As filed with the Securities and Exchange Commission on June 1,
1995.
File Nos.
33-39088
811- 6243
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre- Effective Amendment No. _____
Post-Effective Amendment No. 14 (X)
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 17 (X)
FRANKLIN STRATEGIC SERIES
(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)
[X] on June 5, 1995 pursuant to paragraph (b)
[ ] 60 after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii) of rule 485
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a previously filed post-effective amendment.
Declaration Pursuant to Rule 24f-2. The issuer has registered an indefinite number or amount of securities under the Securities Act of 1933 pursuant to Rule 24(f)(2) under the Investment Company Act of 1940. The Rule 24f-2 Notice for the issuer`s most recent fiscal year was filed on June 29, 1994.
FRANKLIN STRATEGIC SERIES
CROSS REFERENCE SHEET
FORM N-1A
Part A: Information Required in Prospectus
(Franklin Natural Resources Fund)
N-1A Location in
Item No. Item Registration Statement
1. Cover Page Cover Page
2. Synopsis Expense Table
3. Condensed Financial "Performance"
Information
4. General Description "About the Fund";
"Investment Objective and
Policies of the Fund";
"General Information"
5. Management of the "Management of the Fund"
Fund
6. Capital Stock and "Distributions to
Other Securities Shareholders"; "General
Information"; "Taxation of
the Fund and Its
Shareholders"
7. Purchase of "How to Buy Shares of the
Securities Being Fund"; "Purchasing Shares of
Offered 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 "Exchange Privilege"; "How
Repurchase to Sell Shares of the Fund";
"How to Get Information
Regarding an Investment in
the Fund"
9. Pending Legal Not Applicable
Proceedings
|
FRANKLIN STRATEGIC SERIES
CROSS REFERENCE SHEET
FORM N- 1A
Part B: Information Required in
Statement of Additional Information
(Franklin Natural Resources Fund)
N- 1A Location in
Item No. Item Registration Statement
10. Cover Page Cover Page
11. Table of Contents Contents
12. General Information Cover Page; "About the Fund"
and History (see also the Prospectus
"About the Fund"; "General
Information")
13. Investment Objectives "The Fund's Investment
and Policies Objective, Policies and
Restrictions" (See also the
Prospectus "Investment
Objective and Policies of
the Fund")
14. Management of the "Officers and Trustees"
Fund
15. Control Persons and "Officers and Trustees"
Principal Holders of
Securities
16. Investment Advisory "Investment Advisory and
and Other Services 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 See "General Information"
Other Securities and "Information About the
Fund" in the Prospectus
19. Purchase, Redemption "Additional Information
and Pricing of Regarding Fund Shares" (See
Securities 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" (See
also the Prospectus
"Taxation of the Fund and
Its Shareholders")
21. Underwriters "The Fund's Underwriter"
22. Calculation of "General Information"
Performance Data
23. Financial Statements Financial Statement
|
FRANKLIN NATURAL RESOURCES FUND
FRANKLIN STRATEGIC SERIES
PROSPECTUS
JUNE 5, 1995
777 MARINERS ISLAND BLVD., P.O. BOX 7777
SAN MATEO, CA 94403- 7777 1- 800/DIAL BEN
Franklin Natural Resources Fund (the "Fund"), is an open-end, non- diversified series of Franklin Strategic Series (the "Trust"), a management investment company. The Fund's investment objective is to seek to provide high total return. The Fund seeks to achieve its objective by investing at least 65% of its total assets in securities of companies that own, produce, refine, process and market natural resources, as well as those that provide support services for natural resources companies (i.e. those that develop technologies or provide services or supplies directly related to the production of natural resources). These companies are concentrated in the natural resources sector which includes, but is not limited to, the following industries: Integrated oil; oil and gas exploration and production; gold and precious metals; steel and iron ore production; aluminum production; forest products; farming products; paper products; chemicals; building materials; energy services and technology; and environmental services. The Fund may also invest in securities of issuers outside the U.S.
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.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK; FURTHER, SUCH SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY. SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
A Statement of Additional Information (the "SAI") concerning the Fund, dated June 5, 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
About the Fund
Investment Objective
and Policies of 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. The figures are based on annualized management fees and Rule 12b-1 fees set by contract and on annualized estimates of the other operating expenses of the Fund for the current fiscal year.
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) 4.50% Deferred Sales Charge NONE* Exchange Fee (per transaction) $5.00** ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS) Management Fees 0.24%+ Rule 12b-1 Fees 0.35%++ Other Expenses: Reports to Shareholders 0.10% Registration Fees 0.10% Other 0.21% Total Other Expenses 0.41% Total Fund Operating Expenses 1.00%+ |
*Investments of $1 million or more are not subject to a front-end
sales charge; however, a contingent deferred sales charge of 1%
is generally imposed on certain redemptions within a "contingency
period" of 12 months of the calendar month following such
investments. 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.
+The investment manager voluntarily agreed to reduce its
management fees and assume responsibility for payment of certain
operating expenses in order to keep the Fund's aggregate maximum
annual operating expenses to 1.00% of the Fund's average daily
net assets for the current fiscal year. Absent this reduction by
the investment manager, management fees and total operating
expenses for the Fund would be 0.63% and 1.39%,
respectively, of the average daily net assets of the Fund. After
April 30, 1996, the investment manager may terminate this
arrangement at any time.
++Consistent with National Association of Securities Dealers,
Inc.'s rules, it is possible that the combination of front-end
sales charges and Rule 12b-1 fees could cause long-term
shareholders to pay more than the economic equivalent of the
maximum front-end sales charges permitted under those same rules.
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 charge, that apply to a
$1,000 investment in the Fund over various time periods assuming
(1) a 5% annual rate of return and (2) redemption at the end of
each time period.:
ONE YEAR* THREE YEARS
$65 $75
*For the purposes of this example, it is assumed that the 1% contingent deferred sales charge will not apply.
THIS EXAMPLE IS BASED ON THE OPERATING EXPENSES SHOWN ABOVE, INCLUDING FEES SET BY CONTRACT, 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. (See "Management of the Fund" for a description of the Fund's expenses.) In addition, federal securities regulations require the example to assume an annual return of 5%, but the Fund's actual return may be more or less than 5%.
ABOUT THE FUND
Franklin Natural Resources Fund (the "Fund") is an open-end, non- diversified series of Franklin Strategic Series (the "Trust"), a management investment company, commonly called a "mutual fund." The Trust, a Delaware business trust, was organized on January 25, 1991 and has registered under the Investment Company Act of 1940 (the "1940 Act").
Shares of the Fund may be purchased (minimum investment of $100 initially and $25 thereafter) at the current public offering price, which is equal to the Fund's net asset value (see "Valuation of Fund Shares") plus a sales charge not exceeding 4.5% of the offering price. See "How to Buy Shares of the Fund."
INVESTMENT OBJECTIVE AND POLICIES OF THE FUND
The Fund's investment objective is to seek to provide high total
return, by investing at least 65% of its total assets in
securities issued by companies which own, produce, refine,
process and market natural resources, as well as those that
provide support services for natural resources companies (i.e.
those that develop technologies or provide services or supplies
directly related to the production of natural resources). These
companies are concentrated in the natural resources sector which
includes, but is not limited to, the following industries:
Integrated oil; oil and gas exploration and production; gold and
precious metals; steel and iron ore production; aluminum
production; forest products; farming products; paper products;
chemicals; building materials; energy services and technology;
and environmental services. The Fund's total return consists of
both capital appreciation and current dividend and interest
income. The objective is a fundamental policy of the Fund and may
not be changed without shareholder approval.
The Fund at all times, except during temporary defensive periods, seeks to maintain at least 65% of its total assets invested in securities issued by companies in the natural resources sector. The Fund reserves the right to hold, as a temporary defensive measure or as a reserve for redemptions, short-term U.S. government securities, high quality money market securities, including repurchase agreements, or cash in such proportions as, in the opinion of the investment manager, prevailing market or economic conditions warrant.
THE FUND'S INVESTMENTS
The Fund invests in common stocks (including preferred or debt securities convertible into common stocks), preferred stocks and debt securities. The mixture of common stocks, debt securities and preferred stocks varies from time to time based upon the investment manager's assessment as to whether investments in each category will contribute to meeting the Fund's investment objective.
The Fund may invest, without percentage limitation, in fixed- income securities having at the time of purchase one of the four highest ratings of Moody's Investors Service ("Moody's") (Aaa, Aa, A, Baa), Standard & Poor's Corporation ("S&P") (AAA, AA, A, BBB), two nationally recognized statistical rating organizations ("NRSRO's") or in fixed-income securities which are not rated by any NRSRO, provided that, in the opinion of the Fund's investment manager, such securities are comparable in quality to those within the four highest ratings. These are considered to be "investment grade" securities, although fixed-income securities rated Baa are regarded as having an adequate capacity to pay principal and interest but with greater vulnerability to adverse economic conditions and some speculative characteristics. The Fund's commercial paper investments at the time of purchase will be rated "A-1" or "A-2" by S&P or "Prime-1" or "Prime-2" by Moody's or, if not rated by an NRSRO, will be of comparable quality as determined by the Fund's investment managers.
The Fund may also invest up to 15% of its total assets at the time of purchase in lower rated fixed-income securities (those rated BB or lower by S&P or Ba or lower by Moody's) and unrated securities of comparable quality (sometimes referred to as "junk bonds" in the popular media). The Fund will not acquire such securities rated lower than B by Moody's or S&P. Lower rated securities are considered by S&P and Moody's, on balance, to be predominantly speculative with respect to capacity to pay 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. (See the SAI for a more complete discussion regarding these investments.)
In the event the rating on an issue held in the Fund's portfolio is changed by the NRSRO, such event will be considered by the Fund in its evaluation of the overall investment merits of that security but will not necessarily result in an automatic sale of the security. A discussion of the ratings is contained in the Appendix to this Prospectus.
WHERE THE FUND MAY INVEST
The Fund may invest in the securities of issuers both within and outside the United States, including emerging market countries.
The Fund may purchase foreign securities which are traded in the United States or in foreign markets or purchase sponsored or unsponsored American Depositary Receipts ("ADRs"), which are receipts typically issued by an American bank or trust company which evidence ownership of underlying securities issued by a foreign corporation. These securities may not necessarily be denominated in the same currency as the securities into which they may be converted. Generally, ADRs, which are issued in registered form, are designed for use in the ("U.S") securities markets. The issuers of unsponsored ADRs are not obligated to disclose material information in the U.S. and, therefore, there may be less information available to the investing public than with sponsored ADRs. The Fund's investment manager will attempt to independently accumulate and evaluate information with respect to the issuers of the underlying securities of sponsored and unsponsored ADRs to attempt to limit the Fund's exposure to the market risk associated with such investments. For purposes of the Fund's investment policies, investments in ADRs will be deemed to be investments in the equity securities of the foreign issuers into which they may be converted.
Under normal conditions, it is anticipated that the percentage of assets invested in U.S. securities will be higher than that invested in securities of any other single country. It is possible that at times the Fund may have 50% or more of its total assets invested in foreign securities.
INVESTMENTS IN OTHER THAN NATURAL RESOURCES SECURITIES
The Fund is permitted to invest up to 35% of its assets in securities of issuers that are outside the natural resources sector. Such investments will consist of common stocks, debt securities or preferred stocks and will be selected to meet the Fund's investment objective of providing high total return. These securities may be issued by either U.S. or non-U.S. companies, governments, or governmental instrumentalities. Some of these issuers may be in industries related to the natural resources sector and, therefore, may be subject to similar risks. Securities that are issued by foreign companies or are denominated in foreign currencies are subject to the risks outlined below. See "Risk Factors and Special Considerations."
Securities issued or guaranteed by the U.S. government or its agencies or instrumentalities ("U.S. Government Securities"), including U.S. Treasury bills, notes and bonds as well as certain agency securities and mortgage-backed securities issued by the Government National Mortgage Association (GNMA), may carry guarantees which are backed by the "full faith and credit" of the U.S. government. Any such guarantee will extend to the payment of interest and principal due on the securities and will not provide any protection from fluctuations in either the securities' yield or value or to the yield or value of the Fund's shares. Other investments in agency securities are not necessarily backed by the "full faith and credit" of the U.S. government, such as certain securities issued by the Federal National Mortgage Association (FNMA), the Federal Home Loan Mortgage Corporation, the Student Loan Marketing Association and the Farm Credit Bank.
The Fund may invest in debt securities issued or guaranteed by foreign governments. Such securities are typically denominated in foreign currencies and are subject to the currency fluctuation and other risks of foreign securities investments outlined below. See "Risk Factors and Special Considerations." The foreign government securities in which the Fund intends to invest generally will consist of obligations issued by national, state or local governments or similar political subdivisions. Foreign government securities also include debt obligations of supranational entities, including international organizations designed or supported by governmental entities to promote economic reconstruction or development and international banking institutions and related government agencies. Examples include the International Bank of Reconstruction and Development (the World Bank), the European Investment Bank, the Asian Development Bank and the Inter-American Development Bank.
Foreign government securities also include debt securities of "quasi-governmental agencies" and debt securities denominated in multinational currency units. An example of a multinational currency unit is the European Currency Unit. A European Currency Unit represents specified amounts of the currencies of certain of the 12 member states of the European Economic Community. Debt securities of quasi-governmental agencies are issued by entities owned by either a national or local government or are obligations of a political unit that is not backed by the national government's full faith and credit and general taxing powers. Foreign government securities also include mortgage-related securities issued or guaranteed by national or local governmental instrumentalities, including quasi-governmental agencies.
SOME OF THE FUND'S OTHER INVESTMENT POLICIES
SHORT-TERM INVESTMENTS. The Fund may invest its cash, including cash resulting from purchases and sales of Fund shares, temporarily in short-term debt instruments, including high grade commercial paper, repurchase agreements and other money market equivalents and, pursuant to an exemption from the requirements of the 1940 Act, the shares of affiliated money market funds, which invest primarily in short-term debt securities. To the extent the Fund invests in affiliated money market funds, such as the Franklin Money Fund, the investment manager has agreed to waive its management fee on any portion of the Fund's assets invested in such affiliated fund. Temporary investments will only be made with cash held to maintain liquidity or pending investment. In addition, for temporary defensive purposes in the event of, or when the Adviser anticipates, a general decline in the market prices of stocks in which the Fund invests, the Fund may invest an unlimited amount of its assets in short-term debt instruments.
REPURCHASE TRANSACTIONS. 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.
The Fund may also enter into reverse repurchase agreements. Such agreements involve the sale of securities held by the Fund pursuant to an agreement to repurchase the securities on an agreed upon price, date and interest payment. When effecting reverse repurchase transactions, cash or high grade liquid debt securities of a dollar amount equal in value to the Fund's obligation under the agreement, including accrued interest, will be maintained in a segregated account with the Fund's custodian bank, and the securities subject to the reverse repurchase agreement will be marked to market each day. Although reverse repurchase agreements are borrowings under Section 2(a)(23) of the 1940 Act, the Fund does not treat these arrangements as borrowings under investment restriction 2 (set forth in the SAI) so long as the segregated account is properly maintained.
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 33% 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.
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 enter into reverse repurchase agreements or borrow money from banks in an amount up to 33% of its total asset value (computed at the time the loan is made) for 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) may not constitute, at the time of purchase or at any time, more than 15% of the value of the total net assets of the Fund. Subject to this limitation, the Fund's Board of Trustees has authorized the Fund to invest in restricted securities where such investments are 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 on a daily basis that there is a liquid institutional or other market for such securities. Notwithstanding the investment manager's determinations in this regard, the Fund's Board of Trustees will remain responsible 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 become uninterested in purchasing these securities or the market for these securities contracts.
Notwithstanding the above policy and the federal securities laws, which permit investments in illiquid securities up to 15% of the Fund's portfolio, the Fund is aware that the securities laws in various states impose more restrictive limits upon such investments. To comply with applicable state restrictions, the Fund will limit its investments in illiquid securities, including securities of unseasoned issuers, equity securities deemed not readily marketable and securities subject to legal or contractual restrictions to 10% of the Fund's Portfolio.
PORTFOLIO TURNOVER. The Fund expects that its 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 capital gain income, which is taxable when distributed to shareholders.
GENERAL. As discussed more fully in the SAI, the Fund also may purchase debt obligations on a "when-issued" or "delayed delivery" basis and from time to time enter into standby commitment agreements. The Fund is subject to a number of additional investment restrictions, some of which may be changed only with the approval of shareholders, which limit its activities to some extent. For a list of these restrictions and more information concerning the investment policies discussed herein, please see the SAI.
RISK FACTORS AND SPECIAL CONSIDERATIONS
Each prospective investor should take into account his/her investment objectives as well as his/her other investments when considering the purchase of shares of the Fund.
The Fund is designed for long-term investors and not as a trading vehicle, and is not intended to present a complete investment program.
Although the Fund's assets will usually be invested in a substantial number of issuers, the Fund is non-diversified as defined by the 1940 Act. This generally means that more than 5% of the Fund's assets may be invested in the securities of a single issuer. Consequently, changes in the financial condition of a single issuer may have a greater effect on the Fund's share value than such changes would have on the performance of other mutual funds, particularly those which invest in a broad range of issuers, sectors and industries.
RISKS INVOLVING THE NATURAL RESOURCES SECTOR
There are several risk factors which need to be assessed before investing in the natural resources sector. Certain of the industries' commodities are subject to limited pricing flexibility as a result of similar supply and demand factors. Others are subject to broad price fluctuations, reflecting the volatility of certain raw materials' prices and the instability of supplies of other resources. These factors can effect the overall profitability of an individual company operating within the natural resources sector. While the investment managers of the Fund strive to diversify among the industries within the natural resources sector to minimize this volatility, there will be occasions where the value of an individual company's securities will prove more volatile than the broader market. In addition, many of these companies operate in areas of the world where they are subject to unstable political environments, currency fluctuations and inflationary pressures.
RISKS INVOLVING INVESTMENT IN FOREIGN SECURITIES
Investment in the Fund's shares requires consideration of certain risks which are not normally involved in investment solely in U.S. issuers. These risks include political, social or economic instability in the country of the issuer, the difficulty of predicting international trade patterns, the possibility of the imposition of exchange controls, expropriation, restrictions on removal of currency or other assets, nationalization of assets, foreign withholding and income taxation, and foreign trading practices (including higher trading commissions, custodial charges and delayed settlements). Such securities may be subject to greater fluctuations in price than securities issued by U.S. corporations or issued or guaranteed by the U.S. government, its instrumentalities or agencies. The markets on which such securities trade may have less volume and liquidity, and may be more volatile than securities markets in the U.S. In addition, there may be less publicly available information about a foreign company than about a U.S. domiciled company. Foreign companies generally are not subject to uniform accounting, auditing and financial reporting standards comparable to those applicable to U.S. domestic companies. There is generally less government regulation of securities exchanges, brokers and listed companies abroad than in the U.S. Confiscatory taxation or diplomatic developments could also affect investment in those countries.
In many instances, foreign debt securities may provide higher yields than securities of domestic issuers which have similar maturities and quality. Under certain market conditions, these investments may be less liquid than the securities of U.S. corporations and are certainly less liquid than securities issued or guaranteed by the U.S. government, its instrumentalities or agencies. Finally, in the event of a default of any such foreign debt obligations, it may be more difficult for the Fund to obtain or to enforce a judgment against the issuers of such securities. If a security is denominated in foreign currency, the value of the security to the Fund will be affected by changes in currency exchange rates and in exchange control regulations, and costs will be incurred in connection with conversions between currencies. A change in the value of any foreign currency against the U.S. dollar will result in a corresponding change in the U.S. dollar value of the Fund's securities denominated in that currency. Such changes will also affect the Fund's income and distributions to shareholders. In addition, although the Fund will receive income on foreign securities in such currencies, the Fund will be required to compute and distribute its income in U.S. dollars. Therefore, if the exchange rate for any such currency declines materially after the Fund's income has been accrued and translated into U.S. dollars, the Fund could be required to liquidate portfolio securities to make required distributions. Similarly, if an exchange rate declines between the time the Fund incurs expenses in U.S. dollars and the time such expenses are paid, the amount of such currency required to be converted into U.S. dollars in order to pay such expenses in U.S. dollars will be greater.
The Fund may choose to hedge exposure to currency fluctuations by entering into forward foreign currency exchange contracts, and buying and selling options, futures contracts and options on futures contracts relating to foreign currencies. The Fund may use forward currency exchange contracts in the normal course of business to lock in an exchange rate in connection with purchases and sales of securities denominated in foreign currencies. The Fund's investment manager may employ other currency management strategies to hedge portfolio securities or to shift investment exposure from one currency to another. Some of these strategies will require the Fund to set aside liquid assets in a segregated custodial account to cover its obligations. (See "Currency Hedging Transactions and Associated Risks" in the SAI.)
The operating expense ratio of the Fund can be expected to be higher than that of an investment company investing exclusively in U.S. securities because of the additional expenses of the Fund attributable to its foreign investment activity, such as custodial costs, valuation costs and communication costs, although the Fund's expenses are expected to be similar to expenses of other investment companies investing in a mix of U.S. securities and securities of one or more foreign countries.
Investing in emerging market countries subjects the Fund to heightened foreign securities investment risks, as discussed in this section.
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.
CONVERSION TO MULTIPLE CLASSES OR MASTER/FEEDER STRUCTURE
Many of the Franklin Templeton Funds (as that term is defined under "How to Buy Shares of the Fund") offer two classes of shares (Class I and Class II). The Board of Trustees reserves the right, without submitting the matter to a vote of security holders, to convert the Fund to a multi-class structure at a future date. This would permit the Fund to take advantage of alternative methods of selling Fund shares through the issuance of multiple classes of shares by the same series. The term "series" in the mutual fund industry is used to refer to shares that represent interests in a separate portfolio of investment securities with differing investment objectives. "Classes" of shares represent sub-divisions of series with differing preferences, rights and privileges as the Trustees may determine and, in most circumstances, differing marketing attributes. The Trustees believe that offering alternative pricing structures for investors may lead to increased sales of shares. Upon implementation of a multiple class structure, at least two classes of shares will invest in a single portfolio of securities. The difference between the classes will involve primarily the amount of up-front sales charges and distribution fees.
The Board of Trustees reserves the right to convert the Fund to a master/feeder structure at a future date. Currently, the Fund invests directly in a portfolio of securities of companies primarily engaged in the natural resources sector. 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. 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.
MANAGEMENT OF THE FUND
The Board of Trustees has the primary responsibility for the overall management of the Fund and for electing the officers of the Fund who are responsible for administering its day-to-day operations.
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 33 U.S. registered investment companies (112 separate series) with aggregate assets of over $74 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.
The Fund is responsible for its own operating expenses including, but not limited to, the Manager's fee; taxes, if any; custodian, legal and auditing fees; fees and expenses of trustees who are not members of, affiliated with, or interested persons of the Manager; salaries of any personnel not affiliated with the Manager; insurance premiums; trade association dues; expenses of obtaining quotations for calculating the value of the Fund's net assets; printing and other expenses which are not expressly assumed by the Manager.
Pursuant to the management agreement, the Fund is obligated to pay the Manager a fee computed and accrued daily and paid monthly at the 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.
During the start-up period of the Fund, Advisers has elected to reduce the fees payable under the management agreement and to assume responsibility for making payments, if necessary, to offset certain operating expenses otherwise payable by the Fund so that total ordinary operating expenses do not exceed 1.00% of the Fund's average net assets. This arrangement is in effect until April 30, 1996, and then may be continued or terminated by the Manager at any time. In addition, the management agreement specifies that the management fee will be reduced to the extent necessary to comply with the most stringent limits on the expenses which may be borne by the Fund as prescribed by any state in which the Fund's shares are offered for sale. Currently, the most restrictive of such provisions limits a fund's allowable expenses as a percentage of its average net assets for each fiscal year to 2 1/2% of the first $30 million in assets, 2% of the next $70 million, and 1 1/2% of assets in excess of $100 million.
Among the responsibilities of the Manager under the management
agreement is the selection of brokers and dealers through whom
transactions in the Fund's portfolio securities will be effected.
The Manager tries to obtain the best execution on all such
transactions. If it is felt that more than one broker is able to
provide the best execution, the Manager will consider the
furnishing of quotations and of other market services, research,
statistical and other data for the Manager and its affiliates, as
well as the sale of shares of the Fund, as factors in selecting a
broker. Further information is included under "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
The Fund has adopted a distribution plan (the "Plan") pursuant to Rule 12b-1 under the 1940 Act. Under the Plan, the Fund may reimburse Distributors or others for all expenses incurred by Distributors or others in the promotion and distribution of the Fund's shares. Such expenses may include, but are not limited to, the printing of prospectuses and reports used for sales purposes, expenses of preparing and distributing sales literature and related expenses, advertisements, and other distribution-related expenses, including a prorated portion of Distributors' overhead expenses attributable to the distribution of Fund shares, as well as any distribution or service fees paid to securities dealers or their firms or others who have executed a servicing agreement with the Fund, Distributors or its affiliates. Under the Plan, the Fund may pay to Distributors and others up to 0.25% per annum of its average daily net assets, payable on a quarterly basis, for such distribution expenses. Under the Plan, the Fund is also permitted to pay Distributors up to an additional 0.10% per annum of its average daily net assets for reimbursement of such distribution expenses. All expenses of distribution and marketing in excess of such amounts will be borne by Distributors and others, who have incurred them, without reimbursement from the Fund. The Plan also covers any payments to or by the Fund, Advisers, Distributors, or other parties on behalf of the Fund, Advisers or Distributors, to the extent such payments are deemed to be for the financing of any activity primarily intended to result in the sale of shares issued by the Fund within the context of Rule 12b-1. The payments under the Plan are included in the maximum operating expenses which may be borne by the Fund. For more information, please see the 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.
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.
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 payable semiannually in June and December for shareholders of record generally on the first business day preceding the 15th of the month, payable on or about the last business day of such months. 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 ("ex-dividend date") Dividend and capital gain distributions are only eligible for reinvestment at net asset value in the Fund or Class I shares 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 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 elect and qualify to be treated as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). By distributing all of its net investment income and net realized short-term and long-term capital gain 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 received by the shareholder on December 31 of the calendar year in which they are declared.
Redemptions and exchanges of Fund shares are taxable events on which a shareholder may realize a gain or 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.
Shareholders who are not U.S. persons for purposes of federal income taxation should consult with their financial or tax advisors regarding the applicability of U.S. withholding or other taxes on distributions received by them from the Fund and the application of foreign tax laws to these distributions. Shareholders should 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.
PURCHASE PRICE OF FUND SHARES
Shares of the Fund are offered at the public offering price, which is 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). The sales charge 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.
TOTAL SALES CHARGE
SIZE OF TRANSACTION AS A AS A DEALER
AT OFFERING PRICE PERCENTAGE OF PERCENTAGE OF CONCESSION AS
OFFERING NET AMOUNT A PERCENTAGE
PRICE INVESTED OF OFFERING
PRICE*, ***
Less than $100,000 4.50% 4.71% 4.00%
$100,000 but less 3.75% 3.90% 3.25%
than $250,000
$250,000 but less 2.75% 2.83% 2.50%
than $500,000
$500,000 but less 2.25% 2.30% 2.00%
than $1,000,000
$1,000,000 or none none (see below)**
more
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*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 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. 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 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.
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
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 any Franklin Templeton Funds Class II shares owned by the investor may also be included for this purpose.
In addition, an investment in the Fund 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 shares of the Fund 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 shares of the Fund, 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.
GROUP PURCHASES
An individual who is a member of a qualified group may also purchase 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 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
Shares of the Fund may be purchased without the imposition of either 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 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.
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 Class I shares of 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. Shares of the Fund redeemed in connection with an exchange into Class I shares of another of the Franklin Templeton Funds (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.
Shares of the Fund or Class I shares 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 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."
Shares of the Fund 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 charged the investor a contingent deferred sales charge upon redemption and which has investment objectives similar to those of the Fund.
Shares of the Fund 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).
Shares of the Fund 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.
Shares of the Fund 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
Shares of the Fund 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.
Shares of the Fund 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.
Shares of the Fund 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 Fund shares.
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 in writing by the shareholder or by the securities dealer.
CONFIRMATIONS
A confirmation statement will be sent to each shareholder semi-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 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 Fund shares may be subject to a contingent deferred sales charge if the shares are redeemed within 12 months 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 Systematic Withdrawal Plans, the applicable contingent deferred sales charge is waived for share redemptions of up to 1% monthly of an account's net asset value (12% annually, 6% semiannually, 3% quarterly). For example, if an account maintained an annual balance of $1,000,000, only $120,000 could be withdrawn through a once-yearly Systematic Withdrawal Plan free of charge; any amount over that $120,000 would be assessed a 1% (or applicable) contingent deferred sales 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 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 Class I shares of any 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.
