trust, I further certify that the following
resolution was adopted by a majority of the Trustees of the Trust
present at a meeting held at 777 mariners Island Boulevard, San
Mate, California, On January 17, 1995.
RESOLVED, that a Power of Attorney, substantially in
the form of the Power of Attorney presented to this
board, appointing Mark H. Plafker, Harmon E. Burns,
Deborah R. Gatzek, Karen L. Skidmore and Larry L.
Greene as attorneys-in-fact for the purpose of filing
documents with the Securities and Exchange commission,
be executed by a majority of the Trustees and
designated officers.
I declare under penalty of perjury that the matters set forth in
this certificate are true and correct of my own knowledge.
/s/ Deborah R. Gatzek
Dated: January 17, 1995 Deborah R. Gatzek
Secretary
Franklin Fund
Form of Multiple Class Plan
This Multiple Class Plan (the "Plan") has been adopted by a
majority of the Board of [Directors/Trustees] of the Franklin
Fund (the "Fund") [for its series]. The Board has
determined that the Plan is in the best interests of each class
and the Fund as a whole. The Plan sets forth the provisions
relating to the establishment of multiple classes of shares for
the Fund.
1. The Fund shall offer two classes of shares, to be
known as Franklin Fund - Class I and Franklin
Fund - Class II.
2. Class I shares shall carry a front-end sales charge ranging
from
[ % - %], and Class II shares shall carry a front-end
sales charge of 1.00%.
3. Class I shares shall not be subject to a contingent deferred
sales charge ("CDSC") except in the following limited
circumstances. On investments of $1 million or more, a contingent
deferred sales charge of 1.00% of the lesser of the then-current
net asset value or the original net asset value at the time of
purchase applies to redemptions of those investments within the
contingency period of 12 months from the calendar month following
their purchase. The CDSC is waived in certain circumstances, as
described in the Fund's prospectus.
4. Class II shares redeemed within 18 months of their purchase
shall be assessed a CDSC of 1.00% on the lesser of the then-
current net asset value or the original net asset value at the
time of purchase. The CDSC is waived in certain circumstances as
described in the Fund's prospectus.
5. The Rule 12b-1 Plan associated with Class I shares may be used
to reimburse Franklin/Templeton Distributors, Inc. (the
"Distributor") or others for expenses incurred in the promotion
and distribution of the shares of Class I. 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 Class shares, as well as any distribution or
service fees paid to securities dealers or their firms or others
who have executed a servicing agreement with the Fund for the
Class, the Distributor or its affiliates.
The Rule 12b-1 Plan associated with Class II shares has two
components. The first component is a shareholder servicing fee,
to be paid to broker-dealers, banks, trust companies and others
who will 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 sale of shares, and, in subsequent years, to be paid to
dealers or retained by the Distributor to be used in the
promotion and distribution of Class II shares, in a manner
similar to that described above for (Class I shares.
The Plans shall operate in accordance with the Rules of Fair
Practice of the National Association of Securities Dealers, Inc.,
Article III, section 26(d).
6. The only difference in expenses as between Class I and Class
It shares shall relate to differences in the Rule 12b-1 plan
expenses of each class, as described in each class' Rule 12b-1
Plan.
7. There shall be no conversion features associated with the
Class I and Class II shares.
8. Shares of Class I of the Fund may only be exchanged for shares
of Class I of any other fund in the Franklin/Templeton Group and
may not be exchanged into the Franklin/Templeton Money Fund I! of
the Franklin/Templeton Money Fund Trust. Shares of Class II of
the Fund may only be exchanged for shares of Class II of any
other fund in the Franklin/Templeton Group and may also be
exchanged into the Franklin/Templeton Money Fund II of the
Franklin/Templeton Money Fund Trust.
9. Each Class will vote separately with respect to the Rule 12b-1
Plan related to that Class.
10. On an ongoing basis, the [directors/trustees] pursuant to
their fiduciary responsibilities under the 1940 Act and
otherwise, will monitor the Fund for the existence of any
material conflicts between the interests of the two classes of
shares. The [directors/trustees], including a majority of the
independent [directors/trustees], 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.
11. All material amendments to this Plan must be approved by a
majority of the [directors/trustees] of the Fund, including a
majority of the [directors/trustees] who are not interested
persons of the Fund.