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 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 between different classes of shares of the Franklin Templeton Funds are not permitted. Therefore, shares of the Fund may not be exchanged for Class II shares of other Franklin Templeton Funds. Shareholders, however, may choose to redeem shares of the Fund and purchase Class II shares of other Franklin Templeton Funds, subject to the Class II front-end sales charge and the contingent deferred sales charge for the 18 month contingency period. 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 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 Class I share account 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 eleFACTS 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
The contingency period 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 the account has shares subject to a contingent deferred sales charge, shares will be exchanged into the new account on a "first-in," "first-out" basis. See also "How to Sell Shares of the Fund - Contingent Deferred Sales Charge."
Exchanges are made on the basis of the net asset values of the funds involved, except as set forth below. Exchanges of shares of the Fund which were purchased without a sales charge will be charged a sales charge in accordance with the terms of the prospectus of the fund being purchased, unless the investment on which no sales charge was paid was transferred in from a fund on which the investor paid a sales charge. Exchanges of shares of the Fund which were purchased with a lower sales charge into a fund which has a higher sales charge will be charged the difference 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 account in 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 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 objective exist immediately. Subsequently, this money will be withdrawn from such short-term money market instruments and invested in portfolio securities in as orderly a manner as is possible when attractive investment opportunities arise.
The Exchange Privilege may be modified or discontinued by the Fund at any time upon 60 days' written notice to shareholders.
RETIREMENT PLANS
Franklin Templeton IRA and 403(b) retirement plan accounts may accomplish exchanges by contacting the Fund 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% of the Fund's net assets. Accounts under common ownership or control, including accounts administered so as to redeem or purchase shares based upon certain predetermined market indicators, will be aggregated for purposes of the exchange limits.
The Fund also reserves the right to refuse the purchase side of an exchange request by any Timing Account, person, or group if, in the Manager's judgment, the Fund would be unable to invest effectively in accordance with its investment objective and policies, or would otherwise potentially be adversely affected. 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 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 closing 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 closing 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, 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 on investments of $1 million or more redeemed within the contingency period of 12 months 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 of 12 months; (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 is waived 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, and (iv) 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 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 the Fund is determined as of the scheduled closing 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 the Fund).
The net asset value per share of the Fund is determined in the following manner: The aggregate of all liabilities is deducted from the aggregate gross value of all assets, and the difference is divided by the number of shares of the Fund outstanding at the time. For the purpose of determining the aggregate net assets of the Fund, cash and receivables are valued at their realizable amounts. Interest is recorded as accrued and dividends are recorded on the ex-dividend date.
Portfolio securities listed on a securities exchange or on the NASDAQ National Market System for which market quotations are readily available are valued at the last quoted sale price of the day or, if there is no such reported sale, within the range of the most recent quoted bid and ask prices.
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 options are valued at their market price as determined above. The current market value of any option held by a 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.
The value of a foreign security is determined in its national currency as of the close of trading on the foreign exchange on which it is traded or as of the scheduled close of trading on the Exchange, if that is earlier, and that value is then converted into its U.S. dollar equivalent at the foreign exchange rate in effect at noon, Eastern time, on the day the value of the foreign security is determined. Occasionally, events which affect the values of foreign securities and foreign exchange rates may occur between the times at which they are determined and the close of the exchange and will, therefore, not be reflected in the computation of the Fund's net asset value. If events which materially affect the value of these foreign securities occur during such period, then these securities will be valued at fair value as determined by management and approved in good faith by the Board of Trustees.
With the approval of trustees, the Fund may utilize a pricing service, bank or securities dealer to perform any of the above described functions.
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, shareholders may access an automated system (day or night) which offers the following features.
By calling the Franklin TeleFACTS system at 1-800/247-1753, shareholders may obtain account information, current price and, if available, yield or other performance information, specific to the Fund or any Franklin or Templeton Fund, regardless of class. In addition, 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.
Information about the Fund may be accessed by entering Fund Code
203. The system 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 departments, telephone numbers and hours of operation to call. The same numbers may be used when calling from a rotary phone:
DEPARTMENT NAME TELEPHONE NO. HOURS OF OPERATION
(PACIFIC TIME)
(Monday through
Friday)
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 1-800/851-0637 6:00 A.M. TO 5:00
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In order to ensure that the highest quality of service is being provided, telephone calls placed to or by representatives in Franklin or Templeton'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 Fund's 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 other periods or based on investments at various sales charge levels or at net asset value. For such purposes total return equals the total of all income and capital gain paid to shareholders, assuming reinvestment of all distributions, plus (or minus) the change in the value of the original investment, expressed as a percentage of the purchase price.
Current yield reflects the income per share earned by the Fund's portfolio investments; it is calculated by dividing the Fund's net investment income per share during a recent 30-day period by the maximum public offering price on the last day of that period and annualizing the result.
Yield which is calculated according to a formula prescribed by the SEC (see 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 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 the Fund during the past 12 months by a current maximum offering price. Under certain circumstances, such as when there has been a change in the amount of dividend payout, or a fundamental change in investment policies, it might be appropriate to annualize the dividends paid during the period such policies were in effect, rather than using the dividends during the past 12 months. The current distribution rate differs from the current yield computation because it may include distributions to shareholders from sources other than dividends and interest, such as premium income from option writing, and short-term capital gain, and is calculated over a different period of time.
In each case performance figures are based upon past performance, reflect all recurring charges against Fund income and will assume the payment of the maximum sales charge on the purchase of shares. When there has been a change in the sales charge structure, the historical performance figures will be restated to reflect the new rate. The investment results of the Fund, like all other investment companies, will fluctuate over time; thus, performance figures should not be considered to represent what an investment may earn in the future or what the Fund's yield, distribution rate or total return may be in any future period.
GENERAL INFORMATION
REPORTS TO SHAREHOLDERS
The Fund's fiscal year ends on April 30. Annual Reports containing audited financial statements of the Trust, including the auditors' report, and Semi-Annual Reports containing unaudited financial statements are automatically sent to shareholders. 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.
ORGANIZATION
The Trust, a Delaware business trust, was organized on January 25, 1991. The Trust is authorized to issue an unlimited number of shares of beneficial interest, with a par value of $.01 per share in various series. All shares have one vote, and, when issued, are fully paid, non- assessable, and redeemable. Currently, the Trust issues shares in seven series. The Board of Trustees may from time to time issue other series, the assets and liabilities of which will likewise be separate and distinct from any other series.
VOTING RIGHTS
Shares of the Fund have equal rights as to voting and vote separately (from other Funds in the Trust) as to issues affecting the Fund, or the Trust, unless otherwise permitted by the 1940 Act. Voting rights are not cumulative, so that the holders of more than 50% of the shares voting in any election of trustees can, if they choose to do so, elect all of the trustees. The Trust does not intend to hold annual shareholders' meetings. The Trust may, however, hold a special shareholders' meeting for such purposes as changing fundamental investment restrictions, approving a new management agreement or any other matters which are required to be acted on by shareholders under the 1940 Act. A meeting may also be called by the trustees, in their discretion, or by shareholders holding at least ten percent of the shares of the Trust entitled to vote at the meeting. 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 have no preemptive or subscription rights, and are fully transferable. There are no conversion rights; however, holders of shares of any fund in the Franklin Templeton Funds may reinvest all or any portion of the proceeds from the redemption or repurchase of such shares into shares of any other fund in the Franklin Templeton Funds as described under "Exchange Privilege."
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: Suzanne Willoughby Killea, Douglas Barton and Robert Mullin since inception.
Suzanne Willoughby Killea, Portfolio Manager of Advisers, holds a Master of Business Administration degree from Stanford University. She earned her Bachelor of Arts degree in architecture from Princeton University. Prior to joining Franklin, Ms. Killea worked as a summer intern with Dillion Read & Co., Inc. (1990) and Dodge & Cox (1989), and for five years as a broker with the Rubicon Group, a commercial real estate services firm.
Douglas Barton, Portfolio Manager of Advisers, is a Chartered Financial Analyst and holds a Master of Business Administration degree from California State University in Hayward and a Bachelor of Science degree from California State University in Chico. Mr. Barton joined Franklin in July 1988.
Robert Mullin, Portfolio Manager of Advisers, holds a Bachelor of Arts degree in economics and business from the University of Colorado at Boulder. Mr. Mullin joined Franklin in 1993 and prior thereto worked as a summer intern for the Silicon Valley Bank (1990) and for Shearson Lehman Hutton (1989). He is currently working toward his Chartered Financial Analyst certification and is a member of several industry-related associations.
APPENDIX
CORPORATE BOND RATINGS
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 over the future. Uncertainty of position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small.
Caa - Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest.
Ca - Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings.
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.
COMMERCIAL PAPER RATINGS:
A-1, A-2 AND PRIME-1, PRIME-2
Commercial paper rated by Standard & Poor's has the following characteristics: Liquidity ratios are adequate to meet cash requirements. Long-term senior debt is rated "A" or better. The issuer has access to at least two additional channels of borrowing. Basic earnings and cash flow have an upward trend with allowance made for unusual circumstances. Typically, the issuer's industry is well established and the issuer has a strong position within the industry. The reliability and quality of management are unquestioned. Relative strength or weakness of the above factors determines whether the issuer's commercial paper is rated A-1 or A-2.
The ratings Prime-1 and Prime-2 are the two highest
commercial paper ratings assigned by Moody's. Among the
factors considered by Moody's in assigning ratings are the
following: (1) evaluation of the management of the issuer;
(2) economic evaluation of the issuer's industry or
industries and an appraisal of speculative-type risks which
may be inherent in certain areas; (3) evaluation of the
issuer's products in relation to competition and customer
acceptance. (4) liquidity; (5) amount and quality of
long-term debt; (6) trend of earnings over a period of ten
years; (7) financial strength of a parent company and the
relationships which exist with the issuer, and (8)
recognition by the management of obligations which may be
present or may arise as a result of public interest questions
and preparations to meet such obligations. Relative strength
or weakness of the above factors determines whether the
issuer's commercial paper is rated Prime-1 or 2.
FRANKLIN NATURAL RESOURCES FUND
Franklin Strategic Series
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 NATURAL RESOURCES FUND
FRANKLIN STRATEGIC SERIES
STATEMENT OF
ADDITIONAL INFORMATION
JUNE 5, 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" and "General Information")
The Fund's Investment Objective, Policies and
Restrictions (See also the Prospectus
"Investment Objective and Policies
of the Fund")
Risk Factors and Special Considerations
Officers and Trustees
Investment Advisory 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," and
"Valuation of Fund Shares")
Additional Information
Regarding Taxation
The Fund's Underwriter
General Information
Financial Statement
Franklin Natural Resources Fund (the "Fund") is an open-end, non-diversified series of Franklin Strategic Series (the "Trust") a management investment company. The Fund seeks to provide high total return through investment primarily in securities of companies that own, produce, refine, process and market natural resources, as well as those that provide support services for natural resources companies (i.e. those that develop technologies or provide services or supplies directly related to the production of natural resources). The Fund may also invest in securities of issuers outside the U.S.
A Prospectus for the Fund dated June 5, 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 listed above.
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 FUNDS, AND SHOULD BE READ IN CONJUNCTION WITH THE FUND'S PROSPECTUS.
ABOUT THE FUND
The Franklin Natural Resources Fund is an open-end, non-diversified series of the Franklin Strategic Series, a management investment company, commonly called a mutual fund, and registered as such under the Investment Company Act of 1940 ("1940 Act"). The Trust is a Delaware business trust organized on January 25, 1991.
THE FUND'S INVESTMENT
OBJECTIVE, POLICIES AND RESTRICTIONS
As noted in the Prospectus, the Fund seeks to provide high total return. The Fund seeks to accomplish its objective by investing primarily in securities of companies that own, produce, refine, process and market natural resources, as well as those that provide support services for natural resources companies (i.e. those that develop technologies or provide services or supplies directly related to the production of natural resources). These companies are concentrated in the natural resources sector, but not limited to, the following industries: Integrated oil; oil and gas exploration and production; gold and precious metals; steel and iron ore production; aluminum production; forest products; farming products; paper products; chemicals; building materials; energy services and technology; and environmental services. The Fund may also invest in securities of issuers outside the U.S.
The Fund's objective is a fundamental policy and may not be changed without shareholder approval.
SOME OF THE FUND'S OTHER INVESTMENT POLICIES
LOANS OF PORTFOLIO SECURITIES. As stated in the Prospectus, the Fund may make loans of its portfolio securities up to 33% of its total assets, in accordance with guidelines adopted by the Fund's Board of Trustees. The lending of securities is a common practice in the securities industry. The Fund will engage in security loan arrangements with the primary objective of increasing the Fund's income either through investing the collateral in short-term, interest-bearing obligations or by receiving loan premiums from the borrower. The Fund will continue to be entitled to all dividends or interest on any loaned securities. As with any extension of credit, there are risks of delay in recovery and loss of rights in the collateral should the borrower of the security fail financially. The Fund will not lend its portfolio securities if such loans are not permitted by the laws or regulations of any state in which its shares are qualified for sale. Loans will be subject to termination by the Fund in the normal settlement time, currently five business days after notice, or by the borrower on one day's notice. Borrowed securities must be returned when the loan is terminated. Any gain or loss in the market price of the borrowed securities which occurs during the term of the loan inures to the Fund and its shareholders. The Fund may pay reasonable finders', borrowers', administrative and custodial fees in connection with a loan of its securities.
SHORT-TERM INVESTMENTS. As stated in the Prospectus, the Fund may temporarily invest cash in short-term debt instruments. The Fund may also invest its short-term cash in shares of the Franklin Money Fund, the assets of which are managed under a "master/feeder" structure by the Fund's investment adviser. Such temporary investments will only be made with cash held to maintain liquidity or pending investment, and for defensive purposes in the event or in anticipation of a general decline in the market prices of stocks in which the Fund invests.
ILLIQUID SECURITIES. The Fund will not invest more than 15% of its 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 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 Manager to treat a restricted security as a liquid security on an ongoing basis, including the 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 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). 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 become uninterested in purchasing these securities or the market for these securities contracts.
To comply with applicable state restrictions, the Fund will limit its investments in illiquid securities, including illiquid securities with legal or contractual restrictions on resale and securities which are not readily marketable, to 10% of the Fund's net assets.
WHEN-ISSUED OR DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities on a "when-issued" or "delayed delivery" basis. These transactions are arrangements under which the Fund purchases securities with payment and delivery scheduled for a future time. Such securities are subject to market fluctuation prior to delivery to the Fund and generally do not earn interest until their scheduled delivery date. Therefore, the value or yields at delivery may be more or less than the purchase price or the yields available when the transaction was entered into. Although the Fund will generally purchase these securities on a when-issued basis with the intention of acquiring such securities, it may sell such securities before the settlement date if it is deemed advisable. When the Fund is the buyer in such a transaction, it will maintain, in a segregated account with its custodian, cash or high-grade marketable securities having an aggregate value equal to the amount of such purchase commitments until payment is made. In such an arrangement, the Fund relies on the seller to complete the transaction. The other party's failure to do so may cause the Fund to miss a price or yield considered advantageous. Securities purchased on a when-issued or delayed delivery basis do not generally earn interest until their scheduled delivery date. The Fund is not subject to any percentage limit on the amount of its assets which may be invested in "when-issued" purchase obligations. To the extent the Fund engages in when-issued and delayed delivery transactions, it will do so only for the purpose of acquiring portfolio securities consistent with its investment objective and policies, and not for the purpose of investment leverage
STANDBY COMMITMENT AGREEMENTS. The Fund may from time to time enter into standby commitment agreements. Such agreements commit the Fund, for a stated period of time, to purchase a stated amount of a security which may be issued and sold to the Fund at the option of the issuer. The price and coupon of the security is fixed at the time of the commitment. At the time of entering into the agreement, the Fund is paid a commitment fee, regardless of whether the security is ultimately issued, which is typically approximately 0.5% of the aggregate purchase price of the security which the Fund has committed to purchase. The Fund will enter into such agreements only for the purpose of investing in the security underlying the commitment at a yield and/or price which is considered advantageous to the Fund. The Fund will not enter into a standby commitment with a remaining term in excess of 45 days and will limit its investment in such commitments so that the aggregate purchase price of the securities subject to such commitments, together with the value of portfolio securities subject to legal restrictions on resale, will not exceed 15% of its assets, taken at the time of acquisition of such commitment or security. The Fund will at all times maintain a segregated account with its custodian bank of cash, cash equivalents, U.S. Government Securities or other high grade liquid debt securities denominated in U.S. dollars or non-U.S. currencies in an aggregate amount equal to the purchase price of the securities underlying the commitment.
There can be no assurance that the securities subject to a standby commitment will be issued, and the value of the security, if issued, on the delivery date may be more or less than its purchase price. Since the issuance of the security underlying the commitment is at the option of the issuer, the Fund may bear the risk of a decline in the value of such security and may not benefit from an appreciation in the value of the security during the commitment period.
The purchase of a security subject to a standby commitment agreement and the related commitment fee will be recorded on the date on which the security can reasonably be expected to be issued, and the value of the security will thereafter be reflected in the calculation of the Fund's net asset value. The cost basis of the security will be adjusted by the amount of the commitment fee. In the event the security is not issued, the commitment fee will be recorded as income on the expiration date of the standby commitment.
INVESTMENT RESTRICTIONS
The Fund has adopted the following restrictions as fundamental
policies, which means that they may not be changed without the
approval of a majority of the outstanding voting securities of
the Fund. Under the Investment Company Act of 1940 (the "1940
Act"), a "vote of a majority of the outstanding voting
securities" of the Fund means the affirmative vote of the lesser
of (1) more than 50% of the outstanding shares of the Fund, or
(2) 67% or more of the shares of the Fund present at a
shareholder's meeting if more than 50% of the outstanding shares
of the Fund are not represented at the meeting in person or by
proxy. The Fund MAY NOT:
1. 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 or similar transaction may be deemed a loan;
2. Borrow money or mortgage or pledge any of its assets, except in the form of reverse repurchase agreements or from banks for temporary or emergency purposes in an amount up to 33% 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;
3. 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) or invest more than 10% of its assets in securities with legal or contractual restrictions on resale (although the Fund may invest in such securities to the full extent permitted under the federal securities laws, including such laws which provide an exemption from the requirements of the Securities Act of 1933); 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.
4. Invest in securities for the purpose of exercising management or control of the issuer; 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.
5. 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);
6. Invest directly in real estate, real estate limited partnerships or illiquid securities issued by real estate investment trusts (the Fund may, however, invest up to 10% of its assets in marketable securities issued by real estate investment trusts);
7. Invest directly in interests in oil, gas or other mineral leases, exploration or development programs.
8. Invest in the securities of other investment companies,
except where there is no commission other than the customary
brokerage commission or sales charge, or except that securities
of another investment company may be acquired pursuant to a plan
of reorganization, merger, consolidation or acquisition, and
except where the Fund would not own, immediately after the
acquisition, securities of the investment companies which exceed
in the aggregate i) more than 3% of the issuer's outstanding
voting stock, ii) more than 5% of the Fund's total assets and
iii) together with the securities of all other investment
companies held by the Fund, exceed, in the aggregate, more than
10% of the Fund's total assets; 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. Pursuant to available
exemptions from the 1940 Act, the Fund may invest in shares of
one or more money market funds managed by Franklin Advisers, Inc.
or its affiliates;
9. 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 Trust, one or more of the officers or trustees of the Trust, 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;
10. Concentrate in any industry, except that under normal circumstances the Fund will invest at least 25% of total assets in the securities issued by domestic and foreign companies in the natural resources sector; 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; and
11. Invest more than 10% of its assets in securities of companies which have a record of less than three years continuous operation, including the operations of any predecessor 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.
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 engage in joint or joint and several trading accounts in securities, except that it may participate in joint repurchase arrangements, invest its short-term cash in shares of the Franklin Money Fund (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.
RISK FACTORS AND SPECIAL CONSIDERATIONS
POLITICAL AND ECONOMIC RISKS. Investing in securities of non-U.S. companies may entail additional risks due to the potential political and economic instability of certain countries and the risks of expropriation, nationalization, confiscation or the imposition of restrictions on foreign investment and on repatriation of capital invested. In the event of such expropriation, nationalization or other confiscation by any country, the Fund could lose its entire investment in any such country.
ILLIQUID SECURITIES. The Fund may invest up to 15% of its net assets in securities the disposition of which may be subject to legal or contractual restrictions or the markets for which may be illiquid. To comply with applicable state restrictions, the Fund will limit its investments in illiquid securities, including illiquid securities with legal or contractual restrictions on resale and securities which are not readily marketable to 10% of the Fund's net assets. The sale of restricted or illiquid securities often requires more time and results in higher brokerage charges or dealer discounts and other selling expenses than does the sale of securities eligible for trading on national securities exchanges or in the over-the-counter markets. Restricted securities often sell at a price lower than similar securities that are not subject to restrictions on resale.
RELIGIOUS AND ETHNIC INSTABILITY. Certain countries in which the Fund may invest may have vocal minorities that advocate radical religious or revolutionary philosophies or support ethnic independence. Any disturbance on the part of such individuals could carry the potential for wide-spread destruction or confiscation of property owned by individuals and entities foreign to such country and could cause the loss of the Fund's investment in those countries.
FOREIGN INVESTMENT RESTRICTIONS. Certain countries prohibit or impose substantial restrictions on investments in their capital markets, particularly their equity markets, by foreign entities such as the Fund. As illustrations, certain countries require governmental approval prior to investments by foreign persons, or limit the amount of investment by foreign persons in a particular company, or limit the investment by foreign persons to only a specific class of securities of a company that may have less advantageous terms than securities of the company available for purchase by nationals. Moreover, the national policies of certain countries may restrict investment opportunities in issuers or industries deemed sensitive to national interests. In addition, some countries require governmental approval for the repatriation of investment income, capital or the proceeds of securities sold by foreign investors. The Fund could be adversely affected by delays in, or a refusal to grant, any required governmental approval for repatriation, as well as by the application to it of other restrictions on investments.
NON-UNIFORM CORPORATE DISCLOSURE STANDARDS AND GOVERNMENTAL REGULATION. Foreign companies are not generally subject to uniform accounting, auditing and financial reporting standards or to other regulatory requirements comparable to those applicable to U.S. companies. There will be less available information concerning foreign issuers of securities held by the Fund than is available concerning U.S. issuers. In instances where the financial statements of an issuer are not deemed to reflect accurately the financial situation of the issuer, Advisers may take appropriate steps to evaluate the proposed investment, which may include on-site inspection of the issuer, interviews with its management and consultations with accountants, bankers and other specialists.
ADVERSE MARKET CHARACTERISTICS. Securities of many foreign issuers may be less liquid and their prices more volatile than securities of comparable U.S. issuers. In addition, foreign securities exchanges and brokers are generally subject to less governmental supervision and regulation than in the U.S., and foreign securities exchange transactions are usually subject to fixed commissions, which are generally higher than negotiated commissions on U.S. transactions. In addition, foreign securities exchange transactions may be subject to difficulties associated with the settlement of such transactions. Delays in settlement could result in temporary periods when assets of the Fund are uninvested and no return is earned thereon. The inability of the Fund to make intended security purchases due to settlement problems could cause the Fund to miss attractive investment opportunities. Inability to dispose of a portfolio security due to settlement problems could either result in losses to the Fund due to subsequent declines in value of the portfolio security or, if the Fund has entered into a contract to sell the security, could result in possible gain to the purchaser. The Manager will consider such difficulties when determining the allocation of the Fund's assets, although the Manager does not believe that such difficulties will have a material adverse effect on the Fund's portfolio trading activities.
NON-U.S. TAXES. The Fund's net investment income from foreign issuers may be subject to non-U.S. withholding or other taxes, thereby reducing the Fund's net investment income.
CURRENCY FLUCTUATIONS. Because the Fund under normal circumstances will invest a substantial portion of its total assets in the securities of foreign issuers which are denominated in foreign currencies, the strength or weakness of the U.S. dollar against such foreign currencies will account for part of the Fund's investment performance. A decline in the value of any particular currency against the U.S. dollar will cause a decline in the U.S. dollar value of the Fund's holdings of securities denominated in such currency and, therefore, will cause an overall decline in the Fund's net asset value and any net investment income and capital gains to be distributed in U.S. dollars to shareholders of the Fund.
The rate of exchange between the U.S. dollar and other currencies is determined by several factors, including the supply and demand for particular currencies, central bank efforts to support particular currencies, the movement of interest rates, the pace of business activity in certain other countries and the U.S., and other economic and financial conditions affecting the world economy.
Although the Fund values its assets daily in terms of U.S. dollars, the Fund does not intend to convert its holdings of foreign currencies into U.S. dollars on a daily basis. The Fund will do so from time to time, and investors should be aware of the costs of currency conversion. Although foreign exchange dealers do not charge a fee for conversion, they do realize a profit based on the difference (the "spread") between the prices at which they are buying and selling various currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at one rate, while offering a lesser rate of exchange should the Fund desire to sell that currency to the dealer.
CURRENCY HEDGING TRANSACTIONS AND ASSOCIATED RISKS
In order to hedge against currency exchange rate risks, the Fund may enter into forward currency exchange contracts and currency futures contracts and options on such futures contracts, as well as purchase put or call options and write covered put and call options on currencies traded in U.S. or foreign markets.
Forward Foreign Currency Exchange Contracts. The Fund may enter into forward foreign currency exchange contracts in certain circumstances, as indicated in the Fund's Prospectus. Additionally, when the Fund's investment manager believes that the currency of a particular foreign country may suffer a substantial decline against the U.S. dollar, the Fund may enter into a forward contract to sell, for a fixed amount of dollars, the amount of foreign currency approximating the value of some or all of the Fund's portfolio securities denominated in such foreign currency. The precise matching of the forward contract amounts and the value of the securities involved is not generally possible because the future value of such securities in foreign currencies changes as a consequence of market movements in the value of those securities between the date on which the contract is entered into and the date it matures. Using forward contracts to protect the value of the Fund's portfolio securities against a decline in the value of a currency does not eliminate fluctuations in the underlying prices of the securities. It simply establishes a rate of exchange which each Fund can achieve at some future point in time. The precise projection of short- term currency market movements is not possible, and short-term hedging provides a means of fixing the dollar value of only a portion of the Fund's foreign assets.
The Fund may engage in cross-hedging by using forward contracts in one currency to hedge against fluctuations in the value of securities denominated in a different currency if the Fund's investment manager determines that there is a pattern of correlation between the two currencies. The Fund may also purchase and sell forward contracts (to the extent they are not deemed "commodities") for non-hedging purposes when the Fund's investment manager anticipates that the foreign currency will appreciate or depreciate in value, but securities denominated in that currency do not present attractive investment opportunities and are not held in the Fund's portfolio.
The Fund's custodian will place cash or liquid high grade debt securities (i.e., securities rated in one of the top three ratings categories by Moody's Investors Service ("Moody's") or Standard & Poor's Corporation ("S&P") or, if unrated, deemed by the Fund's investment manager to be of comparable credit quality) into a segregated account of the Fund in an amount equal to the value of the Fund's total assets committed to the consummation of forward foreign currency exchange contracts requiring the Fund to purchase foreign currencies. If the value of the securities placed in the segregated account declines, additional cash or securities is placed in the account on a daily basis so that the value of the account equals the amount of the Fund's commitments with respect to such contracts. The segregated account is marked- to-market on a daily basis. Although the contracts are not presently regulated by the Commodity Futures Trading Commission (the "CFTC"), the CFTC may in the future assert authority to regulate these contracts. In such event, a Fund's ability to utilize forward foreign currency exchange contracts may be restricted.
The Fund generally will not enter into a forward contract with a term of greater than one year.
While the Fund may enter into forward contracts to reduce currency exchange rate risks, transactions in such contracts involve certain other risks. Thus, while the Fund may benefit from such transactions, unanticipated changes in currency prices may result in a poorer overall performance for the Fund than if it had not engaged in any such transactions. Moreover, there may be imperfect correlation between the Fund's portfolio holdings of securities denominated in a particular currency and forward contracts entered into by the Fund. Such imperfect correlation may cause the Fund to sustain losses which will prevent the Fund from achieving a complete hedge or expose the Fund to risk of foreign exchange loss.
Writing and Purchasing Currency Call and Put Options. The Fund may write covered put and call options and purchase put and call options on foreign currencies for the purpose of protecting against declines in the dollar value of portfolio securities and against increases in the dollar cost of securities to be acquired. The Fund may use options on currency to cross-hedge, which involves writing or purchasing options on one currency to hedge against changes in exchange rates for a different currency with a pattern of correlation. In addition, the Fund may purchase call options on currency for non-hedging purposes when the Fund's investment manager anticipates that the currency will appreciate in value, but the securities denominated in that currency do not present attractive investment opportunities and are not included in the Fund's portfolio.
A call option written by the Fund obligates the Fund to sell specified currency to the holder of the option at a specified price at any time before the expiration date. A put option written by the Fund would obligate the Fund to purchase specified currency from the option holder at a specified time before the expiration date. The writing of currency options involves a risk that the Fund will, upon exercise of the option, be required to sell currency subject to a call at a price that is less than the currency's market value or be required to purchase currency subject to a put at a price that exceeds the currency's market value.
The Fund may terminate its obligations under a call or put option by purchasing an option identical to the one it has written. Such purchases are referred to as "closing purchase transactions." The Fund would also be able to enter into closing sale transactions in order to realize gains or minimize losses on options purchased by the Fund.
The Fund would normally purchase call options in anticipation of an increase in the dollar value of the currency in which securities to be acquired by the Fund are denominated. The purchase of a call option would entitle the Fund, in return for the premium paid, to purchase specified currency at a specified price during the option period. The Fund would ordinarily realize a gain if, during the option period, the value of such currency exceeded the sum of the exercise price, the premium paid and transaction costs; otherwise the Fund would realize either no gain or a loss on the purchase of the call option.
The Fund would normally purchase put options in anticipation of a decline in the dollar value of currency in which securities in its portfolio are denominated ("protective puts"). The purchase of a put option would entitle the Fund, in exchange for the premium paid, to sell specific currency at a specified price during the option period. The purchase of protective puts is designed merely to offset or hedge against a decline in the dollar value of the Fund's portfolio securities due to currency exchange rate fluctuations. The Fund would ordinarily realize a gain if, during the option period, the value of the underlying currency decreased below the exercise price sufficiently to more than cover the premium and transaction costs; otherwise the Fund would realize either no gain or a loss on the purchase of the put option. Gains and losses on the purchase of protective put options would tend to be offset by countervailing changes in the value of the underlying currency.
Special Risks Associated With Options on Currency. An exchange- traded options position may be closed out only on an options exchange which provides a secondary market for an option of the same series. Although the Fund will generally purchase or write only those options for which there appears to be an active secondary market, there is no assurance that a liquid secondary market on an exchange will exist for any particular option or at any particular time. For some options, no secondary market on an exchange may exist. In such event, it might not be possible to effect closing transactions in particular options, with the result that the Fund would have to exercise its options in order to realize any profit and would incur transaction costs upon the sale of underlying securities pursuant to the exercise of put options. If the Fund as a covered call option writer is unable to effect a closing purchase transaction in a secondary market, it will not be able to sell the underlying currency (or security denominated in that currency) until the option expires or it delivers the underlying currency upon exercise.
There is no assurance that higher than anticipated trading activity or other unforeseen events might not, at times, render certain of the facilities of the OCC inadequate, and thereby result in the institution by an exchange of special procedures which may interfere with the timely execution of customers' orders.
The Fund may purchase and write over-the-counter options to the extent consistent with its limitation on investments in restricted securities, as described in its Prospectus. Trading in over-the-counter options is subject to the risk that the other party will be unable or unwilling to close-out options purchased or written by a Fund.
The amount of the premiums which the Fund may pay or receive may be adversely affected as new or existing institutions, including other investment companies, engage in or increase their option purchasing and writing activities.
Futures Contracts and Options on Futures Contracts. The Fund's investment manager may choose to hedge against changes in interest rates, securities prices or currency exchange rates, by purchasing and selling various kinds of futures contracts. The Fund may also enter into closing purchase and sale transactions with respect to any such contracts and options. The futures contracts may be based on foreign currencies. The Fund will engage in futures and related options transactions only for bona fide hedging or other appropriate risk management purposes as defined below. All futures contracts entered into by the Fund are traded on U.S. exchanges or boards of trade that are licensed and regulated by the CFTC or on foreign exchanges.
Futures Contracts. A futures contract may generally be described as an agreement between two parties to buy and sell particular financial instruments for an agreed price during a designated month (or to deliver the final cash settlement price, in the case of a contract relating to an index or otherwise not calling for physical delivery at the end of trading in the contract).
The Fund can sell futures contracts on a specified currency to protect against a decline in the value of such currency and its portfolio securities which are denominated in such currency. The Fund can purchase futures contracts on foreign currency to fix the price in U.S. dollars of a security denominated in such currency that the Fund has acquired or expects to acquire.
Although futures contracts by their terms generally call for the actual delivery or acquisition of underlying securities, in most cases the contractual obligation is fulfilled before the date of the contract without having to make or take such delivery. The contractual obligation is offset by buying (or selling, as the case may be) on a commodities exchange an identical futures contract calling for delivery in the same month. Such a transaction, which is effected through a member of an exchange, cancels the obligation to make or take delivery of the securities or the cash value of the index underlying the contractual obligations. The Fund may incur brokerage fees when it purchases or sells futures contracts.
Positions taken in the futures markets are not normally held to maturity, but are instead liquidated through offsetting transactions which may result in a profit or a loss. While the Fund's futures contracts on currency will usually be liquidated in this manner, the Fund may instead make or take delivery of the currency whenever it appears economically advantageous for it to do so. A clearing corporation associated with the exchange on which futures on currency are traded guarantees that, if still open, the sale or purchase will be performed on the settlement date.
Hedging Strategies With Futures. Hedging by use of futures contracts seeks to establish with more certainty than would otherwise be possible with respect to the effective price, currency exchange rate on portfolio securities or securities that a Fund owns or proposes to acquire. The Fund may sell futures contracts on currency in which its portfolio securities are denominated or in one currency to hedge against fluctuations in the value of securities denominated in a different currency if there is an established historical pattern of correlation between the two currencies.
The CFTC and U.S. commodities 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 its strategies for hedging its securities.
Options on Futures Contracts. The acquisition of put and call options on futures contracts will give the Fund the right (but not the obligation), for a specified price, to sell or to purchase, respectively, the underlying futures contract at any time during the option period. As the purchaser of an option on a futures contract, a Fund obtains the benefit of the futures position if prices move in a favorable direction but limits its risk of loss in the event of an unfavorable price movement to the loss of the premium and transaction costs.
The writing of a call option on a futures contract generates a premium which may partially offset a decline in the value of the Fund's assets. By writing a call option, the Fund becomes obligated, in exchange for the premium, to sell a futures contract, which may have a value higher than the exercise price. Conversely, the writing of a put option on a futures contract generates a premium which may partially offset an increase in the price of securities that a Fund intends to purchase. However, the Fund becomes obligated to purchase a futures contract, which may have a value lower than the exercise price. Thus, the loss incurred by the Fund in writing options on futures is potentially unlimited and may exceed the amount of the premium received. The Fund will incur transaction costs in connection with the writing of options on futures.
The holder or writer of an option on a futures contract may terminate its position by selling or purchasing an offsetting option on the same series. There is no guarantee that such closing transactions can be effected. The Fund's ability to establish and close out positions on such options will be subject to the development and maintenance of a liquid market.
While transactions in futures contracts and options on futures may reduce certain risks, such transactions themselves entail certain other risks. Thus, while the Fund may benefit from the use of futures and options on futures, unanticipated changes in interest rates, securities prices or currency exchange rates may result in a poorer overall performance for the Fund than if it had not entered into any futures contracts or options transactions. In the event of an imperfect correlation between a future position and portfolio position which is intended to be protected, the desired protection may not be obtained and the Fund may be exposed to risk of loss.
Transactions in options and forward and futures contracts and options related thereto are generally considered "derivative securities" by the popular media.
RISK FACTORS RELATING TO HIGH
YIELDING, FIXED-INCOME SECURITIES
The Fund may invest up to 15% of its assets in lower-rated, fixed-income securities and unrated securities of comparable quality (known as "junk bonds"). The market values of such securities tend to reflect individual corporate developments to a greater extent than do values of 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. These lower-rated, fixed-income securities are considered by Standard and Poor's Corporation ("S&P") and Moody's Investors Service ("Moody's"), two nationally recognized statistical rating organizations ("NRSROs") on balance, to be predominantly speculative with respect to the issuer's capacity to pay interest and repay principal in accordance with the terms of the obligation and will generally involve more credit risk than securities in the higher-rating categories. Even securities rated BBB or Baa by S&P and Moody's, respectively, ratings which are considered investment grade, possess some speculative characteristics.
Companies that issue high yielding, fixed-income securities are often highly leveraged and may not have more traditional methods of financing available to them. Therefore, the risk associated with acquiring the securities of such issuers is generally greater than is the case with higher-rated securities. For example, during an economic downturn or a sustained period of rising interest rates, highly leveraged issuers of high yielding securities may experience financial stress. During these periods, 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. The risk of loss due to default by the issuer may be significantly greater for the holders of high yielding securities because such securities are generally unsecured and are often subordinated to other creditors of the issuer.
High yielding, fixed-income securities frequently have call or buy-back features which would permit an issuer to call or repurchase the security from the Fund. Although such securities are typically not callable for a period from three to five years after their issuance, when calls are exercised by the issuer during periods of declining interest rates, the Fund would likely have to replace such called security with a lower yielding security, thus decreasing the net investment income to the Fund and dividends to shareholders. The premature disposition of a high yielding security due to a call or buy-back feature, the deterioration of the issuer's creditworthiness, or a default may also make it more difficult for the Fund to manage the timing of its receipt of income, which may have tax implications.
The Fund may have difficulty disposing of certain high yielding securities because there may be a thin trading market for a particular security at any given time. The market for lower-rated, fixed-income securities generally tends to be concentrated among a smaller number of dealers than is the case for securities 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 a particular high yielding, fixed-income security 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 values for these high yield issues are obtained from pricing services and/or a limited number of dealers and may be based upon factors other than actual sales. (See "Valuation of Fund Shares" in the Prospectus.)
The Fund is authorized to acquire high yielding, fixed-income securities that are sold without registration under the federal securities laws and therefore carry restrictions on resale. While many recent high yielding securities have been sold with registration rights, covenants and penalty provisions for delayed registration, if the Fund were 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 such securities during an initial underwriting. Such securities involve special risks because they are new issues. The Fund has no arrangement with any person concerning the acquisition of such securities, and the Manager will carefully review the credit and other characteristics pertinent to such new issues.
Factors adversely impacting the market value of high yielding securities will adversely impact the Fund's net asset values. The Fund may also 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 Manager's judgment, analysis and experience in evaluating the creditworthiness of an issuer. In this evaluation, the 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.
Rather than relying principally on the ratings assigned by the
NRSROs, however, the Manager will perform its own internal
investment analysis of debt securities being considered for the
Fund's portfolio. Such analysis may include, among other things,
consideration of relative values, based on such factors as:
anticipated cash flow; interest coverage; asset coverage; earning
prospects; the experience and managerial strength of the issuer;
responsiveness to changes in interest rates and business
conditions; debt maturity schedules and borrowing requirements;
and the issuer's changing financial condition and public
recognition thereof. Investments will be evaluated in the context
of economic and political conditions in the issuer's domicile,
such as the inflation rate, growth prospects, global trade
patterns and government policies. In the event the rating on an
issue held in the Fund's portfolio is changed by the ratings
service, such change will be considered by the Fund in its
evaluation of the overall investment merits of that security but
will not necessarily result in an automatic sale of the security.
The Fund may engage in a substantial number of portfolio transactions. Portfolio turnover is calculated by dividing the lesser of the Fund's annual sales or purchases of portfolio securities (exclusive of securities whose maturities at the time of acquisition were one year or less) by the monthly average value of the securities in the portfolio during the year.
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 Trust 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 Trust, as defined in the 1940 Act, are indicated by an asterisk (*).
Positions and Offices
Name, Address & Age with the Trust Principal
Occupations 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 (62)
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 (62)
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. (54)
777 Mariners Island Blvd.
San Mateo, CA 94404
President and Trustee
Executive Vice President and Director, Franklin Resources, Inc. and Franklin Templeton Distributors, Inc.; President and Director, Franklin Advisers, Inc.; Director, Franklin/Templeton Investor Services, Inc.; and officer and/or director, trustee or managing general partner, as the case may be, of most other subsidiaries of Franklin Resources, Inc. and of 43 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 (66)
8212 Burning Tree Road
Bethesda, MD 20817
Trustee
Chairman, White River Corporation (information services); Director, Fund American Enterprises Holdings, Inc., Lockheed Martin Corporation, MCI Communications Corporation, MedImmune, Inc. (biotechnology), InfoVest Corporation (information services), and Fusion Systems Corporation (industrial technology); and director, trustee or managing general partner, as the case may be, of 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 (34)
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 (38)
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 (57)
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.
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 Trust's nonaffiliated trustees also serve as directors, trustees or managing general partners of other investment companies in the Franklin Group of Funds(Registered Trademark) and the Templeton Group of Funds (the "Franklin Templeton Group of Funds"). The following table indicates the total fees paid to nonaffiliated trustees by other funds in the Franklin Templeton Group of Funds.
Name Total Fees Received From Number of Boards In The
The Franklin Templeton Franklin Templeton Group
Group of Funds* of Funds on Which Each
Serves**
Mr. Abbott $176,870 31
Mr. Ashton $319,925 55
Mr. Fortunato $336,065 57
Mr. Garbellano $153,300 30
Mr. LaHaye $150,817 26
Mr. Macklin $303,685 52
|
* For the calendar year ended December 31, 1994. ** The number of boards is based on the number of registered investment companies in the Franklin Templeton Group of Funds and does not include the total number of series or funds within each investment company for which the trustees are responsible. The Franklin Templeton Group of Funds currently includes 61 registered investment companies, consisting of more than 112 U.S. based mutual funds or series.
Nonafilliated trustees are reimbursed for expenses incurred in connection with attending board meetings, paid pro rata by each fund in the Franklin Templeton Group of Funds for which they serve as director, trustee or managing general partner. 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. For additional information concerning trustee compensation and expenses, please see the Trust's Annual Report to Shareholders.
From time to time, the number of Fund shares held in the "street name" accounts of various securities dealers for the benefit of their clients or in centralized securities depositories may exceed 5% of the total shares outstanding. As of the date of this document, Franklin Resources, Inc. owned substantially all of the outstanding shares of the Fund as a result of having provided the Fund's initial capitalization. Charles E. Johnson is the son and nephew, respectively, of Charles B. Johnson and Rupert H. Johnson, Jr., who are brothers.
INVESTMENT ADVISORY AND OTHER SERVICES
The investment manager of the Fund is Franklin Advisers, Inc. ("Advisers" or "Manager"). Advisers is a wholly-owned subsidiary of Franklin Resources, Inc. ("Resources"), a publicly owned holding company whose shares are listed on the New York Stock Exchange ("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 $118 billion in assets for more than 3.7 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 Trust's 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.
Pursuant to the management agreement, the Fund is obligated to pay the Manager a fee computed and accrued daily and paid monthly at the 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.
During the start-up period of the Fund, Advisers has elected to reduce the fees payable under the management agreement and to assume responsibility for making payments, if necessary, to offset certain operating expenses otherwise payable by the Fund so that total ordinary operating expenses do not exceed 1.00% of the Fund's average net assets. This arrangement is in effect until April 30, 1996, and then may be continued or terminated by the Manager at any time. In addition, 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.
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 Fund's trustees who are not parties to the management agreement or interested persons of any such party (other than as trustees of the Fund), cast in person at a meeting called for that purpose. The management agreement may be terminated without penalty at any time by the Fund or by the Manager on 30 days' written notice and will automatically terminate in the event of its assignment, as defined in the 1940 Act.
Franklin/Templeton Investor Services, Inc. ("Investor Services" 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.
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 Trust's 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. As a general rule, the Fund does not purchase bonds in underwritings where it is not given any choice, or only limited choice, in the designation of dealers to receive the commission. 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 broker dealers to execute the Fund's portfolio transactions.
Because Distributors is a member of the National Association of Securities Dealers, it is sometimes entitled to obtain certain fees when the Fund tenders portfolio securities pursuant to a tender-offer solicitation. As a means of recapturing brokerage for the benefit of the Fund, any portfolio securities tendered by the Fund will be tendered through Distributors if it is legally permissible to do so. In turn, the next management fee payable to Advisers under the management agreement will be reduced by the amount of any fees received by Distributors in cash, less any costs and expenses incurred in connection therewith.
If purchases or sales of securities of the Fund and one or more other investment companies or clients supervised by the Manager are considered at or about the same time, transactions in such securities will be allocated among the several investment companies and clients in a manner deemed equitable to all by the Manager, taking into account the respective sizes of the funds and the amount of securities to be purchased or sold. It is recognized that in some cases this procedure could possibly have a detrimental effect on the price or volume of the security so far as the Fund is concerned. In other cases it is possible that the ability to participate in volume transactions and to negotiate lower brokerage commissions will be beneficial to the Fund.
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.
Shares of the Fund may be offered to investors in Taiwan through securities firms known locally as Securities Investment Consulting Enterprises. In conformity with local business practices in Taiwan, shares of the Fund will be offered with the following schedule of sales charges:
SIZE OF PURCHASE SALES
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%
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PURCHASES AND REDEMPTIONS THROUGH SECURITIES DEALERS
Orders for the purchase of shares of the Fund received in proper form prior to the closing 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 closing 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.
SPECIAL NET ASSET VALUE PURCHASES. 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 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 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 Securities and Exchange Commission ("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 as of the closing 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.
As stated in the Prospectus, the net asset value per share for the Fund is determined in the following manner: The aggregate of all liabilities, including, without limitation, the current market value of any outstanding options written by the Fund, accrued expenses and taxes and any necessary reserves is deducted from the aggregate gross value of all assets, and the difference is divided by the number of shares of the Fund outstanding at the time. For the purpose of determining the aggregate net assets of the Fund, cash and receivables are valued at their realizable amounts. Interest is recorded as accrued and dividends are recorded on the ex-dividend date.
Portfolio securities listed on a securities exchange or on the NASDAQ National Market System for which market quotations are readily available are valued at the last quoted sale price of the day or, if there is no such reported sale, within the range of the most recent quoted bid and ask prices. Over-the-counter portfolio securities for which market quotations are readily available are valued within the range of the most recent bid and ask prices as obtained from one or more dealers that make markets in the securities. Portfolio securities which are traded both in the over-the-counter market and on a stock exchange are valued according to the broadest and most representative market as determined by the Manager. Portfolio securities underlying actively traded call options are valued at their market price as determined above. The current market value of any option held by the Fund is its last sale price on the relevant exchange prior to the time when assets are valued. Lacking any sales that day or if the last sale price is outside the bid and ask prices, the options are valued within the range of the current closing bid and ask prices if such valuation is believed to fairly reflect the contract's market value. Other securities for which market quotations are readily available are valued at the current market price, which may be obtained from a pricing service, based on a variety of factors, including recent trades, institutional size trading in similar types of securities (considering yield, risk and maturity) and/or developments related to specific issues. Securities and other assets for which market prices are not readily available are valued at fair value as determined following procedures approved by the Board of Trustees. With the approval of trustees, the Fund may utilize a pricing service, bank or securities dealer to perform any of the above described functions.
The value of a foreign security is determined in its national currency as of the close of trading on the foreign exchange on which it is traded or as of the schedule close of trading on the Exchange, if that is earlier, and that value is then converted into its U.S. dollar equivalent at the foreign exchange rate in effect at noon, Eastern time, on the day the value of the foreign security is determined. Occasionally, events which affect the values of foreign securities and foreign exchange rates may occur between the times at which they are determined and the close of the exchange and will, therefore, not be reflected in the computation of the Fund's net asset value. If events which materially affect the value of these foreign securities occur during such period, then these securities will be valued at fair value as determined by management and approved 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 Trust sends annual and semiannual reports to its shareholders regarding the Fund's performance and its portfolio holdings.
SPECIAL SERVICES
Franklin Institutional Services Corporation ("FISCO") 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 intends to be treated as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). The trustees reserve the right not to maintain the qualification of the Fund as a regulated investment company if they determine such course of action to be beneficial to 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 taxable to the extent of the Fund's available earnings and profits.
Subject to the limitations discussed below, all or a portion of the income distributions paid by the Fund may be treated by corporate shareholders as qualifying dividends for purposes of the dividends-received deduction under federal income tax law. If the aggregate qualifying dividends received by the Fund (generally, dividends from U.S. domestic corporations, the stock in which is not debt-financed by the Fund and is held for at least a minimum holding period) is less than 100% of its distributable income, then the amount of the Fund's dividends paid to corporate shareholders which may be designated as eligible for such deduction will not exceed the aggregate qualifying dividends received by the Fund for the taxable year. The amount or percentage of income qualifying for the corporate dividends-received deduction will be declared by the Fund annually in a notice to shareholders mailed shortly after the end of the Fund's fiscal year.
Corporate shareholders should note that dividends paid by a Fund from sources other than the qualifying dividends it receives will not qualify for the dividends-received deduction. For example, any interest income and short-term capital gain (in excess of any net long-term capital loss or capital loss carryover) included in investment company taxable income and distributed by a Fund as a dividend will not qualify for the dividends-received deduction.
Corporate shareholders should also note that availability of the corporate dividends-received deduction is subject to certain restrictions. For example, the deduction is eliminated unless the Fund shares have been held (or deemed held) for at least 46 days in a substantially unhedged manner. The dividends-received deduction may also be reduced to the extent interest paid or accrued by a corporate shareholder is directly attributable to its investment in Fund shares. The entire dividend, including the portion which is treated as a deduction, is includable in the tax base on which the alternative minimum tax is computed and may also result in a reduction in the shareholder's tax basis in its Fund shares, under certain circumstances, if the shares have been held for less than two years. Corporate shareholders whose investment in the Fund is "debt financed" for these tax purposes should consult with their tax advisors concerning the availability of the dividends-received deduction.
The Code requires all funds to distribute at least 98% of their taxable ordinary income earned during the calendar year and at least 98% of their capital gain net income earned during the twelve month period ending October 31 of each year (in addition to amounts from the prior year that were neither distributed, nor taxed to the Fund) to shareholders by December 31 of each year in order to avoid the imposition of a federal excise tax. Under these rules, certain distributions which are declared in October, November or December but which, for operational reasons, may not be paid to the shareholder until the following January, will be treated for tax purposes as if paid by the Fund and received by the shareholder on December 31 of the calendar year in which they are declared. The Fund intends as a matter of policy to declare such dividends, if any, in December and to pay these dividends in December or January to avoid the imposition of this tax, but does not guarantee that its distributions will be sufficient to avoid any or all federal excise taxes.
Redemptions and exchanges of Fund shares are taxable transactions for federal and state income tax purposes. For most shareholders, gain or loss will be recognized in an amount equal to the difference between the shareholder's basis in the shares and the amount received, subject to the rules described below. If such shares are a capital asset in the hands of the shareholder, gain or loss will be capital gain or loss and will be long-term for federal income tax purposes if the shares have been held for more than one year.
All or a portion of the sales charge incurred in purchasing shares of the Fund will not be included in the federal tax basis of such shares sold or exchanged within 90 days of their purchase (for purposes of determining gain or loss with respect to such shares) if the sales proceeds are reinvested in the Fund or in another fund in the Franklin/Templeton Funds and a sales charge which would otherwise apply to the reinvestment is reduced or eliminated. Any portion of such sales charge excluded from the tax basis of the shares sold will be added to the tax basis of the shares acquired in the reinvestment.
All or a portion of a loss realized upon a redemption of shares will be disallowed to the extent other shares of the Fund are purchased (through reinvestment of dividends or otherwise) within 30 days before or after such redemption. Any loss disallowed under these rules will be added to the tax basis of the shares purchased.
Any loss realized upon the redemption of shares within six months from the date of their purchase will be treated as a long-term capital loss to the extent of amounts treated as distributions of net long-term capital gain during such six-month period.
The Fund's investment in options and forward contracts 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's treatment of certain other options, futures and forward contracts entered into by the Fund is generally governed by Section 1256 of the Code. These "Section 1256" positions generally include listed options on debt securities, options on broad-based stock indexes, options on securities indexes, options on futures contracts, regulated futures contacts and certain foreign currency contacts and options thereon.
Absent a tax election to the contrary, each such Section 1256 position held by the Fund will be marked-to-market (i.e., treated as if it were sold for fair market value) on the last business day of the Fund's fiscal year, and all gain or loss associated with fiscal year transactions and mark-to-market positions at fiscal year end (except certain foreign currency gain or loss covered by Section 988 of the Code) will generally be treated as 60% long-term capital gain or loss and 40% short-term capital gain or loss. The effect of Section 1256 mark-to-market rules may be to accelerate income or to convert what otherwise would have been long-term capital gains into short-term capital gains or short-term capital losses into long-term capital losses within the Fund. The acceleration of income on Section 1256 positions may require the Fund to accrue taxable income without the corresponding receipt of cash. In order to generate cash to satisfy the distribution requirements of the Code, the Fund may be required to dispose of portfolio securities that it otherwise would have continued to hold or to use cash flows from other sources such as the sale of Fund shares. In these ways, any or all of these rules may affect 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.
In order for the Fund to qualify as a regulated investment company, at least 90% of the Fund's annual gross income must consist of dividends, interest and certain other types of qualifying income and no more than 30% of its annual gross income may be derived from the sale or other disposition of securities or certain other instruments held for less than 3 months. Foreign exchange gains derived by a Fund with respect to the Fund's business investing in stock or securities, or options or futures with respect to such stock or securities is qualifying income for purposes of this 90% limitation.
Currency speculation or the use of currency forward contracts or other currency instruments for non-hedging purposes may generate gains deemed to be not derived with respect to the Fund's business of investing in stock or securities and related options or forwards. Under current law, non-directly-related gains rising from foreign currency positions or instruments held for less than 3 months are treated as derived from the disposition of securities held less than 3 months in determining the Fund's compliance with the 30% limitation. The Fund will limit its activities involving foreign exchange gains to the extent necessary to comply with these requirements.
The Fund is authorized to invest in foreign securities (see the discussion in the prospectus under Investment Objectives and Policies of the Fund). Such investments, if made, will have the following tax consequences.
The Fund may be subject to foreign withholding taxes on income from certain of its foreign securities. Because the Fund will likely invest 50% or less of its total assets in securities of foreign corporations, the Fund will not be entitled under the Code to pass-through to its shareholders their pro-rata share of the foreign taxes paid by the Fund. These taxes will be taken as a deduction by the Fund.
Foreign exchange gains and losses realized by the Fund in connection with certain transactions involving foreign currencies, foreign currency payables or receivables, foreign currency-denominated debt securities, foreign currency forward contracts, and options or futures contracts on foreign currencies are subject to special tax rules which may cause such gains and losses to be treated as ordinary income and losses rather than capital gains and losses and may affect the amount and timing of the Fund's income or loss from such transactions and in turn its distributions to shareholders. Additionally, investments in foreign securities pose special issues to the Fund in meeting its asset diversification and income tests as a regulated investment company. The Fund will limit its investments in foreign securities to the extent necessary to comply with these requirements.
THE FUND'S UNDERWRITER
Pursuant to an underwriting agreement in effect until April 30, 1996, Distributors acts as principal underwriter in a continuous public offering for shares of the Fund.
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 Trust's trustees who are not parties to the underwriting agreement or interested persons of any such party (other than as trustees of the Trust), cast in person at a meeting called for that purpose. The underwriting agreement terminates automatically in the event of its assignment and may be terminated by either party on 90 days' written notice.
DISTRIBUTION PLAN
The Fund has adopted a Distribution Plan pursuant to Rule 12b-1 under the 1940 Act (the "Plan"). Under the Plan, the Fund may pay to Distributors or others up to 0.25% per annum of its average daily net assets, payable quarterly, for expenses incurred in the promotion and distribution of its shares. Under the Plan, the Fund is permitted to pay Distributors up to an additional 0.10% per annum of its average daily net assets for reimbursement of such distribution expenses.
Pursuant to the Plan, Distributors or others will be entitled to be reimbursed each quarter for actual expenses incurred in the distribution and promotion of the Fund's shares, including, but not limited to, the printing of prospectuses and reports used for sales purposes, expenses of preparing and distributing 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.
In addition to the payments to which Distributors or others are entitled under the Plan, the Plan also provides that to the extent the Fund, the Manager or Distributors or other parties on behalf of the Fund, the Manager or Distributors, make payments that are deemed to be payments for the financing of any activity primarily intended to result in the sale of shares of the Fund within the context of Rule 12b-1 under the 1940 Act, then such payments shall be deemed to have been made pursuant to the Plan.
In no event shall the aggregate asset-based sales charges which include payments made under the Plan, plus any other payments deemed to be made pursuant to the Plan, exceed the amount permitted to be paid pursuant to the Rules of Fair Practice of the National Association of Securities Dealers, Inc., Article III, Section 26(d)4.
The terms and provisions of the Plan relating to required reports, term, and approval are consistent with Rule 12b-1. The Plan does not permit unreimbursed expenses incurred in a particular year to be carried over to 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 Plan 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 Plan 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 Board of Trustees has determined that a consistent cash flow resulting from the sale of new shares is necessary and appropriate to meet redemptions and to take advantage of buying opportunities of portfolio securities without having to make unwarranted liquidations of other portfolio securities. The Board of Trustees, therefore, felt that it would benefit the Fund to have monies available for the direct distribution activities of Distributors or others in promoting the sale of its shares. The Board of Trustees, including the non-interested trustees, concluded that, in the exercise of their reasonable business judgment and in light of their fiduciary duties, there is a reasonable likelihood that the Plan will benefit the Fund and its shareholders.
The Plan has been approved by Resources, the initial shareholder of the Trust, and by the trustees of the Trust, including those trustees who are not interested persons, as defined in the 1940 Act. The Plan is effective through April 30, 1996, and renewable annually by a vote of the Trust's Board of Trustees, including a majority vote of the trustees who are non-interested persons of the Trust and who have no direct or indirect financial interest in the operation of the Plan, cast in person at a meeting called for that purpose. It is also required that the selection and nomination of such trustees be done by the non-interested trustees. The Plan and any related agreement may be terminated at any time, without 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 the Underwriting Agreement with Distributors, or by vote of a majority of the Fund's outstanding shares. Distributors or any dealer or other firm may also terminate their respective distribution or service agreement at any time upon written notice.
The Plan and any related agreements may not be amended to increase materially the amount to be spent for distribution expenses without approval by a majority of the Fund's outstanding shares, and all material amendments to the Plan or any related agreements shall be approved by a vote of the non-interested trustees, cast in person at a meeting called for the purpose of voting on any such amendment.
Distributors is required to report in writing to the Board of Trustees at least quarterly on the amounts and purpose of any payment made under the Plan and any related agreements, as well as to furnish the Board 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 Plan should be continued.
GENERAL INFORMATION
PERFORMANCE
As noted in the Prospectus, the Fund may from time to time quote various performance figures to illustrate the Fund's past performance. It may occasionally cite statistics to reflect its volatility or risk.
Performance quotations by investment companies are subject to rules adopted by the SEC. These rules require the use of standardized performance quotations or, alternatively, that every non-standardized performance quotation furnished by the Fund be accompanied by certain standardized performance information computed as required by the SEC. Current yield and average annual compounded total return quotations used by the Fund are based on the new standardized methods of computing performance mandated by the SEC. An explanation of those and other methods used by the Fund to compute or express performance follows.
TOTAL RETURN
The average annual total return is determined by finding the average annual compounded rates of return over one-, five-, and ten-year periods (or fractional portion thereof) that would equate an initial hypothetical $1,000 investment to its ending redeemable value. The calculation assumes the maximum front-end sales charge is deducted from the initial $1,000 purchase order and income dividends and capital gains are reinvested at net asset value. The quotation assumes the account was completely redeemed at the end of each one-, five- and ten-year period and the deduction of all applicable charges and fees.
In considering the quotations of total return by the Fund, investors should remember that the 4.50% maximum initial sales charge reflected in each quotation is a one-time fee (charged on all direct purchases) which will have its greatest impact during the early stages of 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.
Quotation figures will be calculated according to the following 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, the Fund may quote total rates of return in addition to its average annual total return. Such quotations are computed in the same manner as the Fund's average annual compounded rate, except that such quotations will be based on the Fund's actual return for a specified period rather than on its average return over one-, five- and ten-year periods, or fractional portion thereof.
YIELD
Current yield reflects the income per share earned by the Fund's portfolio investments.
Current yield is determined by dividing the net investment income per share earned during a 30-day base period by the maximum offering price per share on the last day of the period and annualizing the result. Expenses accrued for the period include any fees charged to all shareholders during the base period.
Current yield figures will be obtained using the following SEC formula:
Yield = 2 [(a-b + 1)6 -1]
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 the Fund's 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 the Fund during the past 12 months by a current maximum offering price. Under certain circumstances, such as when there has been a change in the amount of dividend payout, or a fundamental change in investment policies, it might be appropriate to annualize the dividends paid over the period such policies were in effect, rather than using the dividends during the past 12 months. The current distribution rate differs from the current yield computation because it may include distributions to shareholders from sources other than dividends and interest, such as 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 shares of the Fund at net asset value, sales literature pertaining to the Fund may quote a current distribution rate, yield, total return, average annual total return and other measures of performance as described elsewhere in this SAI with the substitution of net asset value for the public offering price.
Sales literature referring to the use of the Fund as a potential investment for Individual Retirement Accounts (IRAs), Business Retirement Plans, and other tax-advantaged retirement plans may quote a total return based upon compounding of dividends on which it is presumed no federal income tax applies.
Regardless of the method used, past performance is not necessarily indicative of future results, but is an indication of the return to shareholders only for the limited historical period used.
The Fund may include in its advertising or sales material information relating to investment objectives and performance results of funds belonging to the Templeton Group of Funds. Resources is the parent company of the advisers and underwriter of both the Franklin Group of Funds 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 performance as reported by various financial publications. Materials may also compare performance (as calculated above) to performance as reported by other investments, indices, and averages. Such comparisons may include, but are not limited to, the following examples:
a) Dow Jones Composite Average or its component averages - an unmanaged index composed of 30 blue-chip industrial corporation stocks (Dow Jones Industrial Average), 15 utilities company stocks (Dow Jones Utilities Average), and 20 transportation company stocks. Comparisons of performance assume reinvestment of dividends.
b) Standard & Poor's 500 Stock Index or its component indices - an unmanaged index composed of 400 industrial stocks, 40 financial stocks, 40 utilities stocks, and 20 transportation stocks. Comparisons of performance assume reinvestment of dividends.
c) The New York Stock Exchange composite or component indices - unmanaged indices of all industrial, utilities, transportation, and finance stocks listed on the New York Stock Exchange.
d) Wilshire 5000 Equity Index - represents the return on the market value of all common equity securities for which daily pricing is available. Comparisons of performance assume reinvestment of dividends.
e) Lipper - Mutual Fund Performance Analysis and Lipper - Fixed Income Fund Performance Analysis - measure of total return and average current yield for the mutual fund industry. Rank individual mutual fund performance over specified time periods, assuming reinvestment of all distributions, exclusive of any applicable sales charges.
f) CDA Mutual Fund Report, published by CDA Investment Technologies, Inc. - analyzes price, current yield, risk, total return, and average rate of return (average annual compounded growth rate) over specified time periods for the mutual fund industry.
g) Mutual Fund Source Book, published by Morningstar, Inc. - analyzes price, yield, risk, and total return for equity funds.
h) Valueline Index - an unmanaged index which follows the stocks of approximately 1,700 companies.
i) Consumer Price Index (or Cost of Living Index), published by the U.S. Bureau of Labor Statistics - a statistical measure of change, over time, in the price of goods and services in major expenditure groups.
j) Historical data supplied by the research departments of First Boston Corporation, the J. P. Morgan companies, Salomon Brothers, Merrill Lynch, Pierce, Fenner & Smith, Lehman Brothers and Bloomberg L.P.
k) Financial publications: The Wall Street Journal and Business Week, Changing Times, Financial World, Forbes, Fortune and Money magazines - provide performance statistics over specified time periods.
l) Morgan Stanley Capital International World Indices, including, among others, the Morgan Stanley Capital International Europe, Australia, Far East Index ("EAFE Index"). The EAFE index is an unmanaged index of more than 1,000 companies of Europe, Australia and the Far East.
m) Financial Times Actuaries Indices - including the FTA-World Index (and components thereof), which are based on stocks in major world equity markets.
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 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 2.5 million shareholder accounts. In 1992, Franklin, a leader in managing fixed-income mutual funds and an innovator in creating domestic equity funds, joined forces with Templeton Worldwide, Inc., a pioneer in international investing. Together, the Franklin Templeton Group has over $118 billion in assets under management for more than 3.7 million shareholder accounts and offers 112 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.
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.
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Trustees of Franklin Strategic Series:
We have audited the accompanying statement of assets and liabilities of Franklin Natural Resources Fund as of May 26, 1995. This financial statement is the responsibility of the Fund's management. Our responsibility is to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement. Our procedures included confirmation of cash held as of May 26, 1995 with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents fairly, in all material respects, the financial position of Franklin Natural Resources Fund as of May 26, 1995 in conformity with generally accepted accounting principles.
San Francisco, California
May 30, 1995
FRANKLIN STRATEGIC SERIES
FRANKLIN NATURAL RESOURCES FUND
STATEMENT OF ASSETS AND LIABILITIES
May 26, 1995
Assets: Cash held by custodian $ 100 Unamortized organization costs 5,000 Total assets 5,100 Liabilities: Accrued expenses for organization costs 5,000 Net assets $ 100 Shares of beneficial interest outstanding, $0.01 10 par value, unlimited shares authorized Net asset value per share $ 1O.00 Computation of net asset value and offering price per share: Net asset value, and redemption price per share $ 10.O0 ($100/10) Maximum offering price (100/95.5 of $10.00) $ 10.47 |
Note: Franklin Natural Resources Fund ("the Fund") is an open- end, non-diversified series of the Franklin Strategic Series, a management investment company registered under the Investment Company Act of 1940 and organized as a Delaware business trust on January 25, 1991. Organization expenses are being amortized over a five year period from the effective date of its registration under the Securities Act of 1933. As part of its organization, the Fund has issued, in a private placement, 10 shares of beneficial interest to Franklin Resources, Inc. at $10,00 per share. These shares have been designated as "initial shares." Upon the redemption of any of the initial shares held by Franklin Resources, Inc. or any subsequent holder thereof, prior to the end of the five-year period for amortizing organization expenses, the pro rata share of the then unamortized organization expenses will be deducted from the redemption proceeds in the same proportion as the number of shares being redeemed bears to the total number of such remaining initial shares then outstanding. Investors purchasing shares of the Fund subsequent to the dates of the prospectus bear organization expenses only as amortization charges are accrued daily against investment income.
FRANKLIN STRATEGIC SERIES
File Nos. 33-39088
811-6243
FORM N-1A
PART C
Other Information
Item 24 Financial Statements and Exhibits
a) Financial Statements
1. Audited Financial Statements filed in Part B.
(i) Report of Independent Auditors.
(ii) Statement of Assets and Liabilities dated May 26, 1995.
2. Unaudited Financial Statements for Franklin Strategic Series dated October 31, 1994, included herein as Exhibit 99-A(1)
(i) Statement of Investments in Securities and Net Assets, October 31, 1994
(ii) Statements of Assets and Liabilities, October 31, 1994
(iii) Statements of Operations for six months ended October 31, 1994
(iv) Statements of Changes in Net Assets for the six months ended October 31, 1994 and for the year ended April 30, 1994
(v) Notes to Financial Statements
b) Exhibits:
(1) copies of the charter as now in effect;
(i) Agreement and Declaration of Trust of Franklin California 250 Growth Index Fund as of January 22, 1991
(ii) Certificate of Trust of Franklin California 250 Growth Index Fund dated January 22, 1991
(iii) Certificate of Amendment of the Certificate of Trust of Franklin California 250 Growth Fund dated November 19, 1991
(iv) Certificate of Amendment to the Certificate of Trust of Franklin Strategic Series dated May 14, 1992
(2) copies of the existing By-Laws or instruments corresponding thereto;
(i) Amended and Restated By-Laws of Franklin California 250 Growth Index Fund as of April 25, 1991
(ii) Amendment to By-Laws dated October 27, 1994
(3) copies of any voting trust agreement with respect to more than five percent of any class of equity securities of the Registrant;
Not Applicable
(4) specimens or copies of each security issued by the Registrant, including copies of all constituent instruments, defining the rights of the holders of such securities, and copies of each security being registered;
Not Applicable
(5) copies of all investment advisory contracts relating to the management of the assets of the Registrant;
(i) Management Agreement between Registrant on behalf of Franklin Small Cap Growth Fund, Franklin Global Healthcare Fund, and any other series organized thereafter and Franklin Advisers, Inc. dated February 24, 1992
(ii) Administration Agreement between Registrant on behalf of Franklin MidCap Growth Fund and Franklin Advisers, Inc. dated April 12, 1993
(iii) Administration Agreement between Registrant on behalf of FISCO MidCap Growth Fund and Franklin Advisers, Inc. dated August 17, 1993
(iv) Management Agreement between Registrant on behalf of Franklin Strategic Income Fund and Franklin Advisers, Inc. effective May 24, 1994
(v) Subadvisory Agreement between Franklin Advisers, Inc. and Templeton Investment Counsel, Inc., providing for services to Franklin Strategic Income Fund dated May 24, 1994
(vi) Amended and Restated Management Agreement between Franklin Advisers, Inc. and the Registrant, on behalf of Franklin California Growth Fund effective July 12, 1993
(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. on behalf of all Series except Franklin Strategic Income Series dated March 29, 1995
(ii) Amended and Restated Distribution Agreement between Registrant and Franklin/Templeton Distributors, Inc. on behalf of Franklin Strategic Income Series dated April 23, 1994
(iii) Forms of Dealer Agreements between
Franklin/Templeton Distributors, Inc. and
dealers is incorporated by reference to:
Registrant: Franklin Federal Tax-Free Income
Fund
Filing: Post-Effective Amendment No. 17 to
Registration Statement on Form N-1A
File No. 2-75925
Filing Date: March 28, 1995
(7) copies of all bonus, profit sharing, pension or other similar contracts or arrangements wholly or partly for the benefit of Trustees or officers of the Registrant in their capacity as such; any such plan that is not set forth in a formal document, furnish a reasonably detailed description thereof;
Not applicable
(8) copies of all custodian agreements and depository contracts under Section 17(f) of the Investment Company Act of 1940 (the "1940 Act"), with respect to securities and similar investments of the Registrant, including the schedule of remuneration;
(i) Custodian Agreement between Registrant and Bank of America NT & SA dated May 24, 1994
(ii) Custodian Agreements between Registrant and
Citibank Delaware
1. Citicash Management ACH Customer Agreement
2. Citibank Cash Management Services Master
Agreement
3. Short Form Bank Agreement - Deposits and
Disbursements of Funds
Registrant: Franklin Premier Return Fund
Filing: Post-Effective Amendment No. 54 to
Registration on Form N-1A
File Nos. 33-39088 & 811-6243
Filing Date: February 22, 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;
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 August 20, 1991.
(ii) Letter of Understanding dated April 12, 1995.
(14) copies of the model plan used in the establishment of any retirement plan in conjunction with which Registrant offers its securities, any instructions thereto and any other documents making up the model plan. Such form(s) should disclose the costs and fees charged in connection therewith;
(i) copy of model retirement plan:
Registrant: AGE High Income Fund, Inc.
Filing: Post-effective Amendment No. 26 to
Registration Statement on Form N-1A
File No. 2-30203
Filing Date: August 1, 1989
(15) copies of any plan entered into by Registrant pursuant to Rule 12b-l under the 1940 Act, which describes all material aspects of the financing of distribution of Registrant's shares, and any agreements with any person relating to implementation of such plan.
(i) Amended and Restated Distribution Plan between Franklin Strategic Series and Franklin Templeton Distributors, Inc. on behalf of Franklin California Growth Fund, Franklin Small Cap Growth Fund, Franklin Global Health Care Fund and Franklin Global Utilities Fund dated July 1, 1993.
(ii) Distribution Plan between Franklin Strategic Series and Franklin Templeton Distributors, Inc. on behalf of Franklin Global Utilities Fund- Class II dated March 30, 1995.
(iii) Distribution Plan pursuant to Rule 12b-1 between Registrant, on behalf of the Franklin Strategic Income Fund, and Franklin Distributors, Inc. dated May 24, 1994
(iv) Distribution Plan pursuant to Rule 12b-1 between Registrant, on behalf of the Franklin Natural Resources Fund and Franklin Templeton Distributors, Inc. dated June 1, 1995
(16) schedule for computation of each performance quotation provided in the registration statement in response to Item 22 (which need not be audited).
(i) Schedule for Computation of Performance and
Quotations
Registrant: Franklin Tax Advantaged U.S.
Government Securities Fund
Filing: Post-Effective amendment No. 8 to
Registration Statement on Form N-1A
File No.: 33-11963
Filing Date: March 1, 1995
(17) (i) Power of Attorney dated February 16, 1995
(ii) Certificate of Secretary dated February 16, 1995
|
Item 25 Persons Controlled by or under Common Control with Registrant
None
Item 26 Number of Holders of Securities
Except as noted, as of April 28, 1995 the number of record holders of the only classes of securities of the Registrant were as follows:
Number of
Title of Class Record
Holders
Class
Shares of Beneficial Interest
Franklin California Growth Fund 1,576
Franklin Global Health Care Fund 2,191
Franklin Small Cap Growth Fund 8,183
Franklin Global Utilities Fund 13,886
FISCO Midcap Growth 1
Franklin Midcap Growth 1
Franklin Strategic Income Fund 140
Franklin Natural Resources Fund -0-
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Item 27 Indemnification
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to Trustees, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a Trustee, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such Trustee, officer or controlling person in connection with securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court or appropriate jurisdiction the question whether such indemnification is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
Item 28 Business and Other Connections of Investment Adviser
a) Franklin Advisers, Inc.
The officers and Directors of the Registrant's manager also serve as officers and/or directors for (1) the manager's corporate parent, Franklin Resources, Inc., and/or (2) other investment companies in the Franklin Group of Funds (Registered Trademark). In addition, Mr. Charles B. Johnson is a director of General Host Corporation. For additional information please see Part B and Schedules A and D of Form ADV of the Funds' Investment Manager (SEC File 801-26292), incorporated herein by reference, which sets forth the officers and directors of the Investment Manager and information as to any business, profession, vocation or employment of a substantial nature engaged in by those officers and directors during the past two years.
b) Templeton Investment Counsel, Inc.
Templeton Investment Counsel, Inc. ("TICI"), an indirect, wholly owned subsidiary of Franklin Resources, Inc., serves as the Franklin Strategic Income Fund's Sub-adviser, furnishing to Franklin Advisers, Inc. in that capacity, portfolio management services and investment research. For additional information please see Part B and Schedules A and D of Form ADV of the Franklin Strategic Income Fund's Sub-adviser (SEC File 801- 15125), incorporated herein by reference, which sets forth the officers and directors of the Sub-adviser and information as to any business, profession, vocation or employment of a substantial nature engaged in by those officers and directors during the past two years.
Item 29 Principal Underwriters
a) Franklin/Templeton Distributors, Inc., ("Distributors") also acts as principal underwriter of shares of AGE High Income Fund, Inc., Franklin Custodian Funds, Inc., Franklin Equity Fund, Franklin Money Fund, Franklin Federal Money Fund, Franklin Tax- Exempt Money Fund, Institutional Fiduciary Trust, Franklin Strategic Mortgage Portfolio, Franklin California Tax-Free Income Fund, Inc., Franklin New York Tax-Free Income Fund, Inc., Franklin California Tax-Free Trust, Franklin Investors Securities Trust, Franklin Premier Return Fund, Franklin Tax-Free Trust, Franklin New York Tax-Free Trust, Franklin Municipal Securities Trust, Franklin International Trust, Franklin Tax-Advantaged International Bond Fund, Franklin Tax-Advantaged U.S. Government Securities Fund, Franklin Tax-Advantaged High Yield Securities Fund, Franklin Managed Trust, Franklin Balance Sheet Investment Fund, Franklin Federal Tax Free Income Fund, Franklin Real Estate Securities 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 Global Investment Trust, Templeton Developing Markets Trust, Templeton Variable Annuity Fund 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 are kept by the Registrant or its shareholder services agent, Franklin/Templeton Investor Services, Inc., both of whose address is 777 Mariners Island Blvd., San Mateo, CA. 94404.
Item 31 Management Services
There are no management-related service contracts not discussed in Part A or Part B.
Item 32 Undertakings
(a) The Registrant hereby undertakes to promptly call a meeting of shareholders for the purpose of voting upon the question of removal of any trustee or trustees when requested in writing to do so by the record holders of not less than 10 per cent of the Registrant's outstanding shares to assist its shareholders in the communicating with other shareholders in accordance with the requirements of Section 16(c) of the Investment Company Act of 1940.
(b) The Registrant hereby undertakes to comply with the information requirement in Item 5A of the Form N-1A by including the required information in the Fund's annual report and to furnish each person to whom a prospectus is delivered a copy of the annual report upon request and without charge.
(c) The Registrant hereby undertakes to file a post-effective amendment using financial statements which need not be certified, within four to six months from the effective date of Registrant's Registration Statement under the Securities Act of 1933.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that it meets all of the requirements for effectiveness of this Post- Effective Amendment to its Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused this Amendment to its Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of San Mateo and the State of California, on the 1st day of June, 1995.
Franklin Strategic Series
(Registrant)
By: Rupert H. Johnson, Jr., President
Rupert H. Johnson, Jr., President
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective Amendment to Registrant's 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 1, 1995
Martin L. Flanagan* Principal Financial Officer
Martin L. Flanagan Dated: June 1, 1995
Diomedes Loo-Tam* Principal Accounting Officer
Diomedes Loo-Tam Dated: June 1, 1995
Frank H. Abbott III* Trustee
Frank H. Abbott III Dated: June 1, 1995
Harris J. Ashton* Trustee
Harris J. Ashton Dated: June 1, 1995
Harmon E. Burns* Trustee
Harmon E. Burns Dated: June 1, 1995
S. Joseph Fortunato* Trustee
S. Joseph Fortunato Dated: June 1, 1995
David W. Garbellano* Trustee
David W. Garbellano Dated: June 1, 1995
Charles B. Johnson* Trustee
Charles B. Johnson Dated: June 1, 1995
Frank W.T. LaHaye* Trustee
Frank W.T. LaHaye Dated: June 1, 1995
Gordon S. Macklin* Trustee
Gordon S. Macklin Dated: June 1, 1995
*By /s/ Larry L. Greene
Larry L. Greene, Attorney-in-Fact
*Pursuant to Power of Attorney previously filed.
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FRANKLIN STRATEGIC SERIES
REGISTRATION STATEMENT
EXHIBITS INDEX
EXHIBIT NO. DESCRIPTION PAGE NO. IN
SEQUENTIAL
NUMBERING
SYSTEM
EX-99.A1 Unaudited Financial Attached
Statements dated October
31, 1994
EX-99.B1(i) Agreement and Declaration Attached
of Trust of Franklin
California 250 Growth
Index Fund as of January
22, 1991
EX-99.B1(ii) Certificate of Trust of Attached
Franklin California 250
Growth Index Fund dated
January 22, 1991
EX-99.B1(iii) Certificate of Amendment Attached
of Certificate of Trust of
Franklin California 250
Growth Index Fund dated
November 19, 1991
EX-99.B1(iv) Certificate of Amendment Attached
to the Certificate of
Trust of Franklin
Strategic Series dated May
14, 1992
EX-99.B2(i) Amended and Restated Attached
Bylaws of Franklin
California 250 Growth
Index Fund as of April 25,
1991
EX-99.B2(ii) Amendment to By-Laws dated Attached
October 27, 1994
EX-99.B5(i) Management Agreement Attached
between Registrant on
behalf of Franklin Small
Cap Growth Fund, Franklin
Global Healthcare Fund,
Franklin Global Utilities
Fund and Franklin
Advisers, Inc. dated
February 24, 1992
EX-99.B5(ii) Administration Agreement Attached
between Registrant on
behalf of Franklin MidCap
Growth Fund and Franklin
Advisers, Inc. dated April
12, 1993
EX-99.B5(iii) Administration Agreement Attached
between Registrant on
behalf of FISCO MidCap
Growth Fund and Franklin
Advisers, Inc. dated
August 17, 1993
EX-99.B5(iv) Management Agreement Attached
between Registrant on
behalf of Franklin
Strategic Income Fund and
Franklin Advisers, Inc.
effective May 24, 1994
EX-99.B5(v) Subadvisory Agreement Attached
between Franklin Advisers,
Inc. and Templeton
Investment Counsel, Inc.,
providing for services to
Franklin Strategic Income
Fund dated May 24, 1994
EX-99.B5(vi) Amended and Restated Attached
Management Agreement
between Franklin Advisers,
Inc. and the Registrant,
on behalf of Franklin
California Growth Fund
effective July 12, 1993
EX-99.B6(i) Amended and Attached
Restated Distribution
Agreement between
Registrant and
Franklin/Templeton
Distributors, Inc. on
behalf of all Series
except Franklin Strategic
Income Series dated
March 29, 1995
EX-99.B6(ii) Amended and Attached
Restated Distribution
Agreements between
Registrant and
Franklin/Templeton
Distributors, Inc. on
behalf of Franklin
Strategic Income Series
dated April 23, 1994
Ex-99.B6(iii) Forms of Dealer Agreements *
between Franklin/Templeton
Distributors, Inc and
dealers
EX-99.B8(i) Custodian Agreement Attached
between Registrant and
Bank of America NT & SA
dated May 24, 1994
EX-99.B8(ii) Custodian Agreement *
between Registrant and
Citibank Delaware
EX-99.B8(iii) Amendment to Custodian *
Agreement between
Registrant and Bank of
America NT & SA dated
December 1, 1994
EX-99.B11(i) Consent of Independent Attached
Auditors dated May 30, 1995
EX-99.B13(i) Letter of Understanding Attached
dated August 20, 1991
EX-99.B13(ii) Letter of Understanding Attached
dated April 12, 1995
EX-99.B14(i) Franklin IRA Form *
EX-99.B15(i) Amended and Restated Attached
Distribution Plan between
Franklin Strategic Series
and Franklin Templeton
Distributors, Inc. on
behalf of Franklin
California Growth Fund,
Franklin Small Cap Growth
Fund, Franklin Global
Health Care Fund and
Franklin Global Utilities
Fund dated July 1, 1993
EX-99.B15(ii) Distribution Plan Attached
between Franklin Strategic
Series and Franklin
Templeton Distributors,
Inc. on behalf of Franklin
Global Utilities Fund-
Class II dated March 30, 1995
EX-99.B15(iii) Distribution Plan pursuant Attached
to Rule 12b-1 between
Registrant, on behalf of
the Franklin Strategic
Income Fund, and Franklin
Distributors, Inc. dated
May 24, 1994
EX-99.B15(iv) Distribution Plan pursuant Attached
to Rule 12b-1 between
Registrant
on behalf of the Franklin
Natural Resources Fund and
Franklin/Templeton
Distributors, Inc. dated
June 1, 1995
EX-99.B16(i) Schedule for Computation *
EX-99.B17(i) Power of Attorney dated Attached
February 16, 1995
EX-99.B17(ii) Certificate of Secretary Attached
dated February 16, 1995
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* Incorporated by reference
FRANKLIN
STRATEGIC
SERIES
SEMI-ANNUAL REPORT
OCTOBER 31, 1994
[LOGO]
TABLE OF CONTENTS FRANKLIN CALIFORNIA GROWTH FUND seeks capital appreciation by investing in the securities of companies headquartered in, or conducting the majority of their operations in, the state of California ......... 2 FRANKLIN STRATEGIC INCOME FUND seeks a high level of current income, with capital appreciation over the long term as a secondary objective. The fund uses an active asset allocation process and invests in securities of foreign governments; U.S. and foreign high yield fixed-income securities; securities of the U.S. government; mortgage securities; asset-backed securities; and preferred stock, common stocks which pay dividends and income producing securities convertible into common stocks of such companies..................... 5 FRANKLIN GLOBAL UTILITIES FUND seeks to provide total return without incurring undue risk by investing in securities of utilities companies located in the United States and around the world........ 8 FRANKLIN SMALL CAP GROWTH FUND seeks long-term capital growth by investing in equity securities of small-capitalization companies -- those with a market capitalization of less than $1 billion at the time of investment................................... 11 FRANKLIN GLOBAL HEALTH CARE FUND seeks capital appreciation by investing primarily in equity securities of health care companies located throughout the world..................................... 14 FISCO MIDCAP GROWTH FUND seeks total return (capital growth plus income) exceeding the total return of the aggregate U.S. medium- capitalization stocks, as measured by the Standard & Poor's (S&P) MidCap 400 Index(R).* The fund invests in the common stocks of companies selected by a structured quantitative investment strategy. Shares of the fund are available only to institutional accounts................. 17 |
*The fund is not sponsored, endorsed, sold or promoted by Standard & Poor's. FISCO(R) is an acronym for Franklin Institutional Services Corporation, the investment advisor for the fund. For a free brochure and prospectus on one or more Franklin funds, please contact your investment representative, or call Franklin Templeton Fund Information, toll free, at 1-800/DIAL BEN (1-800/342-5236). A prospectus contains more complete information about a fund, including charges and expenses. Please read it carefully before you invest or send money. To ensure the highest quality of service, telephone calls to or from our service departments may be monitored, recorded and accessed. These calls can be determined by the presence of a regular beeping tone.
December 15, 1994
Dear Shareholder:
It's a pleasure to bring you the fourth semi-annual report for the Franklin Strategic Series, which covers the period ended October 31, 1994.
The Franklin Strategic Series is comprised of six different mutual funds, each concentrated in a separate sector of the economy. While all of the funds have distinctive objectives, management pursues a long-term investment strategy and follows the same fundamental principals of careful selection and constant professional supervision.
For specific information about each fund in the Series, including the effects of market conditions and management strategies upon its performance, please refer to the pages listed in the table of contents.
As always, we appreciate your support, welcome your questions and look forward to serving you in the years to come.
Sincerely,
Rupert H. Johnson, Jr.
Senior Vice President
Franklin Strategic Series
FRANKLIN STRATEGIC SERIES
FRANKLIN CALIFORNIA GROWTH FUND
Dear Shareholder:
Enclosed is the semi-annual report for the Franklin California Growth Fund covering the period ended October 31, 1994. Management is pleased to report that the fund provided a total return of +12.31%, as shown in the Performance Summary on page 4. This significantly outperformed the Standard & Poor's 500 Stock Index(R) and the Franklin California 250 Growth Index(R), which posted total returns of +6.13% and +9.29% respectively, for the same period.*
California is the seventh largest economy in the world, and is currently responsible for 13% of the nation's gross domestic product. It has over 800,000 companies producing more than $800 billion in goods and services each year and is the nation's largest trading state, accounting for 20% of U.S. exports.**
During the period under review, California's economy began to show signs of recovery, such as improved housing starts, a decline in unemployment figures, and strong retail sales. Management therefore shifted a portion of the fund's assets into economically sensitive companies that should benefit from growth in local and worldwide economies. One example is Fritz Companies, a freight-forwarding company that should experience strong growth related to increased domestic and foreign trade. Other examples are Broadway Stores, a turnaround candidate that operates the Emporium and Broadway department stores, and Superior Industries, a leading maker of cast aluminum wheels for the automotive market.
Management also invested in several initial public offerings (IPOs) that performed well for the fund. These included FORE Systems, a leader in high performance computer networking products, and Cascade Communications, a leader in high speed data service switching products. Both of these positions were sold after their prices increased following their initial offerings.
During the past six months, greater emphasis was placed on the technology services, electronic technology, semiconductor, transportation, and retail sectors. The technology services sector is composed of software companies that benefited from the trend toward downsizing and the development of client-server applications. Electronic technology and semiconductor companies performed well as demand for such products increased due to the proliferation of personal computers and data communications. The transportation sector was focused on freight forwarding companies, which were positively impacted from increased trade with Asia, Canada, Mexico and other Latin American countries. The retail sector provided expo-
*It is important to note that an index does not contain cash (the fund generally carries a certain percentage of cash at any given time), nor does an index include sales charges or management fees. The indexes are unmanaged and include reinvested dividends. Of course, one cannot invest directly in an index, and past performance is not indicative of future results.
**Sources: California Trade and Commerce Agency, May 1993; Economic Report of the Governor, June 1992.
sure to those companies which benefited from increased consumer spending related to the state's economic recovery.
Management is optimistic about the prospects for the California economy and the Franklin California Growth Fund. California remains one of the nation's most economically diversified states and is home to several of the world's leading companies in technology, retail, entertainment, health care, biotechnology, and international trade. We shall continue to utilize our research expertise, investment experience, and presence in the state to seek out exciting new enterprises that can provide unique investment opportunities for our shareholders. Of course, there are risks involved with investing in a non-diversified fund, such as increased susceptibility to adverse economic, political or regulatory developments. For further discussion of these risks, please see the prospectus.
We appreciate your participation in the Franklin California Growth Fund and look forward to serving you in the years to come.
[FRANKLIN CALIFORNIA GROWTH FUND PORTFOLIO BREAKDOWN ON 10/31/94 CHART]
FRANKLIN CALIFORNIA GROWTH FUND
TOP 10 HOLDINGS ON 10/31/94
Based on Total Net Assets
% OF TOTAL
COMPANY INDUSTRY NET ASSETS
- ------------------ --------------------- ----------
Autodesk Technology Services 2.76%
Sun Microsystems Electronic Technology 2.34%
Altera, Inc. Semiconductors 2.25%
Fritz Companies Transportation 2.23%
Wyle Laboratories Technology Services 2.11%
Xilinx, Inc. Semiconductors 2.08%
3COM Corp. Electronic Technology 2.01%
Broadway Stores Retail 1.93%
Air Express Transportation 1.88%
Mercury General Finance 1.71%
|
For a detailed listing of portfolio holdings, please see page 20 of this report.
PERFORMANCE SUMMARY:
The Franklin California Growth Fund reported a total return of +12.31% for the six-month period ended October 31, 1994. Total return measures the change in value of an investment, assuming reinvestment of dividends and capital gains at net asset value, and does not include the maximum initial sales charge.
We have always maintained a long-term perspective when managing the fund, and we encourage shareholders to view their investments in a similar manner. As you can see from the chart to the right, the fund delivered a cumulative total return of over 47% since the fund's inception.
The fund's share price, as measured by net asset value, rose 74 cents ($0.74), from $12.05 on April 30, 1994, to $12.79 on October 31, 1994. During the period, shareholders received 5.5 cents ($0.055) per share in dividend income and 59.5 cents ($0.595) per share in capital gains distributions, of which 31.7 cents ($0.317) represented short-term capital gains and 27.8 cents ($0.278) represented long-term capital gains. Of course, past performance is not indicative of future results, and distributions will vary depending on income earned by the fund, as well as any profits realized from the sale of securities in the portfolio.
FRANKLIN CALIFORNIA GROWTH FUND
Periods ended October 31, 1994
SINCE
INCEPTION
ONE-YEAR THREE-YEAR (10/30/91)
-------- ---------- ---------
Cumulative Total Return(1) .............. 19.75% 45.83 47.15%
Average Annual Total Return(2) .......... 14.39% 11.69 11.98%
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(1) Cumulative total return shows the change in value of an investment over the specified periods and does not include the maximum 4.5% initial sales charge.
(2) Average annual total return represents the average annual increase in value of an investment over the specified periods and includes the maximum 4.5% initial sales charge.
All total return calculations assume reinvestment of dividends and capital gains at net asset value. Investment return and principal value will fluctuate with market conditions and you may have a gain or loss when you sell your shares. Past performance cannot guarantee future results.
The fund's manager has agreed in advance to waive a portion of the management fees, which reduces operating expenses and increases total return to shareholders. Without this waiver, the fund's total return would have been lower. The waiver may be discontinued at any time.
FRANKLIN STRATEGIC SERIES
FRANKLIN STRATEGIC INCOME FUND
Dear Shareholder:
We are pleased to bring you the semi-annual report for the Franklin Strategic Income Fund covering the period ended October 31, 1994.
The Franklin Strategic Income Fund commenced operations on June 1, 1994, and is designed for shareholders seeking high current income, with capital appreciation as a secondary objective. The fund's net asset value price per share was $10.00 at inception, and had risen to $10.19 by the end of the reporting period.
During the reporting period, the fund successfully diversified its assets among eight fixed-income market sectors: U.S. government securities, mortgage-backed securities, convertible securities, high yield corporate bonds, emerging market debt securities, foreign government bonds, preferred stocks and cash equivalents.* On October 31, 1994, approximately 37% of the non-cash investments were in foreign securities and 63% in domestic (U.S.) securities. By spreading assets among a variety of market sectors, the fund's managers intend to increase investment opportunities while seeking protection from the ups and downs of any one market or country.
[FRANKLIN STRATEGIC INCOME FUND CURRENT ASSET ALLOCATION ON 10/31/94 CHART]
Throughout the reporting period, the fund's asset allocation was geared toward capitalizing on both domestic and international economic growth and minimizing interest rate risk, particularly in the U.S. markets. As a result, income sectors traditionally less sensitive to interest rate changes, such as convertible securities, high yield corporate bonds and foreign debt securities, comprised the fund's largest sector weightings. Sectors sensitive to interest rates, such as U.S. government and mortgage-backed securities, were significantly under-weighted. This proactive allocation strategy proved to be quite success-
*High yields reflect the higher credit risk associated with certain lower rated securities in the fund's portfolio and, in some cases, the lower market prices for these instruments.
ful in this period of rising interest rates, resulting in a healthy positive return for investors. The fund began paying a monthly dividend of 6.7 cents ($0.067) per share in October 1994, and its high earnings allowed the fund to provide shareholders with a distribution rate of 7.56%, as shown in the Performance Summary on page 7.
Our international investments currently emphasize "dollar bloc" countries such as Canada, Australia and New Zealand because dollar-oriented currencies appear attractive on a relative valuation basis. After witnessing a period of volatility in the first half of 1994, we were cautious about our investments in the emerging markets universe. However, volatility subsided during the last three months of the period and we gradually increased our exposure in this area.
It is important to remember, however, that investments in foreign securities involve special considerations, which may include risks re-lated to market and currency volatility, and the economic and political climates where investments are made. Developing markets involve heightened risks related to the same factors, in addition to risks associated with the relatively small size and lesser liquidity of these markets.
While rising interest rates persist as the primary obstacle of fixed-income markets, it appears to us that the worst may be behind us, and we may well hit a peak in domestic interest rates in 1995. Convertible securities and high yield corporate bonds continue to be attractive based on strong domestic growth. Looking forward, further opportunities should arise in foreign markets, and these investments should benefit the fund's future performance.
PERFORMANCE SUMMARY
The Franklin Strategic Income Fund's share price, as measured by net asset value, increased 19 cents, from $10.00 at inception on June 1, 1994, to $10.19 on October 31, 1994. The fund began distributing monthly income dividends to shareholders in October 1994, at a rate of 6.7 cents ($0.067) per share. Future distributions may vary, however, depending on income earned by the fund.
At the end of the reporting period, your fund's distribution rate was 7.56%, based on an annualization of the fund's current monthly dividend of 6.7 cents per share and the maximum offering price of $10.64 on October 31, 1994.
FRANKLIN STRATEGIC INCOME FUND
Period ended October 31, 1994
SINCE
INCEPTION
(06/01/94)
----------
Standardized Cumulative Total Return(1) -1.75%
Non-Standardized Cumulative Total Return(2) 2.57%
Distribution Rate(3) 7.56%
30-Day Standardized Yield(4) 7.57%
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(1) Standardized cumulative total return reflects the change in value of an investment over the periods indicated and includes the maximum 4.25% initial sales charge. See note below.
(2) Non-standardized cumulative total return reflects the change in value of an investment over the periods indicated and does not include the maximum 4.25% initial sales charge. See note below.
(3) Distribution rate is based on an annualization of the fund's current 6.7 cent per share monthly dividend and the maximum offering price of $10.64 on October 31, 1994.
(4) Yield, calculated as required by the SEC, is based on the earnings of the fund's portfolio for the 30 days ended October 31, 1994.
Note: All total return calculations assume reinvestment of dividends and capital gains at net asset value. Investment return and principal value will fluctuate with market conditions and you may have a gain or loss when you sell your shares. Past performance is not predictive of future results.
The fund's distribution rate and yield reflect the higher credit risk associated with certain lower-rated securities in the fund's portfolio and, in some cases, the lower market prices for these instruments.
The fund's manager has agreed in advance to waive a portion of the management fees, which reduces operating expenses and increases distribution rate, yield and total return to shareholders. Without this waiver, the fund's distribution rate and total return would have been lower, and yield for the period would have been 6.69%. The waiver may be discontinued at any time.
FRANKLIN STRATEGIC SERIES
FRANKLIN GLOBAL UTILITIES FUND
Dear Shareholder:
We are pleased to bring you the semi-annual report for the Franklin Global Utilities Fund. During the six-month period, the fund's performance was influenced by volatility in world utility markets due primarily to rising long-term U.S. interest rates. Since October of 1993, the 30-year Treasury bond yield increased by 33.5%, from 5.97% to 7.97% on October 31,1994.
Many global markets reacted negatively to the U.S. interest rate increases. In particular, markets closely linked to the U.S., such as Mexico, Argentina and Hong Kong, suffered the greatest impact. Additionally, inflation fears in Europe caused weakness in many European markets near the end of the reporting period. This weakness was not very pronounced, however, as strong economic growth in many European countries led to stronger earnings growth. This underlying economic strength gave some support to stocks and limited the downside.
THE UTILITIES MARKET
Rising U.S. interest rates created a difficult environment for utility companies. Because of their relatively high yields, utility stocks, like bonds, are sensitive to interest rates. When rates fall, utility stock prices tend to rise. And, of course the opposite is also true. U.S. electric utilities had mixed performance over the six month period. Rising interest rates pushed prices down. However, over the last two to three months of the reporting period, prices rebounded and outperformed both the broader stock and bond markets. In some other markets, most notably in Europe, the fear of higher interest rates caused higher yielding utilities to underperform.
[FRANKLIN GLOBAL UTILITIES FUND GEOGRAPHIC DISTRIBUTION ON 10/31/94 CHART]
During the first three months of the reporting period, the fund benefited from its high exposure to Latin America. Falling inflation, high gross domestic product growth, lowered political risk, and accelerated earnings growth contributed to the excellent performance of many Latin American utility stocks at the beginning of the period. Toward the end of the reporting period, Latin American utility stocks underperformed as a result of profit taking and fears of rising U.S. interest rates. During the last three months of the period (August to October), the fund benefited from the rebound of U.S. electric utility stock prices. Its heavy weighting in this sector
(46.50%) helped the fund's relative performance considerably.
Price declines of U.S. utility stocks created several buying opportunities for the fund. We increased the fund's holdings in several high-quality electric and gas utilities such as Duke Power, Southern Company and Enron Corp. -- at what management believed to be very favorable prices. At the end of the reporting period, strength in the electric utility sector gave us the opportunity to sell some securities. Overall, the fund's U.S. holdings were increased from 47.85% on April 30, 1994 to 51% on October 31, 1994.
Mixed performance in the foreign utilities markets also presented buying opportunities. The fund's weightings in Asia and Latin America were increased slightly during the period, from 15.44% on April 30, 1994 to 16.0% on October 31, 1994, while the European holdings were reduced from 13.25% on April 30, 1994 to 12.0% on October 31, 1994. Argentina and Hong Kong continue to be heavily weighted in the portfolio, with 5.25% and 6.36% of the fund's total net assets, respectively.
Overall, management remains optimistic about utility stocks throughout the world as growth prospects continue to be excellent. Looking forward, management expects to keep a relatively high portion of the fund's holdings in emerging nations, as many of these utility companies continue to post earnings growth above 10%. The privatization of utilities in these countries would present more investment opportunities. They also anticipate adding to the fund's European holdings. Many European utility stocks appear to offer excellent value at their current low price levels. Management does not expect to increase the fund's U.S. holdings materially in the near term. They anticipate, however, that U.S. holdings will remain a significant portion of the fund's assets.
PERFORMANCE SUMMARY
The Franklin Global Utilities Fund reported a total return of +2.07% for the six-month period and -1.27% for the one-year period ended October 31, 1994. Total return measures the change in value of an investment, assuming reinvestment of dividends and capital gains distributions, and does not include the fund's maximum initial sales charge.
Despite recent volatility, the fund has maintained a high ranking for total return among its peers. In fact, the fund earned the number two ranking out of 63 utility funds by Lipper Analytical Services, Inc., a nationally recognized mutual fund research organization, for the one-year period ended October 31, 1994.(1)
We maintain a long-term perspective when managing the fund, and we encourage you to view your investment in a similar manner. As you can see from the chart to the right, the fund delivered a total return of 33.88% since its inception on July 2, 1992 through October 31, 1994.(2)
The fund's share price, as measured by net asset value, decreased from $12.60 on April 30, 1994, to $12.33 on October 31, 1994. During the reporting period, shareholders received distributions of 17.3 cents ($0.173) per share in income dividends, 24.96 cents ($0.2496) per share in short-term capital gains and 8.14 cents ($.0814) in long-term capital gains. Of course, past performance does not guarantee future results, and distributions will vary, depending on income earned by the fund and any profits realized from the sale of securities in the portfolio.
FRANKLIN GLOBAL UTILITIES FUND
Periods ended October 31, 1994
SINCE
INCEPTION
1-YEAR (7/02/92)
------ ---------
Cumulative Total Return(2) ..................... -1.27% 33.88%
Average Annual Total Return(3) ................. -5.70% 11.11%
|
(1) Lipper rankings do not include sales charges; past expense limitations increased the fund's total return. Rankings may have been different if these factors had been considered.
(2) Cumulative total return shows the change in value of an investment over the specified periods and does not include the maximum 4.50% initial sales charge.
(3) Average annual total return represents the average annual increase in value of an investment over the specified periods and includes the maximum 4.50% initial sales charge.
All total return calculations assume reinvestment of dividends and capital gains at net asset value. From July 2, 1992 through January 4, 1994, expense limitations increased the fund's total returns. Investment return and principal value will fluctuate with market conditions and you may have a gain or loss when you sell your shares. Past performance is not predictive of future results.
FRANKLIN STRATEGIC SERIES
FRANKLIN SMALL CAP GROWTH FUND
Dear Shareholder:
Enclosed is the third semi-annual report of the Franklin Small Cap Growth Fund for the period ended October 31, 1994. We are pleased to report that, as shown in the Performance Summary on page 13, the fund earned an impressive total return of +12.41% during the six-month reporting period.
The fund's year-to-date total return of +10.76% has placed the fund in the top 5% of its peers, according to Lipper Analytical Services, Inc.1 The fund also outperformed the unmanaged Standard & Poor's 500 Stock (S&P 500) Index(R) and the unmanaged Russell 2500 Index(R), which returned +5.3% and +3.37%, respectively. The S&P 500 is a broad market index of companies of various sizes, whereas the Russell 2500 is an index of 2,500 companies with small market capitalizations. It is important to note that an index does not contain cash (the fund generally carries a percentage of cash at any given time) or include sales charges or management fees. Of course, one cannot invest directly in an index, and past performance is not predictive of future results. Please refer to the Performance Summary on page 13 for the fund's standardized performance figures.
Over the six-month period, the U.S. economy has continued to grow. This was reflected in increased capital spending, particularly on technology, which helped to fuel the strong performance of the Franklin Small Cap Growth Fund.
Management continues to invest primarily in the stocks of small capitalization companies that they believe are well-positioned for rapid growth in revenues, assets, or earnings. When selecting securities for the fund's portfolio, management seeks to identify industries with superior growth potential, and companies positioned to lead that growth. Management also looks for companies which we believe offer significant growth opportunities as a result of special products or marketing niches, regardless of the outlook for their industries. Of course, there are risks involved in seeking capital appreciation from newly emerging companies, such as relatively small revenues, limited product lines and small market share. These risks are described in the fund's prospectus.
On October 31, 1994, the fund held 89 positions, encompassing securities from a diverse mix of industries, such as electronic technology, health services, retailing, and consumer services. We believe that new development in the technology sector, particularly in the areas of telecommunications and information processing, offers long-term growth opportu-
(1) The fund was ranked #9 out of 222 Small Cap funds for total return for the year-to-date and #8 out of 204 small cap funds for the one-year period, as measured by Lipper Analytical Services, Inc. a nationally recognized mutual fund research organization.
Lipper rankings do not include sales charges; past expense limitations increased the fund's total returns. Rankings may have been different if these factors had been considered. Past performance does not guarantee future results.
nities, and we have therefore maintained significant exposure in these industries. In fact, the fund's largest weighting was computer software, which comprised about 10% of total net assets. The fund also held substantial positions in electronics, pharmeceuticals, and semiconductors, which represented approximately 8%, 7%, and 7% of total net assets, respectively. Widespread acceptance of, and demand for, new technology have created tremendous revenues and profitability for market leaders, which bodes well for the stocks of these companies. Growth in these industries should continue to represent opportunities for small capitalization stocks.
We have also continued to participate selectively in the initial public offering (IPO) market, which provides the fund with an excellent opportunity to invest in young, emerging growth companies. For example, the fund recently acquired shares of Mattson Technology, a provider of fabrication equipment for the semi-conductor industry, as well as Cascade Communications, a company specializing in high speed data service switching products.
Looking forward, we expect interest rates to continue their upward trend over the near term, spurred on by economic expansion and improving business conditions. While rising interest rates may result in depressed market valuations, we believe that the growing economy should continue to provide opportunities for smaller companies and for the Franklin Small Cap Growth Fund.
[FRANKLIN SMALL CAP GROWTH FUND PORTFOLIO BREAKDOWN ON 10/31/94]
FRANKLIN SMALL CAP GROWTH FUND
TOP 10 HOLDINGS ON 10/31/94
Based on Total Net Assets
Penederm, Inc. 2.26% Altera Corp. 2.20% Noven Pharmaceuticals, Inc. 2.13% Cisco Systems, Inc. 2.10% Nokia Corp., pfd., ADR 2.10% National Steel Corp. 2.08% Matrix Pharmaceutical, Inc. 2.01% Integrated Device Technology, Inc. 1.98% Commnet Cellular, Inc. 1.81% Barrett Resources Corp. 1.66% |
For a detailed listing of portfolio holdings, please see page 32 of this report.
PERFORMANCE SUMMARY
The fund provided a total return of +12.41% for the six-month period ended October 31, 1994. Total return measures the change in value of an investment, assuming reinvestment of dividends and capital gains at net asset value, and does not include the initial sales charge.
The fund's share price, as measured by net asset value, increased from $12.75 on April 30, 1994, to $13.64 on October 31, 1994. During the reporting period, shareholders received dividend distributions of 1.2 cents ($0.012) per share in income dividends and 57.4 cents ($0.574) per share in short-term capital gains. Of course, past performance cannot guarantee future results, and distributions will vary, depending on the fund's income, as well as any capital gains realized from the sale of individual holdings in the portfolio.
FRANKLIN SMALL CAP GROWTH FUND
Periods ended October 31, 1994
SINCE
INCEPTION
ONE-YEAR (2/14/92)
-------- ---------
Cumulative Total Return(1) .................. 16.38% 49.86%
Average Annual Total Return(2) ............... 11.15% 14.12%
|
(1) Cumulative total return shows the change in value of an investment over the specified periods and does not include the maximum 4.5% initial sales charge.
(2) Average annual total return represents the average annual increase in value of an investment over the specified periods and includes the maximum 4.5% initial sales charge.
All total return calculations assume reinvestment of dividends and capital gains at net asset value. Investment return and principal value will fluctuate with market conditions and you may have a gain or loss when you sell your shares. Past performance cannot guarantee future results.
The fund's manager has agreed in advance to waive a portion of the management fees, which reduces operating expenses and increases total return to shareholders. Without this waiver, the fund's total return would have been lower. The waiver may be discontinued at any time.
FRANKLIN STRATEGIC SERIES
FRANKLIN GLOBAL HEALTH CARE FUND
Dear Shareholder:
Enclosed is the semi-annual report of the Franklin Global Health Care Fund for the period ended October 31, 1994. As you can see in the Performance Summary on page 16, the fund provided a total return of +15.44% for this six-month period. This significantly outperformed both the unmanaged broad-based Standard & Poor's (S&P 500) Stock Index(R) and the Lipper Health Care/Biotechnology Fund Average, which posted total returns of +6.31% and +8.49%, respectively, for the same period.1 Management is pleased to report that in terms of total return for the one-year period ended October 31, 1994, the fund ranked #2 out of 15 Health Care/Biotechnology sector funds, as measured by Lipper Analytical Services, Inc.(2)
Management searches the world to find health care stocks offering good value and growth possibilities. During the past six months, they concentrated their efforts in the U.S. because they believed the market there was excessively discounted due to fears of national health care reform. Despite the formation of purchasing groups such as hospitals and Health Maintenance Organizations (HMOs) that demand lower prices from suppliers, stock prices in this sector rose as the health care reform movement ran out of steam. Another major factor contributing to their rise was the stabilization of wholesale drug and medical equipment prices.
The fund was managed utilizing a segmented investment approach that combines a long-term and a shorter-term strategy. About half of the fund's assets were invested in core holdings, which tend to be among the best managed and leading companies within each segment of the health care industry. These securities are held for long-term returns and are usually very liquid. Companies considered core holdings include United Healthcare Corp. and U.S. HealthCare, Inc., two leaders in managed care, and Columbia/HCA Healthcare Corp., the largest hospital company in the U.S.
A shorter-term investment strategy was used for most of the fund's remaining assets. For these stocks, which are expected to perform well over the next six to twelve months, a price target is determined on the date of purchase. When it is reached, the position is sold. One example is Fresenius USA, a leading maker of blood dialysis equipment, whose stock price reached our target level, after being held for four months, and was subsequently sold for a gain of over 50%. This strategy has helped the fund deliver above-average returns during the period. Of course, there are risks involved with investing in a non-diversified fund, such as increased
(1) Sources: Standard & Poor's Corporation, Lipper Analytical Services, Inc. It is important to note that an index does not contain cash (the fund generally carries a certain percentage of cash at any given time), nor does an index include sales charges or management fees. Of course, one cannot invest directly in an index, and past performance is not indicative of future results. See footnote 2.
(2) Lipper is a nationally recognized mutual fund research organization. Lipper rankings do not include sales charges; past and present expense limitations increased the fund's total returns. Rankings may have been different if these factors had been considered. Past performance is not indicative of future results.
[FRANKLIN GLOBAL HEALTH CARE FUND PORTFOLIO BREAKDOWN ON 10/31/94]
susceptibility to adverse economic, political, and regulatory developments. For further discussion of these risks, please see the prospectus.
Looking forward, management is optimistic about the future of the Franklin Global Health Care Fund. Managed care and medical technology sectors should continue to improve because demand for medical care should increase as the U.S. population ages. We also see opportunities in Europe, where some stocks are now believed to be undervalued, and are excited about the potential in developing areas such as South America, India and the Pacific Rim. As standards of living improve in these markets, more money will probably be spent on health care.
We appreciate your participation in the Franklin Global Health Care Fund and look forward to serving you in the years to come.
FRANKLIN GLOBAL HEALTH CARE FUND
TOP 10 HOLDINGS ON 10/31/94
Based on Total Net Assets
% OF TOTAL
COMPANY INDUSTRY NET ASSETS
- ------- -------- ----------
Noven Pharmaceuticals, Inc. Specialty Pharmaceuticals 5.82%
Penederm, Inc. Specialty Pharmaceuticals 4.94%
Matrix Pharmaceutical, Inc. Specialty Pharmaceuticals 3.13%
Pyxis Corp. Software/Information Systems 2.94%
Astra AB, B Pharmaceuticals 2.91%
Columbia/HCA Healthcare Corp. Hospitals 2.86%
Sierra Health Services, Inc. Health Maintenance Organizations 2.83%
U.S. HealthCare, Inc. Health Maintenance Organizations 2.32%
United Healthcare Corp. Health Maintenance Organizations 2.30%
Healthtrust, Inc. Hospitals 2.29%
|
For a detailed listing of portfolio holdings, please see page 36 of this report.
PERFORMANCE SUMMARY
The Franklin Global Health Care Fund reported a total return of +15.44% for the six-month period ended October 31, 1994. Total return measures the change in value of an investment, assuming reinvestment of dividends and capital gains at net asset value, and does not include the maximum initial sales charge.
We have always maintained a long-term perspective when managing the fund, and we encourage shareholders to view their investments in a similar manner. As you can see from the chart below, the fund delivered a total return of over 26% since the fund's inception.
The fund's share price, as measured by net asset value, rose $1.41 per share, from $10.43 on April 30, 1994 to $11.84 on October 31, 1994. During the period, shareholders received 2.1 cents ($0.021) per share in dividend income and 14.9 cents ($0.149) per share in short-term capital gains distributions. Of course, past performance is not indicative of future results, and distributions will vary depending on income earned by the fund, as well as any profits realized from the sale of securities in the portfolio.
FRANKLIN GLOBAL HEALTH CARE FUND
Periods ended October 31, 1994
SINCE
INCEPTION
ONE-YEAR (2/14/92)
-------- ---------
Cumulative Total Return(1) ................... 23.62% 26.18%
Average Annual Total Return(2) ............... 18.11% 7.12%
|
(1) Cumulative total return shows the change in value of an investment over the specified periods and does not include the maximum 4.5% initial sales charge.
(2) Average annual total return represents the average annual increase in value of an investment over the specified periods and includes the maximum 4.5% initial sales charge.
All total return calculations assume reinvestment of dividends and capital gains at net asset value. Investment return and principal value will fluctuate with market conditions and you may have a gain or loss when you sell your shares. Past performance cannot guarantee future results.
The fund's manager has agreed in advance to waive a portion of the management fees, which reduces operating expenses and increases total return to shareholders. Without this waiver, the fund's total return would have been lower. The waiver may be discontinued at any time.
FRANKLIN STRATEGIC SERIES
FRANKLIN INSTITUTIONAL MIDCAP GROWTH FUND
Dear Shareholder:
We are pleased to bring you the semi-annual report of the Franklin Institutional MidCap Growth Fund, for the period ended October 31, 1994. Designed solely for institutional investors, the fund (formerly the FISCO MidCap Growth Fund) seeks total return exceeding the total return of the aggregate U.S. medium capitalization stocks, as measured by the unmanaged Standard and Poor's MidCap 400 Index(R) (the Benchmark). Through a highly disciplined, quantitative approach, the fund's manager selects stocks based on their expected contribution to the portfolio's total return and to reducing the portfolio's overall risk. Templeton Quantitative Advisors (TQA) serves as the fund's investment manager.
The fund is currently structured to invest its assets directly in securities. As had been stated in the prospectus, the fund may convert to a master/feeder fund structure whereby its assets would be invested in another fund with substantially identical investment objectives and policies, and which would, in turn, invest directly in securities. The fund's shares are currently not available for purchase.
Uncertainty regarding fiscal policy and inflation dominated the U.S. equity markets during the six-month period. In May and June, inflationary fears and interest rate hikes by the Federal Reserve induced investors to move into relatively safer stocks. This "flight-to-quality" mainly benefited large capitalization and inexpensive stocks (companies with low price-to-earnings ratios). The latter part of the period showed solid confidence in corporate earnings, still tempered by a wary eye on inflation, and growth-oriented stocks and the small capitalization segment re-gained some leadership.
Over the six-month period, large capitalization stocks were the winners. This market, as measured by the S&P 500 Index(R), produced a total return of 6.39%, while the small- and mid-capitalization segments posted total returns of 1.76% and 3.25%, respectively.(1,2)
The fund has diversified its possibilities for capital growth, gradually buying medium- capitalization stocks besides those that con-
[FRANKLIN INSTITUTIONAL MIDCAP GROWTH FUND PERCENTAGE OF
STOCKS NOT INCLUDED IN THE S&P MIDCAP 400 INDEX(R) CHART]
(1) The small and mid-capitalization segments are represented by the Russell 2000 Index and the Standard and Poor's MidCap 400 Index, respectively.
(2) Total return shows the change in value of an investment over the period, assuming reinvestment of dividends. Indices are unmanaged, and one cannot invest directly in an index.
stitute the S&P MidCap 400 Index. Choosing from a larger universe enabled the fund to add several small positions in favorably ranked companies. At the same time, several large positions in the fund's portfolio were scaled back to help diversify growth opportunities. By the end of October 1994, 29% of the fund was invested in stocks not included in the S&P MidCap 400 Index, compared with 12% at the end of April 1994.
In addition, the fund was invested in 169 companies on October 31, 1994, compared with 76 at the beginning of the reporting period.
FRANKLIN INSTITUTIONAL MIDCAP GROWTH FUND
TOP 10 HOLDINGS ON OCTOBER 31, 1994
Based on Total Net Assets(3)
% OF TOTAL
COMPANY NET ASSETS
- ------- ----------
1. Bank of New York 1.9%
2. General Motors Co., Inc., Corp., Class E 1.8%
3. Cabletron Systems, Inc. 1.7%
4. AFLAC, Inc. 1.7%
5. Murphy Oil Corporation 1.5%
6. NIPSCO Industries, Inc. 1.4%
7. Baybanks, Inc. 1.3%
8. IBP, Inc. 1.3%
9. Micron Technology 1.3%
10. Arrow Electronics, Inc. 1.3%
----
15.2%
|
(3) For the most current portfolio information, call Franklin Templeton Institutional Marketing at 1-800/632-2000.
[FRANKLIN INSTITUTIONAL MIDCAP GROWTH FUND
PORTFOLIO BREAKDOWN ON 10/31/94 CHART]
Although we are cautious about the short-term outlook for the U.S. equity market, we are very optimistic about the long-term earnings potential of medium capitalization stocks. We see the current uncertainty in the market and near-term volatility as an opportunity to search for excellent earnings momentum at cheaper valuations. Earnings growth is a key to long-term investing, and we believe the Franklin Institutional MidCap Growth Fund is well-positioned as it seeks to deliver such earnings growth and help shareholders meet their investment objective.
PERFORMANCE SUMMARY
During the six-month period, the Franklin Institutional MidCap Growth Fund's total return was 2.80%, compared with 3.23% for its benchmark, the S&P MidCap 400 Index. Total return reflects an increase in net asset value per share, from $10.05 on April 30, 1994 to $10.17 on October 31, 1994, and assumes reinvestment of dividends and capital gains at net asset value. While the fund's -0.37% year-to-date total return, for the ten months ended October 31, 1994, trailed the S&P MidCap 400 Index by 42 basis points, total return since inception (August 31, 1993) was 4.47%, outperforming the benchmark over the same period by 67 basis points.(4) The fund paid its second dividend, of 13.4 cents ($0.134) per share, and a capital gain distribution of 1.5 cents ($0.015) per share in June 1994, and plans to distribute dividends and capital gains twice a year. Of course, distributions will vary depending on the fund's income and any profits realized from the sale of securities in the portfolio. Past distributions are not indicative of future trends.
[FRANKLIN INSTITUTIONAL MIDCAP GROWTH FUND
TOTAL RETURN INDEX COMPARISON(4) CHART]
FRANKLIN INSTITUTIONAL MIDCAP GROWTH FUND
Performance Results
Period Ended October 31, 1994
SINCE
YEAR TO INCEPTION
CUMULATIVE TOTAL RETURNS DATE 1-MONTH 3-MONTH 6-MONTH 1-YEAR (8/31/93)
------- ------- ------- ------- ------ ---------
Franklin Institutional MidCap Growth Fund(5,6)..... -0.37% 1.60% 4.95% 2.80% 1.52% 4.47%
S&P MidCap 400 Index(R)(2)......................... 0.05% 1.09% 4.40% 3.23% 2.38% 3.80%
AVERAGE ANNUAL TOTAL RETURN
Franklin Institutional MidCap Growth Fund(6,7)..... -- -- -- -- 1.52% 3.81%
S&P MidCap 400 Index(R)(8)......................... -- -- -- -- 2.38% 3.25%
|
(4) Total return represents the change in value of an investment over the period shown. The fund's total return assumes initial purchase and the reinvestment of dividends and capital gains at net asset value. The index's total return assumes the reinvestment of dividends. Indices are unmanaged, and one cannot invest directly in an index. Past performance cannot guarantee future results.
(5) Cumulative total return shows the change in value of an investment over the periods shown, assuming initial purchase and the reinvestment of dividends and capital gains at net asset value.
(6) The fund's manager has agreed in advance to waive its management fees and made payments for other expenses, which reduces operating expenses and increases total return to shareholders. Without these reductions, the fund's total return would have been lower. The fee waiver may be discontinued at any time.
(7) Average annual total return calculations represent the average annual change in value of an investment over the specified periods, assuming initial purchase and the reinvestment of dividends and capital gains at net asset value.
(8) Average annual total return calculations represent the average annual change in value of an investment over the specified periods, assuming the reinvestment of dividends. The S&P MidCap 400 is unmanaged, and one cannot invest directly in an index.
Investment return and principal value fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Past performance cannot guarantee future results.
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, OCTOBER 31, 1994
(UNAUDITED)
VALUE
SHARES FRANKLIN CALIFORNIA GROWTH FUND (NOTE 1)
----------------------------------------------------------------------------
COMMON STOCKS 82.6%
AUTOMOBILE 1.3%
3,000 Ford Motor Co. ......................................... $ 88,500
----------
CONSUMER SERVICES 3.6%
2,000 Disney (Walt) Co. ...................................... 78,750
3,000 McClatchy Newspapers, Inc., Series A ................... 69,750
2,000 aUnited Television, Inc. ................................ 103,500
----------
252,000
----------
ELECTRONIC TECHNOLOGY 16.2%
3,500 3Com Corp. ............................................. 140,875
600 aApplied Digital Access, Inc. ........................... 14,850
1,500 aAscend Communications, Inc. ............................ 48,750
2,000 aAspect Telecommunications Corp. ........................ 69,000
3,000 aCisco Systems, Inc. .................................... 90,375
1,500 aComputer Sciences Corp. ................................ 69,750
5,612 ECI Telecommunications, Ltd. ........................... 108,733
3,000 Logicon, Inc. .......................................... 92,250
1,700 aMattson Technology, Inc. ............................... 35,700
900 Northrop Grumman Corp. ................................. 39,487
3,000 aPairgain Technologies, Inc. ............................ 46,500
3,000 Rockwell International Corp. ........................... 104,625
1,000 aSilicon Graphics, Inc. ................................. 30,375
5,000 aSun Microsystems, Inc. ................................. 163,750
18,000 aTrinzic Corp. .......................................... 81,000
----------
1,136,020
----------
ENERGY MINERALS 2.6%
2,000 Chevron Corp. .......................................... 90,000
2,200 Ultramar Corp. ......................................... 56,650
800 aWestern Atlas, Inc. .................................... 36,800
----------
183,450
----------
FINANCE 2.9%
4,000 Mercury General Corp.................................... 120,000
5,000 ValliCorp Holdings, Inc. ............................... 78,750
----------
198,750
----------
HEALTH SERVICES 3.1%
1,800 aAbbey Healthcare Group, Inc. ........................... 40,050
4,000 aGranCare, Inc. ......................................... 62,000
|
The accompanying notes are an integral part of these financial statements.
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, OCTOBER 31, 1994
(UNAUDITED) (CONT.)
VALUE
SHARES FRANKLIN CALIFORNIA GROWTH FUND (NOTE 1)
----------------------------------------------------------------------------
COMMON STOCKS (CONT.)
HEALTH SERVICES (CONT.)
1,000 aHomedco Group, Inc. ................................. $ 36,125
1,000 aPacifiCare Health Systems, Class A................... 74,500
-----------
212,675
-----------
HEALTH TECHNOLOGY 4.9%
2,000 aAmgen, Inc. ......................................... 111,500
1,500 aChiron Corp. ........................................ 101,063
1,500 aGenentech, Inc. ..................................... 76,125
6,700 aPenederm, Inc. ...................................... 55,275
-----------
343,963
-----------
OTHER
198 a,bLynx Therapeutics, Inc. ............................. --
-----------
PRODUCER/MANUFACTURING 2.8%
4,000 Lear Seating Corp. .................................. 80,000
4,000 Superior Industries International, Inc. ............. 118,000
-----------
198,000
-----------
REAL ESTATE 3.1%
1,800 Health Care Property Investors, Inc. ................ 52,875
6,000 Kaufman & Broad Home Corp. .......................... 78,000
3,000 LTC Properties, Inc. ................................ 38,625
1,400 Nationwide Health Property, Inc. .................... 49,175
-----------
218,675
-----------
RETAIL TRADE 8.4%
12,000 aBroadway Stores, Inc. ............................... 135,000
2,500 Dreyer's Grand Ice Cream, Inc. ...................... 63,750
3,000 aFresh Choice, Inc. .................................. 55,500
10,000 aGood Guys, Inc. ..................................... 116,250
4,343 aPrice/Costco, Inc. .................................. 68,402
4,200 aStrouds, Inc. ....................................... 53,025
5,000 aVons Companies, Inc. ................................ 97,500
-----------
589,427
-----------
SEMICONDUCTORS/TECHNOLOGY 10.8%
4,000 aAltera Corp. ........................................ 157,750
4,500 aExar Corp........................................... 94,500
1,500 Intel Corp. ......................................... 93,188
800 Linear Technology Corp. ............................. 38,400
5,000 aMegatest Corp. ...................................... 75,000
5,000 aMicro Linear Corp. .................................. 42,500
|
The accompanying notes are an integral part of these financial statements.
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, OCTOBER 31, 1994
(UNAUDITED) (CONT.)
VALUE
SHARES FRANKLIN CALIFORNIA GROWTH FUND (NOTE 1)
----------------------------------------------------------------------------
COMMON STOCKS (CONT.)
SEMICONDUCTORS/TECHNOLOGY (CONT.)
4,000 aSolectron Corp. ..................................... $ 111,500
2,500 aXilinx, Inc. ........................................ 145,313
----------
758,151
----------
TECHNOLOGY SERVICES 11.2%
5,600 Autodesk, Inc. ...................................... 193,200
800 aBroderbund Software, Inc. ........................... 51,200
3,500 aFTP Software, Inc. .................................. 88,375
4,000 aInformix Corp. ...................................... 110,000
20,000 aStructural Dynamics Research Corp. .................. 97,500
1,500 aSybase, Inc. ........................................ 78,562
400 aSynopsys, Inc. ...................................... 18,450
8,000 Wyle Laboratories ................................... 148,000
----------
785,287
----------
TRANSPORTATION 8.8%
4,700 Air Express International Corp. ..................... 131,600
4,000 aAllied Holdings, Inc. ............................... 53,000
400 Covenant Transportation, Inc., Class A .............. 7,600
5,600 Expeditors International of Washington, Inc. ........ 116,200
4,000 aFritz Companies, Inc. ............................... 156,000
8,000 aMesa Airlines, Inc. ................................. 65,000
5,000 aSouthern Pacific Rail Corp. ......................... 86,875
----------
616,275
----------
UTILITIES 2.9%
2,000 aAirTouch Communications, Inc. ....................... 59,750
5,000 San Diego Gas & Electric Co. ........................ 100,000
2,600 Southern California Water ........................... 40,625
----------
200,375
----------
TOTAL COMMON STOCKS (COST $5,032,243) ......... 5,781,548
----------
PREFERRED STOCKS
OTHER
288 a,bLynx Therapeutics, Inc., pfd., Series A (COST $288).. 288
----------
TOTAL COMMON AND PREFERRED STOCKS
(COST $5,032,531) ........................... 5,781,836
----------
|
The accompanying notes are an integral part of these financial statements.
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, OCTOBER 31, 1994
(UNAUDITED) (CONT.)
FACE VALUE
AMOUNT FRANKLIN CALIFORNIA GROWTH FUND (NOTE 1)
----------------------------------------------------------------------------
d,eRECEIVABLES FROM REPURCHASE AGREEMENTS 18.9%
$1,355,323 Joint Repurchase Agreement, 4.824%, 11/01/94
(Maturity Value $1,324,365) (COST $1,324,188)
Collateral: U.S. Treasury Notes, 4.00% - 11.625%,
11/15/94 - 07/15/99.............................. $1,324,188
----------
TOTAL INVESTMENTS
(COST $6,356,719) 101.5% ............... 7,106,024
LIABILITIES IN EXCESS OF OTHER ASSETS,
NET (1.5)% ............................. (104,587)
----------
NET ASSETS 100.0% ........................ $7,001,437
==========
At October 31, 1994, the net unrealized appreciation
based on the cost of investments for income tax
purposes of $6,356,719 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there was an excess of value
over tax cost ................................... $ 913,726
Aggregate gross unrealized depreciation for all
investments in which there was an excess of tax
cost over value ................................. (164,421)
----------
Net unrealized appreciation ....................... $ 749,305
==========
|
aNon-income producing.
bSee Note 7 regarding restricted securities.
dFace amount for repurchase agreements is for the underlying collateral.
eSee Note 1(h) regarding Joint Repurchase Agreement.
The accompanying notes are an integral part of these financial statements.
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, OCTOBER 31, 1994
(UNAUDITED)
VALUE
SHARES FRANKLIN STRATEGIC INCOME FUND (NOTE 1)
- -------------------------------------------------------------------------------
PREFERRED STOCKS 1.9%
FINANCIAL SERVICES
1,000 First National Bank, 11.50% pfd. (COST $100,000) .... $ 102,500
----------
CONVERTIBLE PREFERRED STOCKS 2.9%
ENERGY .9%
2,025 Snyder Oil Corp., $1.50 cvt. exch. pfd. ............. 46,828
----------
INFORMATION/TECHNOLOGY 1.0%
800 aNational Semiconductor Corp., $3.25 cvt. pfd. ....... 55,200
----------
METALS 1.0%
1,000 Amax Gold, Inc., $3.75 cvt. pfd., Series B .......... 53,000
----------
TOTAL CONVERTIBLE PREFERRED STOCK
(COST $159,800).......................... 155,028
----------
|
FACE
AMOUNT
- -------
CORPORATE BONDS 24.0%
CABLE TELEVISION 4.8%
$ 150,000 gBell Cablemedia, Plc., senior disc. notes, zero coupon
to 07/15/99, (original accretion rate 11.95%), 11.95%
thereafter, 07/15/04 .............................. 84,750
150,000 gDiamond Cable Communication Co., senior disc. notes,
zero coupon to 09/30/99, (original accretion rate
13.25%), 13.25% thereafter, 09/30/04 .............. 79,313
100,000 Rogers Cablesystems, Inc., guaranteed notes, 9.625%,
08/01/02 .......................................... 96,500
----------
260,563
----------
CONSUMER GOODS 3.4%
100,000 Playtex Family Products Corp., senior sub. deb.,
9.00%, 12/15/03 ................................... 86,250
100,000 Sealy Corp., senior sub. notes, 9.50%, 05/01/03...... 95,000
----------
181,250
----------
CONTAINERS & PACKAGING 3.7%
100,000 Owens Illinois, Inc., senior sub. deb., 10.50%,
06/15/02 .......................................... 101,000
100,000 Stone Container, senior notes, 11.50%, 10/01/04 ..... 101,000
----------
202,000
----------
ENERGY 1.7%
100,000 Gulf Canada Resources, Ltd., senior sub. deb., 9.25%,
01/15/04 .......................................... 92,750
----------
FOOD/BEVERAGES 1.9%
100,000 c,fPF Acquisition (Curtis-Burns Foods, Inc.), senior
sub. deb., 12.25%, 02/01/05 ....................... 101,500
----------
GAMING & HOTELS 3.6%
100,000 Aztar Corp., senior sub. notes, 13.75%, 10/01/04 .... 99,000
100,000 Showboat, Inc., senior sub. notes, 13.00%, 08/01/09.. 95,000
----------
194,000
----------
|
The accompanying notes are an integral part of these financial statements.
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, OCTOBER 31, 1994
(UNAUDITED) (CONT.)
FACE VALUE
AMOUNT FRANKLIN STRATEGIC INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------
a,bCORPORATE BONDS (CONT.)
HEALTH CARE 1.9%
$ 100,000 Ornda Healthcorp., Inc., senior sub. notes, 11.375%,
08/15/04 .......................................... $ 103,250
----------
METALS & MINING 1.3%
100,000 gACME Metals, Inc., guaranteed senior secured disc.
notes, zero coupon to 08/01/97, (original accretion
rate 13.50%), 13.50% thereafter, 08/01/03.......... 69,000
----------
TEXTILE 1.7%
100,000 WestPoint Stevens, Inc., senior notes, 8.75%,
12/15/01 ........................................... 92,250
----------
TOTAL CORPORATE BONDS (COST $1,257,892).... 1,296,563
----------
CONVERTIBLE BONDS 4.7%
HEALTH CARE .8%
50,000 Pacific Physician Services, cvt. sub. deb., 5.50%,
12/15/03 .......................................... 41,500
----------
HOME BUILDING .6%
50,000 U.S. Home Corp., cvt. sub. notes, 4.875%, 11/01/05... 33,124
----------
REAL ESTATE INVESTMENT TRUST .8%
50,000 Liberty Property Trust, cvt. sub. deb., 8.00%,
07/01/01 .......................................... 47,688
----------
TELECOMMUNICATION .5%
25,000 cAspect Telecommunication, cvt. sub. deb., 5.00%,
10/15/03 .......................................... 25,594
----------
TRANSPORTATION 1.1%
60,000 Air Express International, cvt. sub. deb., 6.00%,
01/15/03 .......................................... 59,250
----------
UTILITIES .9%
50,000 AES Corp., cvt. deb., 6.50%, 03/15/02 ............... 49,563
----------
TOTAL CONVERTIBLE BONDS (COST $254,420).... 256,719
----------
FOREIGN CORPORATE BONDS 11.5%
100,000 cEssar Guajarat, Ltd., floating rate deb., 8.025%,
07/15/99 .......................................... 100,125
400,000 hNew Zealand Electricity Corp., deb. notes, 10.00%,
06/15/96 .......................................... 249,671
225,000 f,hQueensland Treasury Corp., 8.875%, 11/08/96.......... 166,584
100,000 Tjiwi Kimia International, 13.25%, 08/01/01 ......... 103,500
----------
TOTAL FOREIGN CORPORATE BONDS
(COST $616,353).......................... 619,880
----------
hFOREIGN GOVERNMENT AGENCIES 13.7%
250,000 Canadian Government, 10.25%, 12/01/98................ 196,575
200,000 Canadian Government, 10.50%, 10/01/04................ 161,103
250,000 Republic of Argentina, floating rate notes, 5.125%,
09/01/02 .......................................... 173,250
130,000 United Kingdom Treasury, 7.00%, 08/06/97............. 207,532
----------
TOTAL FOREIGN GOVERNMENT AGENCIES
(COST $733,567).......................... 738,460
----------
|
The accompanying notes are an integral part of these financial statements.
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, OCTOBER 31, 1994
(UNAUDITED) (CONT.)
FACE VALUE
AMOUNT FRANKLIN STRATEGIC INCOME FUND (NOTE 1)
- -------------------------------------------------------------------------------
a,bU.S. GOVERNMENT 4.6%
$ 250,000 U.S. Treasury Notes, 6.75%, 05/31/97
(COST $248,359).................................... $ 248,359
----------
U.S. GOVERNMENT AGENCIES/MORTGAGES 5.1%
50,081 FHLMC, 7.50%, 04/01/24 .............................. 47,061
49,888 FNMA, 7.50%, 10/01/07 ............................... 48,532
50,051 GNMA, SF, 7.50%, 09/15/23 ........................... 46,501
100,000 GNMA, SF, 6.50%, 03/15/24 ........................... 86,375
50,399 GNMA, SF, 8.00%, 06/15/24............................ 48,351
----------
TOTAL U.S. GOVERNMENT AGENCIES/MORTGAGES
(COST $336,806) ......................... 276,820
----------
TOTAL LONG TERM INVESTMENTS
(COST $3,707,197) ....................... 3,694,329
----------
SHORT TERM INVESTMENTS
hFOREIGN CORPORATE AGENCIES 3.6%
5,000,000 Thailand Military Bank Notes, 6.875%, 06/01/95
(COST $197,570) ................................... 197,709
----------
hFOREIGN GOVERNMENT BONDS 3.0%
gMexican Federal Treasury Certificates (CETES),
350,000 11.475%, 03/16/95 ................................... 96,544
240,000 15.24%, 04/27/95 .................................... 65,157
TOTAL FOREIGN GOVERNMENT BONDS
(COST $162,899) ......................... 161,701
----------
TOTAL INVESTMENTS BEFORE REPURCHASE
AGREEMENTS (COST $4,067,666) ............ 4,053,739
----------
dRECEIVABLES FROM REPURCHASE AGREEMENTS 25.0%
715,000 Bank of America, 4.76%, 11/01/94 (Maturity Value
$700,093)
Collateral: U.S. Treasury Notes, 3.875%, 02/28/95.. 700,000
667,800 eJoint Repurchase Agreement, 4.824%, 11/01/94
(Maturity Value $652,518)
Collateral: U.S. Treasury Notes, 4.00% - 11.625%,
11/15/94 - 07/31/99 ............................. 652,431
----------
TOTAL RECEIVABLES FROM REPURCHASE
AGREEMENTS (COST $1,352,431) ............ 1,352,431
----------
TOTAL INVESTMENTS (COST $5,420,097)
100.0% ................................ 5,406,170
OTHER ASSETS AND LIABILITIES, NET........ 1,640
----------
NET ASSETS 100.0% ..................... $5,407,810
==========
|
The accompanying notes are an integral part of these financial statements.
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, OCTOBER 31, 1994
(UNAUDITED) (CONT.)
VALUE
FRANKLIN STRATEGIC INCOME FUND (NOTE 1)
- ------------------------------------------------------------------------------
At October 31, 1994, the net unrealized depreciation
based on the cost of investments for income tax
purposes of $5,420,097 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there was an excess of value
over tax cost ..................................... $ 37,763
Aggregate gross unrealized depreciation for all
investments in which there was an excess of tax
cost over value ................................... (51,690)
---------
Net unrealized depreciation ......................... $ (13,927)
=========
|
PORTFOLIO ABBREVIATIONS:
FHLMC - Federal Home Loan Mortgage Corp.
FNMA - Federal National Mortgage Association GNMA - Government National Mortgage Association SF - Single Family |
aNon-income producing.
cSee Note 8 regarding Rule 144A securities.
dFace amount for repurchase agreements is for the underlying collateral.
eSee Note 1(h) regarding Joint Repurchase Agreement.
fSee Note 1(e) regarding securities purchased on a when-issued basis.
gZero coupon/Step-up bonds. The current effective yield may vary. The original
accretion rate by security will remain constant.
hFace amount stated in foreign currency, value in U.S. dollars.
The accompanying notes are an integral part of these financial statements.
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, OCTOBER 31, 1994
(UNAUDITED)
SHARES/ VALUE
COUNTRY* WARRANTS FRANKLIN GLOBAL UTILITIES FUND (NOTE 1)
- -------------------------------------------------------------------------------
COMMON STOCKS & WARRANTS 86.3%
ELECTRIC & GAS UTILITIES 61.8%
US 100,000 AES Corp. .............................. $ 1,975,000
US 57,200 American Electric Power Co., Inc. ...... 1,830,400
US 49,500 Central & South West Corp. ............. 1,113,750
HK 302,400 China Light & Power Co., Ltd. .......... 1,573,145
US 175,000 CINergy Corp. .......................... 4,046,875
US 99,700 Dominion Resources, Inc. ............... 3,701,363
US 21,100 DPL, Inc. .............................. 429,913
US 60,950 Duke Power Co. ......................... 2,415,144
US 55,900 Empresa Nacional de Electricidad, ADR .. 2,564,413
US 129,000 Enron Corp. ............................ 4,176,375
US 110,000 Entergy Corp. .......................... 2,571,250
US 39,000 FPL Group, Inc. ........................ 1,291,875
US 49,600 General Public Utilities Corp. ......... 1,277,200
US 29,700 Hawaiian Electric Industries, Inc. ..... 965,250
HK 1,461,600 Hong Kong & China Gas Co., Ltd. ........ 2,770,940
HK 121,800 aHong Kong & China Gas Co., Ltd.,
warrants.............................. 44,133
HK 1,180,000 Hong Kong Electric Holdings, Ltd. ...... 3,710,644
US 62,000 aHuaneng Power International, Inc., ADR.. 1,147,000
ES 285,000 Iberdrola, SA .......................... 1,879,271
US 60,300 NIPSCO Industries, Inc. ................ 1,680,863
US 109,000 National Fuel Gas Co. .................. 3,242,750
US 40,400 Pacific Gas & Electric Co. ............. 909,000
US 176,700 PacifiCorp ............................. 3,114,338
US 141,000 Panhandle Eastern Corp. ................ 3,313,500
US 117,500 Pinnacle West Capital Corp. ............ 2,188,438
US 50,000 Public Service Co. of Colorado ......... 1,362,500
US 45,800 SCEcorp ................................ 635,475
US 208,000 Southern Co. ........................... 4,108,000
US 41,200 Southern Indiana Gas & Electric Co. .... 1,102,100
US 183,900 TECO Energy, Inc. ...................... 3,563,063
US 115,700 Texas Utilities Co. .................... 3,774,713
US 180,000 cTransportadora Gas Sur, ADR ............ 2,114,258
DD 12,700 Veba, Ag ............................... 4,255,285
US 131,518 Williams Cos., Inc. .................... 3,814,022
-----------
78,662,246
-----------
TELECOMMUNICATIONS 5.4%
US 20,150 aAirTouch Communications, Inc. .......... 601,981
US 59,300 AT&T Corp. ............................. 3,261,500
CA 88,900 a,cCall-Net Enterprises, Inc., Class B .... 509,390
|
The accompanying notes are an integral part of these financial statements.
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, OCTOBER 31, 1994
(UNAUDITED) (CONT.)
SHARES/ VALUE
COUNTRY* WARRANTS FRANKLIN GLOBAL UTILITIES FUND (NOTE 1)
- -------------------------------------------------------------------------------
COMMON STOCKS & WARRANTS (CONT.)
TELECOMMUNICATIONS (CONT.)
CA 235,700 aCall-Net Enterprises, Inc., Class B .... $ 1,350,542
US 19,700 aComcast UK Cable Partners, Ltd. ........ 394,000
US 25,900 aInternational Cabletel, Inc. ........... 802,900
------------
6,920,313
------------
TELEPHONES 19.1%
US 47,300 British Telecommunications, Plc., ADR .. 3,044,938
US 16,700 Compania de Telefonos de Chile, ADR .... 1,571,888
US 55,300 GTE Corp. .............................. 1,700,475
US 20,150 Pacific Telesis Group, Inc. ............ 637,243
IT 550,000 STET-Societa Finanziaria Telefonica .... 1,662,441
US 64,750 cTelecom de Argentina, GDS .............. 3,937,518
US 70,800 Telecommunications Corp. of New Zealand,
Ltd., ADR ............................ 3,938,250
US 85,000 aTele Danmark, A/S, ADS ................. 2,443,750
US 10,200 Telefonica de Argentina, ADR ........... 633,674
US 55,950 Telefonica de Espana, ADR .............. 2,265,974
US 45,700 Telefonos de Mexico, ADR ............... 2,519,212
------------
24,355,363
------------
TOTAL COMMON STOCKS & WARRANTS
(COST $112,791,976)........... 109,937,922
------------
PREFERRED STOCKS .5%
TELEPHONES
US 18,000 cPhilippine Long Distance Co., 5.75% cvt.
pfd., Series II (COST $553,000) ...... 596,250
------------
TOTAL COMMON STOCKS & WARRANTS
AND PREFERRED STOCKS
(COST $113,344,976)........... 110,534,172
------------
|
FACE
AMOUNT
-----------
d,eRECEIVABLES FROM REPURCHASE AGREEMENTS 12.0%
US $15,608,760 Joint Repurchase Agreement, 4.824%,
11/01/94 (Maturity Value $15,256,091)
(COST $15,254,047)
Collateral: U.S. Treasury Notes, 4.00% -
11.625%, 11/15/94 - 07/31/99 ....... 15,254,047
------------
TOTAL INVESTMENTS (COST
$128,599,023) 98.8%........ 125,788,219
OTHER ASSETS AND LIABILITIES,
NET 1.2%................... 1,494,377
------------
NET ASSETS 100.0% ........... $127,282,596
============
|
The accompanying notes are an integral part of these financial statements.
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, OCTOBER 31, 1994
(UNAUDITED) (CONT.)
VALUE
FRANKLIN GLOBAL UTILITIES FUND (NOTE 1)
- -------------------------------------------------------------------------------
At October 31, 1994, the net unrealized
depreciation based on the cost of
investments for income tax purposes of
$128,601,826 was as follows:
Aggregate gross unrealized
appreciation for all investments in
which there was an excess of value
over tax cost ...................... $ 6,840,967
Aggregate gross unrealized
depreciation for all investments in
which there was an excess of tax
cost over value .................... (9,654,574)
------------
Net unrealized depreciation .......... $ (2,813,607)
============
|
COUNTRY LEGEND:
CA - Canada
DD - Germany
ES - Spain
HK - Hong Kong
IT - Italy
US - United States of America
*Securities traded in currency of country indicated.
aNon-income producing.
cSee Note 8 regarding Rule 144A securities.
dFace amount for repurchase agreements is for the underlying collateral.
eSee Note 1(h) regarding Joint Repurchase Agreement.
The accompanying notes are an integral part of these financial statements.
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, OCTOBER 31, 1994
(UNAUDITED)
VALUE
SHARES FRANKLIN SMALL CAP GROWTH FUND (NOTE 1)
- -------------------------------------------------------------------------------
COMMON STOCKS 89.7%
AUTO PARTS 2.2%
20,000 Donnelly Corp. ....................................... $ 350,000
17,900 Excel Industries, Inc. ............................... 268,500
8,300 aLear Seating Corp. ................................... 166,000
----------
784,500
----------
BROADCASTING 1.3%
10,000 aAll American Communications, Inc. .................... 65,000
20,300 aComcast UK Cable Partners, Ltd. ...................... 406,000
----------
471,000
----------
CEMENT PRODUCERS .5%
10,000 aLone Star Industries ................................. 193,750
----------
COMPONENT SUPPLIERS 2.6%
22,100 aAtchison Casting Corp. ............................... 370,175
24,000 Roper Industries, Inc. ............................... 576,000
----------
946,175
----------
COMPUTER SOFTWARE 10.0%
13,000 Autodesk, Inc. ....................................... 448,500
23,400 aFTP Software, Inc. ................................... 590,850
18,000 aInformix Corp. ....................................... 495,000
9,500 aIntergrated Systems, Inc. ............................ 140,125
5,000 aOracle Systems Corp. ................................. 230,000
15,000 aPairgain Technologies, Inc. .......................... 232,500
100,000 aStructural Dynamics Research Corp. ................... 487,500
9,200 aSybase, Inc. ......................................... 481,850
107,500 aTrinzic Corp. ........................................ 483,750
----------
3,590,075
----------
CONSUMER SERVICES .3%
3,300 The Loewen Group, Inc. ............................... 81,675
----------
ELECTRONICS/ELECTRICAL EQUIPMENT 7.6%
20,000 aAltera Corp. ......................................... 788,750
25,000 aIntegrated Device Technology, Inc. ................... 709,375
10,000 Logicon, Inc. ........................................ 307,500
30,000 aMegatest Corp. ....................................... 450,000
10,000 aMicrochip Technology, Inc. ........................... 468,750
----------
2,724,375
----------
|
The accompanying notes are an integral part of these financial statements.
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, OCTOBER 31, 1994
(UNAUDITED) (CONT.)
VALUE
SHARES FRANKLIN SMALL CAP GROWTH FUND (NOTE 1)
- -------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
FINANCIAL SERVICES .9%
8,200 Leucadia National Corp. ............................. $ 318,775
-----------
GAMING .6%
17,700 Showboat, Inc. ...................................... 212,400
-----------
HOMEBUILDERS .5%
29,200 aNVR, Inc. ........................................... 167,900
-----------
HOSPITAL MANAGEMENT/SERVICES 8.3%
50,500 aAdvocat, Inc. ....................................... 530,250
10,000 Columbia/HCA Healthcare Corp. ....................... 416,250
24,000 aGranCare, Inc. ...................................... 372,000
8,700 aHomedco Group, Inc. ................................. 314,288
15,000 aHumana, Inc. ........................................ 365,625
27,500 aPyxis Corp. ......................................... 529,375
8,750 United Healthcare Corp. ............................. 461,563
-----------
2,989,351
-----------
INSURANCE 4.1%
20,000 ACE, Ltd. ........................................... 455,000
60,800 aACMAT Corp., Class A ................................ 562,400
15,000 Mercury General Corp. ............................... 450,000
-----------
1,467,400
-----------
IRON/STEEL PRODUCTS 4.3%
25,000 aGeneva Steel Co., Class A ........................... 440,625
16,792 cHylsamex, ADR ....................................... 369,248
42,000 aNational Steel Corp., Class B ....................... 745,500
-----------
1,555,373
-----------
MACHINE - DIVERSIFIED .8%
8,000 aDuracraft Corp. ..................................... 298,000
-----------
NETWORKING 5.7%
25,000 aCisco Systems, Inc. ................................. 753,125
13,900 aNewbridge Networks Corp. ............................ 385,725
15,000 aSilicon Graphics, Inc. .............................. 455,625
11,000 a3Com Corp. .......................................... 442,750
-----------
2,037,225
-----------
OIL & GAS 3.1%
30,000 aBarrett Resources Corp. ............................. 596,250
20,000 Parker & Parsley Petroleum Co. ...................... 500,000
-----------
1,096,250
-----------
|
The accompanying notes are an integral part of these financial statements.
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, OCTOBER 31, 1994
(UNAUDITED) (CONT.)
VALUE
SHARES FRANKLIN SMALL CAP GROWTH FUND (NOTE 1)
- -------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
PHARMACEUTICALS 7.2%
40,000 aKV Pharmaceutical Co., Class B ....................... $ 295,000
50,000 aMatrix Pharmaceutical, Inc. .......................... 718,750
50,100 aNoven Pharmaceuticals, Inc. .......................... 764,025
98,000 aPenederm, Inc. ....................................... 808,500
----------
2,586,275
----------
REAL ESTATE 2.8%
28,500 Equity Inns, Inc. .................................... 299,250
14,700 Mid-America Apartment Communities, Inc. .............. 365,663
13,800 Storage USA, Inc. .................................... 346,725
----------
1,011,638
----------
RESTAURANTS .5%
17,500 aBack Bay Restaurant Group, Inc. ...................... 157,500
----------
RETAIL 3.8%
50,000 aBroadway Stores, Inc. ................................ 562,500
10,000 aErnst Home Center, Inc. .............................. 127,500
10,100 aGood Guys, Inc. ...................................... 117,413
20,800 aStrouds, Inc. ........................................ 262,600
9,000 aUrban Outfitters, Inc. ............................... 272,250
----------
1,342,263
----------
SEMICONDUCTORS EQUIPMENT/SERVICES 7.2%
10,000 aLSI Logic Corp. ...................................... 425,000
8,300 aMattson Technology, Inc. ............................. 174,300
32,500 aMicro Linear Corp. ................................... 276,250
25,000 aNational Semiconductor Corp. ......................... 440,625
10,000 Tower Semiconductor, Ltd. ............................ 140,000
31,000 Wyle Laboratories .................................... 573,500
9,500 aXilinx, Inc. ......................................... 552,188
----------
2,581,863
----------
TELECOMMUNICATIONS 9.5%
3,000 aApplied Digital Access, Inc. ......................... 74,250
7,000 Ascend Communications, Inc. .......................... 227,500
10,000 aAspect Telecommunications Corp. ...................... 345,000
11,100 a,cCall-Net Enterprises, Inc., Class B .................. 63,602
20,000 aCall-Net Enterprises, Inc., Class B .................. 114,598
4,500 Cascade Communications Corp. ......................... 250,875
33,000 aColonial Data Technologies Corp. ..................... 305,250
23,000 aComnet Cellular, Inc. ................................ 649,750
|
The accompanying notes are an integral part of these financial statements.
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, OCTOBER 31, 1994
(UNAUDITED) (CONT.)
VALUE
SHARES FRANKLIN SMALL CAP GROWTH FUND (NOTE 1)
- -------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
TELECOMMUNICATIONS (CONT.)
29,900 ECI Telecommunications, Ltd. ........................ $ 579,313
1,000 Grupo Iusacell, SA, Series D ........................ 299,250
7,800 aInternational Cabletel .............................. 241,800
5,000 aTellabs, Inc. ...................................... 243,750
-----------
3,394,938
-----------
TEXTILES/APPAREL 1.8%
18,000 aCone Mills Corp. .................................... 213,750
10,000 aTommy Hilfiger Corp. ................................ 441,250
-----------
655,000
-----------
TRANSPORTATION 3.1%
20,000 Air Express International Corp. ..................... 560,000
47,500 aAtlantic Coast Airlines, Inc. ....................... 160,312
9,000 aChicago & North Western Holdings Corp. .............. 183,374
2,100 Covenant Transportation, Inc., Class A .............. 39,900
21,500 aMesa Airlines, Inc. ................................ 174,687
-----------
1,118,273
-----------
TRUCKING & LEASING 1.0%
25,000 aUS Xpress Enterprises, Inc., Class A ................ 368,750
-----------
TOTAL COMMON STOCKS (COST $29,678,490) ...... 32,150,724
-----------
PREFERRED STOCKS 2.1%
ELECTRONICS/ELECTRICAL EQUIPMENT
10,000 aNokia Corp., pfd., ADR (COST $598,725)............... 751,250
-----------
TOTAL COMMON STOCKS AND PREFERRED STOCKS
(COST $30,277,215)......................... 32,901,974
-----------
|
FACE
AMOUNT
- ----------
d,eRECEIVABLES FROM REPURCHASE AGREEMENTS 10.3%
$3,789,833 Joint Repurchase Agreement, 4.824%, 11/01/94
(Maturity Value $3,703,791) (COST $3,703,295)
Collateral: U.S. Treasury Notes, 4.00% - 11.625%,
11/15/94 - 07/31/99.............................. 3,703,295
-----------
TOTAL INVESTMENTS
(COST $33,980,510) 102.1%................. 36,605,269
LIABILITIES IN EXCESS OF OTHER ASSETS,
NET (2.1)%................................ (762,532)
-----------
NET ASSETS 100.0% .......................... $35,842,737
===========
|
The accompanying notes are an integral part of these financial statements.
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, OCTOBER 31, 1994
(UNAUDITED) (CONT.)
VALUE
SHARES FRANKLIN SMALL CAP GROWTH FUND (NOTE 1)
- -------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
At October 31, 1994, the net unrealized appreciation
based on the cost of investments for income tax
purposes of $33,990,678 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there was an excess of value
over tax cost ................................... $ 4,091,801
Aggregate gross unrealized depreciation for all
investments in which there was an excess of tax
cost over value ................................. (1,477,210)
-----------
Net unrealized appreciation ....................... $ 2,614,591
===========
|
aNon-income producing.
cSee Note 8 regarding Rule 144A securities.
dFace amount for repurchase agreements is for the underlying collateral.
eSee Note 1(h) regarding Joint Repurchase Agreement.
The accompanying notes are an integral part of these financial statements.
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, OCTOBER 31, 1994
(UNAUDITED)
SHARES/ VALUE
COUNTRY* WARRANTS FRANKLIN GLOBAL HEALTH CARE FUND (NOTE 1)
- -------------------------------------------------------------------------------
COMMON STOCKS & WARRANTS 87.9%
BIOTECHNOLOGY 6.1%
US 1,500 aBiogen, Inc. ............................. $ 73,500
GB 10,000 aBritish Bio-Technology Group ............. 94,844
GB 3,750 aBritish Bio-Technology Group, warrants ... 7,849
US 2,000 aChiron Corp. ............................. 134,750
US 4,000 aGenzyme Corp. ............................ 131,000
US 20,000 aUnivax Biologics, Inc. ................... 120,000
----------
561,943
----------
HEALTH MAINTENANCE ORGANIZATIONS 10.6%
US 2,000 aPacifiCare Health Systems, Inc.,
Class B ................................ 146,000
US 6,000 aPhysician Corporation of America ......... 144,750
US 8,000 aSierra Health Services, Inc. ............. 260,000
US 4,000 United Healthcare Corp. .................. 211,000
US 4,500 U.S. HealthCare, Inc. .................... 212,625
----------
974,375
----------
HOMECARE/ALTERNATE SITE 3.0%
US 5,000 aHomedco Group, Inc. ...................... 180,625
US 10,000 aProfessional Sports Care Management,
Inc. ................................... 92,500
----------
273,125
----------
HOSPITALS 9.8%
US 6,300 Columbia/HCA Healthcare Corp. ............ 262,238
US 6,000 aHealthtrust, Inc. - The Hospital Co. ..... 210,000
US 7,000 aHumana, Inc. ............................. 170,625
US 10,000 aNational Medical Enterprises ............. 145,000
US 5,000 aQuorum Health Group, Inc. ................ 113,750
----------
901,613
----------
MEDICAL TECHNOLOGY & SUPPLIES 14.2%
US 40,000 aAbaxis, Inc. ............................. 200,000
US 35,000 aAngeion Corp. ............................ 96,250
US 35,000 aAngeion Corp., warrants .................. 9,844
US 6,000 Bard (C.R.), Inc. ........................ 147,000
US 1,000 aCordis Corp. ............................. 57,625
US 5,000 aDatascope Corp. .......................... 87,500
US 10,666 aHealthdyne Technologies, Inc. ............ 114,659
US 3,000 aHeart Technology, Inc. ................... 71,625
US 3,000 Medtronic, Inc. .......................... 156,375
US 2,500 aSciMed Life Systems, Inc. ................ 119,375
US 3,000 Stryker Corp. ............................ 102,750
|
The accompanying notes are an integral part of these financial statements.
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, OCTOBER 31, 1994
(UNAUDITED) (CONT.)
SHARES/ VALUE
COUNTRY* WARRANTS FRANKLIN GLOBAL HEALTH CARE FUND (NOTE 1)
- -------------------------------------------------------------------------------
COMMON STOCKS & WARRANTS (CONT.)
MEDICAL TECHNOLOGY & SUPPLIES (CONT.)
US 914 aThermolase Corp. ......................... $ 7,312
US 9,000 aThermotrex Corp. ......................... 137,250
----------
1,307,565
----------
NURSING HOMES/SUBACUTE 4.3%
US 7,500 aAdvocat, Inc. ............................ 78,750
US 7,000 aGranCare, Inc. ........................... 108,500
US 9,000 aMariner Health Group, Inc. ............... 203,625
----------
390,875
----------
PHARMACEUTICAL DISTRIBUTORS 1.0%
US 3,000 Grupo Casa Autrey, SA de C.V., ADR ....... 91,500
----------
PHARMACEUTICALS 12.2%
SE 10,000 aAstra AB, Series B ....................... 267,129
CH 200 Ciba-Geigy, AG ........................... 116,588
US 10,000 Laboratorio Chile SA, ADR ................ 183,750
US 2,000 Pfizer, Inc. ............................. 148,250
CH 200 Sandoz, AG-R ............................. 99,705
FR 3,000 Sanofi SA ................................ 145,557
US 2,200 Schering-Plough Corp. .................... 156,750
----------
1,117,729
----------
SPECIALTY PHARMACEUTICALS 22.0%
US 7,000 Allergan, Inc. ........................... 184,625
CH 100 aAres Serono, Inc., Series B .............. 54,153
US 10,000 aCirca Pharmaceuticals, Inc. .............. 148,750
US 2,000 aElan Corp., Plc., ADR .................... 73,750
US 10,000 aGensia, Inc. ............................. 47,500
US 20,000 aKV Pharmaceutical Co., Class B ........... 147,500
US 20,000 aMatrix Pharmaceutical, Inc. .............. 287,500
US 35,000 aNoven Pharmaceuticals, Inc. .............. 533,750
US 55,000 aPenederm, Inc. ........................... 453,750
US 2,000 aScherer (R.P.) Corp. ..................... 89,250
----------
2,020,528
----------
SOFTWARE/INFORMATION SYSTEMS 4.7%
US 4,000 aCerner Corp. ............................. 163,000
US 14,000 aPyxis Corp. .............................. 269,500
----------
432,500
----------
TOTAL COMMON STOCKS & WARRANTS
(COST $7,040,958)............... 8,071,753
----------
|
The accompanying notes are an integral part of these financial statements.
\FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, OCTOBER 31, 1994
(UNAUDITED) (CONT.)
SHARES/ VALUE
COUNTRY* WARRANTS FRANKLIN GLOBAL HEALTH CARE FUND (NOTE 1)
- -------------------------------------------------------------------------------
a,eRECEIVABLES FROM REPURCHASE AGREEMENTS 13.3%
US $1,251,068 Joint Repurchase Agreement, 4.824%,
11/01/94 (Maturity Value $1,222,480)
(COST $1,222,316)
Collateral: U.S. Treasury Notes,
4.00% - 11.625%, 11/15/94 -
07/15/99 ............................. $1,222,316
----------
TOTAL INVESTMENTS
(COST $8,263,274) 101.2%....... 9,294,069
LIABILITIES IN EXCESS OF OTHER
ASSETS, NET (1.2)% ............ (116,175)
----------
NET ASSETS 100.0% ............... $9,177,894
==========
At October 31, 1994, the net unrealized
appreciation based on the cost of
investments for income tax purposes of
$8,265,986 was as follows:
Aggregate gross unrealized appreciation
for all investments in which there was
an excess of value over tax cost ....... $1,248,921
Aggregate gross unrealized depreciation
for all investments in which there was
an excess of tax cost over value ....... (220,838)
----------
Net unrealized appreciation............... $1,028,083
==========
|
COUNTRY LEGEND:
CH - Switzerland
FR - France
GB - United Kingdom
SE - Sweden
US - United States of America
*Securities traded in currency of country indicated.
aNon-income producing.
dFace amount for repurchase agreements is for the underlying collateral.
eSee Note 1(h) regarding Joint Repurchase Agreement.
The accompanying notes are an integral part of these financial statements.
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, OCTOBER 31, 1994
(UNAUDITED)
VALUE
SHARES FRANKLIN INSTITUTIONAL MIDCAP GROWTH FUND (NOTE 1)
- -------------------------------------------------------------------------------
COMMON STOCKS98.8%
ADVERTISING .4%
400 Omnicom Group, Inc. ...................................... $ 21,300
----------
AEROSPACE/DEFENSE .2%
500 aColtec Indutries, Inc. ................................... 9,063
----------
CHEMICAL & MATERIALS 3.6%
700 aApplied Materials, Inc. .................................. 36,400
400 ARCO Chemical Co. ........................................ 19,550
200 Cabot Corp. .............................................. 5,700
1,700 Ethyl Corp. .............................................. 19,338
500 aGeorgia Gulf Corp. ....................................... 19,375
200 aIMC Global, Inc. ......................................... 8,500
900 International Specialty Products, Inc. ................... 6,638
400 Lubrizol Corp. ........................................... 12,900
1,700 Precision Castparts Corp. ................................ 38,888
100 aSterling Chemicals, Inc. ................................. 1,213
400 The Geon Co. ............................................. 12,000
200 Wellman, Inc. ............................................ 6,575
----------
187,077
----------
COMMERCIAL SERVICES 2.1%
1,600 Banta Corp. .............................................. 49,600
200 CPI Corp. ................................................ 4,350
1,000 Manpower, Inc. ........................................... 29,125
100 PHH Corp. ................................................ 3,750
600 The Olsten Corp. ......................................... 21,525
----------
108,350
----------
COMMUNICATIONS EQUIPMENT 4.0%
1,000 a3Com Corp. ............................................... 40,250
200 aADC Telecommunications, Inc. ............................. 9,425
1,400 aALC Communications Corp. ................................. 53,025
1,800 Cabletron Systems, Inc. .................................. 90,450
300 aTellabs, Inc. ............................................ 14,625
----------
207,775
----------
COMPUTER HARDWARE 3.1%
2,000 aEMC Corp. ................................................ 43,000
400 aExabyte Corp. ............................................ 8,800
1,300 aSeagate Technology, Inc. ................................. 32,988
200 aSequent Computer Systems, Inc. ........................... 3,800
|
The accompanying notes are an integral part of these financial statements.
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, OCTOBER 31, 1994
(UNAUDITED) (CONT.)
VALUE
SHARES FRANKLIN INSTITUTIONAL MIDCAP GROWTH FUND (NOTE 1)
- -------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
COMPUTER HARDWARE (CONT.)
1,500 aSilicon Graphics, Inc. ................................... $ 45,563
700 aStratus Computer, Inc. ................................... 26,075
----------
160,226
----------
COMPUTER SOFTWARE 2.7%
300 Adobe Systems, Inc. ...................................... 10,800
300 Cadence Design Systems, Inc. ............................. 6,000
2,600 General Motors Corp., Class E ............................ 95,225
900 HBO & Co. ................................................ 29,250
----------
141,275
----------
CONSUMER PRODUCTS/SERVICES 1.4%
1,300 Dexter Corp. ............................................. 26,813
1,400 Hanna (M.A.) Co. ......................................... 35,875
100 Tambrands, Inc. .......................................... 4,100
100 Xtra Corp. ............................................... 5,100
----------
71,888
----------
CONTAINERS & PACKAGING .6%
1,600 Riverwood International Corp. ............................ 27,800
100 Chesapeake Corp. ......................................... 3,100
----------
30,900
----------
ELECTRONIC COMPONENTS/ TECHNOLOGY 10.7%
1,300 aAmphenol Corp. ........................................... 28,438
1,800 aArrow Electronics, Inc. .................................. 67,950
1,500 aCirrus Logic, Inc. ....................................... 43,125
1,800 Comdisco, Inc. ........................................... 36,000
1,500 Intelligent Electronics, Inc. ............................ 23,250
500 aKLA Instruments Corp. .................................... 26,375
400 Linear Technology Corp. .................................. 19,200
1,800 aLitton Industries, Inc. .................................. 66,150
800 aLSI Logic Corp. .......................................... 34,000
1,700 Micron Technology, Inc. .................................. 67,363
1,800 aSymbol Technologies, Inc. ................................ 60,750
1,300 aTeradyne, Inc. ........................................... 42,738
900 Varian Associates, Inc. .................................. 33,300
200 Vishay Intertechnology, Inc. ............................. 9,825
----------
558,464
----------
|
The accompanying notes are an integral part of these financial statements.
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, OCTOBER 31, 1994
(UNAUDITED) (CONT.)
VALUE
SHARES FRANKLIN INSTITUTIONAL MIDCAP GROWTH FUND (NOTE 1)
- -------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
FINANCE 9.7%
1,100 AT&T Capital Corp. ....................................... $ 25,575
3,100 Bank of New York Co., Inc. ............................... 98,425
1,200 BayBanks, Inc. ........................................... 69,300
3,000 Bear Stearns Companies, Inc. ............................. 48,750
600 Comerica, Inc. ........................................... 16,575
200 Crestar Financial Corp. .................................. 8,250
2,300 Edwards (AG), Inc. ....................................... 42,550
900 First Bank System, Inc. .................................. 33,525
400 Green Tree Financial Corp. ............................... 10,950
500 Integra Financial Corp. .................................. 21,688
200 Mercantile Bancorp. ...................................... 6,950
1,200 Midlantic Corp., Inc. .................................... 33,600
600 Morgan Stanley Group, Inc. ............................... 39,225
400 Standard Federal Bank .................................... 10,600
200 Washington Mutual Savings Bank ........................... 3,575
1,300 West One Bancorp ......................................... 35,750
-----------
505,288
-----------
FOODS/BEVERAGE 3.1%
500 Coca-Cola Enterprises, Inc. .............................. 9,750
1,400 Dean Foods Co. ........................................... 40,425
2,000 IBP, Inc. ................................................ 68,250
4,300 Michael Foods, Inc. ...................................... 42,463
-----------
160,888
-----------
HEALTHCARE PRODUCTS 2.5%
2,900 aAcuson Corp. ............................................. 53,288
300 aCordis Corp. ............................................. 17,288
2,100 Mylan Laboratories Corp. ................................. 58,800
-----------
129,376
-----------
HEALTHCARE SERVICES 6.2%
1,000 aAmerican Medical Holdings, Inc. .......................... 23,750
70 Columbia/HCA Healthcare Corp. ............................ 2,914
700 aFHP International Corp. .................................. 20,300
300 aHealth Care and Retirement Corp. ......................... 8,063
400 aHealth Management Associates, Inc. ....................... 10,400
1,900 aHealth Systems International, Inc., Class A .............. 51,063
1,700 aHEALTHSOUTH Rehabilitation Corp. ......................... 64,600
600 aMid-Atlantic Medical Services, Inc. ...................... 13,875
800 aNational Health Laboratories Holdings .................... 11,500
|
The accompanying notes are an integral part of these financial statements.
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, OCTOBER 31, 1994
(UNAUDITED) (CONT.)
VALUE
SHARES FRANKLIN INSTITUTIONAL MIDCAP GROWTH FUND (NOTE 1)
- -------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
HEALTHCARE SERVICES (CONT.)
5,300 aNovaCare, Inc. ........................................... $ 53,000
600 aPacifiCare Health Systems, Inc., Class A ................. 44,700
100 aPhyCor, Inc. ............................................. 3,425
400 U.S. Healthcare, Inc. .................................... 18,900
----------
326,490
----------
HOMEBUILDING .6%
2,200 Lennar Corp. ............................................. 33,275
----------
INSURANCE 5.9%
2,600 AFLAC, Inc. .............................................. 88,725
200 aAmerican Re Corp. ........................................ 5,875
400 Aon Corp. ................................................ 12,450
700 Conseco, Inc. ............................................ 26,600
300 Equitable of Iowa Cos. ................................... 10,613
300 Hartford Steam Boiler Inspection & Insurance Co. ......... 12,788
1,500 aHumana, Inc. ............................................. 36,563
1,100 MGIC Investment Corp. .................................... 34,513
1,400 NWNL Cos., Inc. .......................................... 40,250
200 TIG Holdings, Inc. ....................................... 3,850
600 Transatlantic Holdings, Inc. ............................. 30,525
700 Western National Corp. ................................... 7,963
----------
310,715
----------
LEISURE 1.1%
1,000 Callaway Golf Co. ........................................ 38,250
600 Harley-Davidson, Inc. .................................... 16,800
----------
55,050
----------
MANUFACTURING - DIVERSIFIED .9%
200 Carlisle Co., Inc. ....................................... 6,525
500 Danaher Corp. ............................................ 24,563
400 Pentair, Inc. ............................................ 16,800
----------
47,888
----------
MANUFACTURING - SPECIALIZED INDUSTRIAL 2.6%
500 aColeman Co., Inc. ........................................ 17,313
933 Lancaster Colony Corp. ................................... 32,422
1,400 Modine Manufacturing Co. ................................. 40,950
400 aReliance Electric Co., Class A ........................... 11,900
700 Sundstrand Corp. ......................................... 31,850
----------
134,435
----------
|
The accompanying notes are an integral part of these financial statements.
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, OCTOBER 31, 1994
(UNAUDITED) (CONT.)
VALUE
SHARES FRANKLIN INSTITUTIONAL MIDCAP GROWTH FUND (NOTE 1)
- -------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
METALS & MINING 3.5%
1,500 aAlumax, Inc. ............................................. $ 44,625
3,000 Brush Wellman, Inc. ...................................... 50,250
700 Carpenter Technology Corp. ............................... 39,550
800 aLTV Corp. ................................................ 15,300
2,000 aMagma Copper Co. ......................................... 35,750
----------
185,475
----------
OFFICE SUPPLIES 2.2%
2,500 aOffice Depot ............................................. 61,875
1,900 Wallace Computer Services, Inc. .......................... 52,725
----------
114,600
----------
OIL & GAS 4.8%
500 Apache Corp. ............................................. 14,063
1,600 Equitable Resources, Inc. ................................ 48,800
200 FINA, Inc., Class A ...................................... 14,650
1,700 Mitchell Energy & Development, Class A ................... 30,175
1,600 Murphy Oil Corp. ......................................... 76,200
3,900 Ranger Oil, Ltd. ......................................... 25,350
1,200 Ultramar Corp. ........................................... 30,900
500 Western Gas Resources, Inc. .............................. 9,750
----------
249,888
----------
PAPER & FOREST PRODUCTS 1.1%
800 Bowater, Inc. ............................................ 21,600
500 Consolidated Papers, Inc. ................................ 22,438
400 Rayonier, Inc. ........................................... 11,800
----------
55,838
----------
RESTAURANTS .4%
2,400 aNPC International Inc., Class A .......................... 16,200
400 aOutback Steakhouse, Inc. ................................. 12,350
----------
28,550
----------
RETAIL 7.5%
700 aAnnTaylor Stores, Inc. ................................... 29,050
800 aBest Buy Co., Inc. ....................................... 30,200
300 aBurlington Coat Factory Co. .............................. 3,900
2,300 Dollar General Corp. ..................................... 66,700
300 Edison Brothers Stores ................................... 7,125
1,000 aFederated Department Stores, Inc. ........................ 20,750
600 aMichael Stores, Inc. ..................................... 24,338
1,700 aRevco D.S., Inc. ......................................... 38,038
|
The accompanying notes are an integral part of these financial statements.
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, OCTOBER 31, 1994
(UNAUDITED) (CONT.)
VALUE
SHARES FRANKLIN INSTITUTIONAL MIDCAP GROWTH FUND (NOTE 1)
- -------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
RETAIL (CONT.)
1,500 aSafeway, Inc. ............................................ $ 44,250
100 aStop & Shop Cos., Inc. ................................... 2,500
2,300 The Southland Corp. ...................................... 12,075
3,100 US Shoe Corp. ............................................ 55,413
3,100 aWaban, Inc. .............................................. 55,025
----------
389,364
----------
TELECOMMUNICATIONS 3.0%
1,700 Century Telephone Enterprises ............................ 51,000
2,700 Cincinnati Bell, Inc. .................................... 49,613
2,300 Rochester Telephone Corp. ................................ 56,350
----------
156,963
----------
TEXTILES 1.2%
800 Angelica Corp. ........................................... 21,200
2,600 aWarnaco Group, Inc., Class A ............................. 49,075
----------
70,275
----------
TRANSPORTATION 2.6%
2,300 Airborne Freight Corp. ................................... 43,988
1,800 American President Cos. .................................. 43,650
800 Arnold Industries, Inc. .................................. 18,650
700 Illinois Central Corp. ................................... 22,488
300 aNorthwest Airlines Corp., Class A ........................ 6,300
----------
135,076
----------
UTILITIES 11.1%
600 Atlantic Energy, Inc. .................................... 10,125
1,600 Central Maine Power Co. .................................. 18,400
3,300 Delmarva Power & Light Co. ............................... 62,288
2,000 General Public Utilities Corp. ........................... 51,500
200 IES Industries, Inc. ..................................... 5,125
2,800 Iowa-Illinois Gas & Electric Co. ......................... 57,400
2,600 NIPSCO Industries, Inc. .................................. 72,475
1,500 Northeast Utilities ...................................... 34,688
3,500 Portland General Corp. ................................... 60,813
3,300 Pinnacle West Capital Corp. .............................. 61,463
4,600 aPublic Service Co. of Mexico ............................. 56,925
1,500 Rochester Gas & Electric Corp. ........................... 31,313
1,300 Scana Corp. .............................................. 56,063
----------
578,578
----------
TOTAL COMMON STOCKS (COST $5,051,314) ............ 5,164,330
----------
|
The accompanying notes are an integral part of these financial statements.
FRANKLIN STRATEGIC SERIES
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, OCTOBER 31, 1994
(UNAUDITED) (CONT.)
FACE VALUE
AMOUNT FRANKLIN INSTITUTIONAL MIDCAP GROWTH FUND (NOTE 1)
- -------------------------------------------------------------------------------
d,eRECEIVABLES FROM REPURCHASE AGREEMENTS .4%
$21,133 Joint Repurchase Agreement, 4.824%, 11/01/94
(Maturity Value $20,825) (COST $20,822)
Collateral: U.S. Treasury Notes, 4.00% - 11.625%,
11/15/94 - 07/15/99 ................................. $ 20,822
----------
TOTAL INVESTMENTS (COST $5,072,136) 99.2% .... 5,185,152
OTHER ASSETS AND LIABILITIES, NET .8% ........ 39,973
----------
NET ASSETS 100.0% ............................ $5,225,125
==========
At October 31, 1994, the net unrealized appreciation
based on the cost of investments for income tax
purposes of $5,073,184 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there was an excess of value
over tax cost ..................................... $ 374,764
Aggregate gross unrealized depreciation for all
investments in which there was an excess of tax
cost over value ................................... (262,796)
----------
Net unrealized appreciation ......................... $ 111,968
==========
|
aNon-income producing.
dFace amount for repurchase agreements is for the underlying collateral.
eSee Note 1(h) regarding Joint Repurchase Agreement.
The accompanying notes are an integral part of these financial statements.
FRANKLIN STRATEGIC SERIES
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
OCTOBER 31, 1994 (UNAUDITED)
FRANKLIN
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN INSTITUTIONAL
CALIFORNIA STRATEGIC GLOBAL SMALL CAP GLOBAL HEALTH MIDCAP
Assets: GROWTH FUND INCOME FUND UTILITIES FUND GROWTH FUND CARE FUND GROWTH FUND
----------- ----------- -------------- ----------- ------------- ------------
Investments in securities:
At identified cost.................. $5,032,531 $4,067,666 $113,344,976 $30,277,215 $7,040,958 $5,051,314
========== ========== ============ =========== ========== ==========
At value............................ 5,781,836 4,053,739 110,534,172 32,901,974 8,071,753 5,164,330
Receivables from repurchase
agreements, at value and cost....... 1,324,188 1,352,4311 5,254,047 3,703,295 1,222,316 20,822
Cash.................................. 9,200 17,676 3,667 22,665 106,006 14,905
Foreign currencies (Cost $77,885)..... -- -- -- -- 77,695 --
Receivables:
Dividends and interest.............. 1,653 86,549 340,194 8,146 2,225 8,547
Investment securities sold.......... 211,679 423,207 1,415,853 838,375 7,650 241,084
Capital shares sold................. 1,191 -- 125,547 120,009 95,817 --
Prepaid expenses...................... 16,783 6,207 67,543 56,056 10,876 --
Unamortized organization costs
(Note 2)............................ 13,306 -- 8,452 8,604 8,014 --
---------- ---------- ------------ ----------- ---------- ----------
Total assets.................. 7,359,836 5,939,809 127,749,475 37,659,124 9,602,352 5,449,688
---------- ---------- ------------ ----------- ---------- ----------
Liabilities:
Payables:
Investment securities purchased:
Regular delivery.................. 317,568 255,460 147,542 1,761,842 392,448 224,563
When-issued basis (Note 1)........ -- 267,122 -- -- -- --
Capital shares repurchased.......... -- -- 188,853 20,289 57 --
Shareholder servicing costs......... 1,377 -- 4,135 1,053 3,318 --
Distribution fees................... 8,903 6,060 88,881 18,187 16,463 --
Accrued expenses and other
liabilities....................... 30,551 3,357 37,468 15,016 12,172 --
---------- ---------- ------------ ----------- ---------- ----------
Total liabilities............. 358,399 531,999 466,879 1,816,387 424,458 224,563
---------- ---------- ------------ ----------- ---------- ----------
Net assets, at value.................... $7,001,437 $5,407,810 $127,282,596 $35,842,737 $9,177,894 $5,225,125
========== ========== ============ =========== ========== ==========
Net assets consist of:
Undistributed net investment income... $ 26,486 $ 117,832 $ 1,199,229 $ 27,140 $ 20,460 $ 28,039
Unrealized appreciation (depreciation)
on investments and translation of
assets and liabilities denominated
in foreign currencies............... 749,305 (13,553) (2,810,803) 2,624,759 1,030,038 113,016
Net realized gain (loss) from
investments......................... 305,875 (5,890) 344,610 1,232,100 377,037 (48,365)
Net realized gain (loss)from foreign
currency transactions............... -- (674) 7,085 -- 916 --
Capital shares........................ 5,476 5,306 103,215 26,273 7,750 5,136
Additional paid-in capital............ 5,914,295 5,304,789 128,439,260 31,932,465 7,741,693 5,127,299
---------- ---------- ------------ ----------- ---------- ----------
Net assets, at value.................... $7,001,437 $5,407,810 $127,282,596 $35,842,737 $9,177,894 $5,225,125
========== ========== ============ =========== ========== ==========
Shares outstanding...................... 547,607 530,569 10,321,541 2,627,319 775,028 513,618
========== ========== ============ =========== ========== ==========
Net asset value per share............... $12.79 $10.19 $12.33 $13.64 $11.84 $10.17
========== ========== ============ =========== ========== ==========
|
The accompanying notes are an integral part of these financial statements.
FRANKLIN STRATEGIC SERIES
FINANCIAL STATEMENTS (CONT.)
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED OCTOBER 31, 1994 (UNAUDITED)
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN INSTITUTIONAL
CALIFORNIA STRATEGIC GLOBAL SMALL CAP GLOBAL HEALTH MIDCAP
GROWTH FUND INCOME FUND UTILITIES FUND GROWTH FUND CARE FUND GROWTH FUND
----------- ----------- -------------- ----------- ------------- -------------
Investment income:
Dividends............................. $ 24,968 $ 4,531 $2,368,480 $ 59,535 $ 15,060 $ 55,726
Interest.............................. 18,491 153,422 320,684 66,035 19,247 3,578
-------- -------- ---------- ---------- ---------- --------
Total income.................. 43,459 157,953 2,689,164 125,570 34,307 59,304
-------- -------- ---------- ---------- ---------- --------
Expenses:
Management fees, net (Note 6)......... -- -- 376,876 15,233 -- --
Distribution fees (Note 6)............ 5,133 6,066 157,167 28,164 7,419 --
Shareholder servicing costs (Note 6).. 1,377 -- 42,777 13,407 3,318 3
Reports to shareholders............... 6,882 336 41,684 11,556 3,156 408
Custodian fees........................ 234 477 25,099 1,596 609 330
Professional fees..................... 3,780 2,667 15,265 5,100 1,863 2,025
Registration fees..................... 900 -- 21,934 3,255 888 2,082
Amortization of organization costs
(Note 2)............................ 3,327 -- 1,584 1,878 1,620 --
Other................................. 2,121 168 1,949 1,119 312 255
Payments from Manager (Note 6)........ (16,782) (4,386) -- -- (10,876) (5,103)
-------- -------- ---------- ---------- ---------- --------
Total expenses................ 6,972 5,328 684,335 81,308 8,309 --
-------- -------- ---------- ---------- ---------- --------
Net investment income......... 36,487 152,625 2,004,829 44,262 25,998 59,304
-------- -------- ---------- ---------- ---------- --------
Realized and unrealized gain (loss)
on investments:
Net realized gain (loss) on:
Investments......................... 306,434 (5,890) 355,048 1,233,622 382,924 (48,098)
Foreign currency transactions....... -- (674) 7,085 -- 916 --
Net unrealized appreciation
(depreciation) on investments
and translation of assets and
liabilities denominated in foreign
currencies.......................... 367,568 (13,553) 235,456 2,472,725 627,363 134,979
-------- -------- ---------- ---------- ---------- --------
Net realized and unrealized gain (loss)
on investments........................ 674,002 (20,117) 597,589 3,706,347 1,011,203 86,881
-------- -------- ---------- ---------- ---------- --------
Net increase in net assets resulting
from operations....................... $710,489 $132,508 $2,602,418 $3,750,609 $1,037,201 $146,185
======== ======== ========== ========== ========== ========
|
*For the period May 24, 1994 (effective date) to October 31, 1994.
The accompanying notes are an integral part of these financial statements.
FRANKLIN STRATEGIC SERIES
FINANCIAL STATEMENTS (CONT.)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED OCTOBER 31, 1994 (UNAUDITED)
AND FOR THE YEAR ENDED APRIL 30, 1994
FRANKLIN CALIFORNIA FRANKLIN STRATEGIC FRANKLIN GLOBAL
GROWTH FUND INCOME FUND UTILITIES FUND
------------------------ ------------------ -----------------------------
SIX MONTHS YEAR 05/24/94 SIX MONTHS YEAR
ENDED ENDED (EFFECTIVE DATE) ENDED ENDED
10/31/94 04/30/94 TO 10/31/94 10/31/94 04/30/94
---------- ---------- ---------------- ------------ ------------
Increase in net assets:
Operations:
Net investment income.......................... $ 36,487 $ 47,698 $ 152,625 $ 2,004,829 $ 1,873,880
Net realized gain (loss) from investments and
foreign currency transactions................ 306,434 533,611 (6,564) 362,133 3,574,739
Net unrealized appreciation (depreciation)
on investments and translation of assets
and liabilities denominated in foreign
currencies................................... 367,568 276,756 (13,553) 235,456 (4,000,978)
---------- ---------- ---------- ------------ ------------
Net increase in net assets resulting
from operations...................... 710,489 858,065 132,508 2,602,418 1,447,641
Distributions to shareholders from:
Undistributed net investment income............ (22,522) (48,522) (34,793) (1,744,653) (1,053,413)
Net realized capital gains..................... (243,646) (195,872) -- (3,335,908) (249,283)
Increase in net assets from capital share
transactions (Note 4)........................ 1,911,409 620,455 5,310,095 5,572,660 109,816,315
---------- ---------- ---------- ------------ ------------
Net increase in net assets............. 2,355,730 1,234,126 5,407,810 3,094,517 109,961,260
Net assets:
Beginning of period............................ 4,645,707 3,411,581 -- 124,188,079 14,226,819
---------- ---------- ---------- ------------ ------------
End of period.................................. $7,001,437 $4,645,707 $5,407,810 $127,282,596 $124,188,079
========== ========== ========== ============ ============
Undistributed net investment income included in
net assets:
Beginning of period............................ $ 12,521 $ 13,345 $ -- $ 939,053 $ 118,586
========== ========== ========== ============ ============
End of period.................................. $ 26,486 $ 12,521 $ 117,832 $ 1,199,229 $ 939,053
========== ========== ========== ============ ============
|
The accompanying notes are an integral part of these financial statements.
FRANKLIN STRATEGIC SERIES
FINANCIAL STATEMENTS (CONT.)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.) FOR THE SIX MONTHS ENDED OCTOBER 31, 1994 (UNAUDITED) AND FOR THE YEAR ENDED APRIL 30, 1994
FRANKLIN SMALL CAP FRANKLIN GLOBAL FRANKLIN INSTITUTIONAL
GROWTH FUND HEALTH CARE FUND MIDCAP GROWTH FUND
------------------------ ----------------------- -----------------------------
SIX MONTHS YEAR SIX MONTHS YEAR SIX MONTHS 06/17/93
ENDED ENDED ENDED ENDED ENDED (EFFECTIVE DATE)
10/31/94 04/30/94 10/31/94 04/30/94 10/31/94 04/30/94
----------- ----------- ---------- ---------- ---------- ------------
Increase in net assets:
Operations:
Net investment income............... $ 44,262 $ 32,254 $ 25,998 $ 31,543 $ 59,304 $ 75,987
Net realized gain (loss) from
investments and foreign
currency transactions............. 1,233,622 1,627,612 383,840 361,025 (48,098) 24,817
Net unrealized appreciation
(depreciation) on investments
and translation of assets
and liabilities denominated
in foreign currencies............. 2,472,725 156,594 627,363 438,510 134,979 (21,963)
----------- ----------- ---------- ---------- ---------- ----------
Net increase in net
assets resulting from
operations................ 3,750,609 1,816,460 1,037,201 831,078 146,185 78,841
Distributions to shareholders from:
Undistributed net investment
income............................ (24,802) (35,477) (12,378) (33,141) (67,751) (39,501)
Net realized capital gains.......... (1,186,478) (427,302) (87,823) (137,028) (7,584) (17,500)
Increase in net assets from capital
share transactions (Note 4)......... 9,388,317 16,535,237 2,445,798 1,711,689 75,335 5,057,100
----------- ----------- ---------- ---------- ---------- ----------
Net increase in net assets.. 11,927,646 17,888,918 3,382,798 2,372,598 146,185 5,078,940
Net assets:
Beginning of period................. 23,915,091 6,026,173 5,795,096 3,422,498 5,078,940 --
----------- ----------- ---------- ---------- ---------- ----------
End of period....................... $35,842,737 $23,915,091 $9,177,894 $5,795,096 $5,225,125 $5,078,940
=========== =========== ========== ========== ========== ==========
Undistributed net investment income
included in net assets:
Beginning of period................. $ 7,680 $ 10,903 $ 6,840 $ 8,438 $ 36,486 $ --
=========== =========== ========== ========== ========== ==========
End of period....................... $ 27,140 $ 7,680 $ 20,460 $ 6,840 $ 28,039 $ 36,486
=========== =========== ========== ========== ========== ==========
|
The accompanying notes are an integral part of these financial statements.
FRANKLIN STRATEGIC SERIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
Franklin Strategic Series (the Series) is an open-end, management investment company (mutual fund), registered under the Investment Company Act of 1940, as amended. The Series currently has two separate diversified funds consisting of Franklin Small Cap Growth Fund (the Small Cap Fund) and Franklin Institutional MidCap Growth Fund (the Institutional MidCap Growth Fund); and four separate non-diversified funds: Franklin California Growth Fund (the California Growth Fund), Franklin Strategic Income Fund (the Strategic Income Fund), Franklin Global Health Care Fund (the Global Health Fund) and Franklin Global Utilities Fund (the Global Utilities Fund). Prior to June 21, 1994, the Institutional MidCap Growth Fund was known as the FISCO MidCap Growth Fund. Each of the Funds issues a separate series of shares and maintains a totally separate investment portfolio.
On January 13, 1993, the Board of Trustees approved the addition of Franklin MidCap Growth Fund to the Series. The new Fund is an open-end, diversified management investment company registered under the Investment Company Act of 1940, as amended, and will invest all of its assets in the MidCap Growth Portfolio, a no load diversified management investment company. The Fund has been effective since June 15, 1993, but has not commenced operations.
The following is a summary of significant accounting policies consistently followed by the Series in the preparation of its financial statements. The policies are in conformity with generally accepted accounting principles for investment companies.
A. SECURITIES VALUATIONS: 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 asked prices. Other securities for which market quotations are readily available are valued at current market values, obtained from pricing services, which are 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 securities. Portfolio securities which are traded both in the over-the-counter market and on a securities exchange are valued according to the broadest and most representative market as determined by the Manager. Other securities for which market quotations are not available, if any, are valued in accordance with procedures established by the Board of Trustees. Short-term securities and similar investments with remaining maturities of 60 days or less are valued at amortized cost, which approximates value.
Securities denominated in foreign currencies and traded on foreign exchanges or in foreign markets are valued in a similar manner, and these values are translated into U.S. Dollars at current market quotations of their respective currency against U.S Dollars last quoted by a major bank or, if no such quotation is available, at the rate of exchange determined in accordance with procedures established by the Board of Trustees.
The fair values of securities restricted as to resale, if any, are determined following procedures established by the Board of Trustees -- see Note 7.
B. INCOME TAXES: The Funds intend to continue to qualify for the tax treatment applicable to regulated investment companies under the Internal Revenue Code, and to make the requisite distributions to their shareholders which will be sufficient to relieve them from income and excise taxes. Therefore, no income tax provision is required. Each Fund is treated as a separate entity in the determination of compliance with the Internal Revenue Code.
C. SECURITY TRANSACTIONS: Security transactions are accounted for on the date the securities are purchased or sold (trade date). Realized gains and losses on security transactions are determined on the basis of specific identification for both financial statement and income tax purposes.
D. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS: Dividend income and distributions to shareholders are recorded on the ex-dividend date. Interest income and estimated expenses are accrued daily. Bond discount is amortized as required by the Internal Revenue Code.
Net realized capital gains and losses differ for financial statement and tax purposes primarily due to differing treatment of wash sale transactions.
FRANKLIN STRATEGIC SERIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONT.)
1. SIGNIFICANT ACCOUNTING POLICIES (CONT.)
E. SECURITIES PURCHASED ON A WHEN-ISSUED OR DELAYED DELIVERY BASIS: The Series may trade securities on a when-issued or delayed delivery basis, with payment and delivery scheduled for a future date. These transactions are subject to market fluctuations and are subject to the risk that the value at delivery may be more or less than the trade date purchase price. Although the Series will generally purchase these securities with the intention of acquiring such securities, they may sell such securities before the settlement date. These securities are identified on the accompanying statement of investments in securities and net assets. The Series have set aside sufficient investment securities as collateral for these purchase commitments.
F. EXPENSE ALLOCATION: Common expenses incurred by the Series are allocated among the Funds based on the ratio of net assets of each Fund to the combined net assets. In all other respects, expenses are charged to each Fund as incurred on a specific identification basis.
G. FOREIGN CURRENCY TRANSLATION: The accounting records of the Series are maintained in U.S. Dollars. All assets and liabilities denominated in foreign currencies are translated into U.S. Dollars at the rate of exchange of such currencies against U.S. Dollars on the date of the valuation. Purchases and sales of securities, income and expenses are translated at the rate of exchange quoted on the respective date that such transactions are recorded. Differences between income and expense amounts recorded and collected or paid are recognized when reported by the custodian bank.
The Series does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales and maturities of short-term securities, sales of foreign currencies, currency gains or losses realized between the trade date and settlement dates on securities transactions, the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Series books, and the U.S. Dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the value of assets and liabilities other than investments in securities at semi-fiscal year end, resulting from changes in exchange rates.
H. REPURCHASE AGREEMENTS: The Series may enter into a Joint Repurchase Agreement whereby its uninvested cash balance is deposited into a joint cash account to be used to invest in one or more repurchase agreements with government securities dealers recognized by the Federal Reserve Board and/or member banks of the Federal Reserve System. The value and face amount of the Joint Repurchase Agreement has been allocated to the Funds based on their pro-rata interest at October 31, 1994.
In a repurchase agreement, the Fund purchases a U.S. government security from a dealer or bank subject to an agreement to resell it at a mutually agreed upon price and date. Such a transaction is accounted for as a loan by the Fund to the seller, collateralized by the underlying security. The transaction requires the initial collateralization of the seller's obligation by U.S. government securities with market value, including accrued interest, of at least 102% of the dollar amount invested by the Fund, with the value of the underlying security marked to market daily to maintain coverage of at least 100%. The collateral is delivered to the Fund's custodian and held until resold to the dealer or bank. At October 31, 1994, all outstanding repurchase agreements held by the Funds have been entered on that date.
I. CHANGE IN ACCOUNTING POLICY FOR FOREIGN CURRENCY PRESENTATION: Effective
October 31, 1994, the Series adopted AICPA Statement of Position (SOP) 93-4:
Foreign Currency Accounting and Financial Statement Presentation for Investment
Companies. The adoption of SOP 93-4 had no effect on net assets for the six
months ended October 31, 1994, but affected the classification of foreign
currency transactions from assets and liabilities other than investments on the
income statements.
FRANKLIN STRATEGIC SERIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONT.)
2. UNAMORTIZED ORGANIZATION COSTS
The organization costs of the Series are amortized on a straight-line basis over a period of five years from the effective date of registration under the Securities Act of 1933. In the event that Franklin Resources, Inc. (which was the sole shareholder prior to the effective date of registration) redeems its shares within the five-year period, the pro rata share of the then-unamortized deferred organization costs will be deducted from the redemption price paid to Franklin Resources, Inc. New investors purchasing shares of the Series subsequent to that date bear such costs during the amortization period only as such charges are accrued daily against investment income. The Series' Manager advanced all of the organization costs of the Series, which amounted to $33,267, $15,648, $18,775 and $16,816 for the California Growth Fund, the Global Utilities Fund, the Small Cap Fund, and the Global Health Fund, respectively. In an effort to reduce the Series' expenses, the manager has reimbursed the current period's amortization of $3,327, $1,878 and $1,620 for the California Growth Fund, the Small Cap Fund, and the Global Health Fund, respectively.
3. DISTRIBUTIONS AND CAPITAL LOSS CARRYOVERS
At April 30, 1994, for tax purposes, the Funds have accumulated undistributed net realized capital gains as follows:
FRANKLIN
FRANKLIN FRANKLIN FRANKLIN FRANKLIN INSTITUTIONAL
CALIFORNIA GLOBAL SMALL CAP GLOBAL HEALTH MIDCAP
GROWTH FUND UTILITIES FUND GROWTH FUND CARE FUND GROWTH FUND
----------- -------------- ----------- ----------- ------------
Accumulated net realized gains.................. $243,087 $3,328,273 $1,184,956 $87,472 $7,317
========= ========== ========== ======= ======
|
For tax purposes, the aggregate cost of securities is higher (and unrealized appreciation is lower or unrealized depreciation is higher) than for financial reporting purposes at October 31, 1994 by $2,803 in the Global Utilities Fund, $10,168 in the Small Cap Growth Fund, $5,381 in the Global Health Fund, and $1,048 in the Institutional MidCap Growth Fund.
4. TRUST SHARES
At October 31, 1994, there were an unlimited number of $.01 par value shares authorized. Transactions in the Series' shares for the six months ended October 31, 1994 and for the year ended April 30, 1994 were as follows:
FRANKLIN CALIFORNIA FRANKLIN STRATEGIC FRANKLIN GLOBAL
GROWTH FUND INCOME FUND* UTILITIES FUND
--------------------- --------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
-------- ---------- ------- ---------- ------- -----------
Six months ended October 31, 1994 -
Shares sold.......................................... 44,323 $ 532,994 521,034 $5,213,869 874,804 $10,677,117
Shares issued in reinvestment of distributions....... 22,740 254,237 3,366 34,131 361,803 4,233,130
Shares redeemed...................................... (10,714) (129,159) (3,746) (38,284) (769,122) (9,343,032)
Changes from exercise of exchange privilege:
Shares sold........................................ 120,887 1,436,347 9,915 100,379 805,388 9,837,297
Shares redeemed.................................... (15,171) (183,010) -- -- (810,384) (9,831,852)
------- ---------- ------- ---------- ------- -----------
Net increase......................................... 162,065 $1,911,409 530,569 $5,310,095 462,489 $ 5,572,660
======= ========== ======= ========== ======= ===========
|
*For the period May 24, 1994 (effective date) to October 31, 1994.
FRANKLIN STRATEGIC SERIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONT.)
4. TRUST SHARES (CONT.)
FRANKLIN CALIFORNIA FRANKLIN STRATEGIC FRANKLIN GLOBAL
GROWTH FUND INCOME FUND* UTILITIES FUND
-------------------- -------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
-------- --------- -------- ------- --------- ------------
Year ended April 30, 1994 -
Shares sold......................................... 50,123 $ 596,456 -- -- 4,597,333 $ 58,206,365
Shares issued in reinvestment of distributions...... 20,366 232,835 -- -- 83,094 1,057,033
Shares redeemed..................................... (32,139) (374,204) -- -- (531,949) (6,782,713)
Changes from exercise of exchange privilege:
Shares sold....................................... 54,080 648,657 -- -- 5,765,127 73,837,870
Shares redeemed................................... (40,915) (483,289) -- -- (1,307,264) (16,502,240)
------- --------- -------- ------- --------- ------------
Net increase........................................ 51,515 $ 620,455 8,606,341 $109,816,315
======= ========= ======== ======= ========= ============
|
*For the period May 24, 1994 (effective date) to October 31, 1994.
FRANKLIN
FRANKLIN SMALL CAP FRANKLIN GLOBAL INSTITUTIONAL MIDCAP
GROWTH FUND HEALTH CARE FUND GROWTH FUND*
------------------------- ---------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ------------ ------- ----------- ------- ----------
Six months ended October 31, 1994 -
Shares sold...................................... 342,731 $(14,270,494 116,797 $(1,302,457 -- $ --
Shares issued in reinvestment of distributions... 85,211 983,335 9,328 93,753 8,014 75,335
Shares redeemed.................................. (111,347) (1,369,348) (31,752) (340,864) -- --
Changes from exercise of exchange privilege:
Shares sold.................................... 1,340,502 16,712,615 263,967 2,941,269 -- --
Shares redeemed................................ (904,884) (11,208,779) (139,026) (1,550,817) -- --
--------- ------------ ------- ----------- ------- ----------
Net increase..................................... 752,213 $ 9,388,317 219,314 $ 2,445,798 8,014 $