SCHEDULE A
INVESTMENT COMPANY FUND & CLASS; TITAN NUMBER
Franklin Gold Fund Franklin Gold Fund - Class II; 232
Franklin Equity Fund Franklin Equity Fund - Class II; 234
AGE High Income Fund, Inc. AGE High Income Fund - Class II; 205
Franklin Custodian Funds, Inc. Growth Series - Class II; 206
Utilities Series - Class II; 207
Income Series - Class II; 209
U.S. Government Securities
Series - Class II; 210
Franklin California Tax-Free Franklin California Tax-Free Income
Income Fund, Inc. Fund - Class II; 212
Franklin New York Tax-Free Franklin New York Tax-Free Income
Income Fund, Inc. Fund - Class II; 215
Franklin Federal Tax-Free Franklin Federal Tax-Free Income
Income Fund Fund -Class II; 216
Franklin Managed Trust Franklin Rising Dividends
Fund - Class II; 258
Franklin California Tax-Free Franklin California Insured Tax-Free
Trust
Income Fund - Class II; 224
Franklin New York Tax-Free Trust Franklin New York Insured Tax-Free
Income Fund - Class II; 281
Franklin Investors Securities Franklin Global Government Income
Trust
Fund - Class II; 235
Franklin Equity Income
Fund - Class II; 239
Franklin Strategic Series Franklin Global Utilities
Fund - Class II; 297
Franklin Real Estate Securities Franklin Real Estate Securities
Trust
Fund - Class II; 292
INVESTMENT COMPANY FUND AND CLASS; TITAN NUMBER
Franklin Tax-Free Franklin Alabama Tax-Free Income Fund - Class II; 264
Trust Franklin Arizona Tax-Free Income Fund - Class II; 226
Franklin Colorado Tax-Free Income Fund - Class II; 227
Franklin Connecticut Tax Free Income
Fund - Class II; 266
Franklin Florida Tax-Free Income Fund - Class II; 265
Franklin Georgia Tax-Free Income Fund - Class II; 228
Franklin High Yield Tax-Free Income Fund - Class II; 230
Franklin Insured Tax-Free Income Fund - Class II; 221
Franklin Louisiana Tax-Free Income Fund - Class II; 268
Franklin Maryland Tax-Free Income Fund - Class II; 269
Franklin Massachusetts Insured Tax-Free Income
Fund - Class II; 218
Franklin Michigan Insured Tax-Free Income
Fund - Class II; 219
Franklin Minnesota Insured Tax-Free Income
Fund - Class II; 220
Franklin Missouri Tax-Free Income Fund - Class II; 260
Franklin New Jersey Tax-Free Income
Fund - Class II; 271
Franklin North Carolina Tax-Free Income
Fund - Class II; 270
Franklin Ohio Insured Tax-Free Income
Fund - Class II; 222
Franklin Oregon Tax-Free Income Fund - Class II; 261
Franklin Pennsylvania Tax-Free Income
Fund - Class II; 229
Franklin Puerto Rico Tax-Free Income
Fund - Class II; 223
Franklin Texas Tax-Free Income Fund - Class II; 262
Franklin Virginia Tax-Free Income Fund - Class II; 263
[ARTICLE] 6
[LEGEND]
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FRANKLIN REAL ESTATE SECURITIES TRUST - FRANKLIN REAL ESTATE
SECURITIES FUND APRIL 30, 1995 ANNUAL REPORT AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
[/LEGEND]
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] APR-30-1995
[PERIOD-END] APR-30-1995
[INVESTMENTS-AT-COST] 16,181,247
[INVESTMENTS-AT-VALUE] 15,696,801
[RECEIVABLES] 1,145,838
[ASSETS-OTHER] 33,296
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 16,875,935
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 181,661
[TOTAL-LIABILITIES] 181,661
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 16,881,679
[SHARES-COMMON-STOCK] 1,577,732
[SHARES-COMMON-PRIOR] 515,905
[ACCUMULATED-NII-CURRENT] 272,168
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 24,873
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] (484,446)
[NET-ASSETS] 16,694,274
[DIVIDEND-INCOME] 595,739
[INTEREST-INCOME] 72,746
[OTHER-INCOME] 0
[EXPENSES-NET] (32,656)
[NET-INVESTMENT-INCOME] 635,829
[REALIZED-GAINS-CURRENT] 24,873
[APPREC-INCREASE-CURRENT] (661,697)
[NET-CHANGE-FROM-OPS] (995)
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (394,547)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 1,367,368
[NUMBER-OF-SHARES-REDEEMED] (333,626)
[SHARES-REINVESTED] 28,085
[NET-CHANGE-IN-ASSETS] 11,060,034
[ACCUMULATED-NII-PRIOR] 30,886
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 0
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] (100,878)
[AVERAGE-NET-ASSETS] 13,075,036
[PER-SHARE-NAV-BEGIN] 10.920
[PER-SHARE-NII] 0.390
[PER-SHARE-GAIN-APPREC] (0.450)
[PER-SHARE-DIVIDEND] (0.280)
[PER-SHARE-DISTRIBUTIONS] 0.000
[RETURNS-OF-CAPITAL] 0.000
[PER-SHARE-NAV-END] 10.580
[EXPENSE-RATIO] 0.250
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0.000
</TABLE>
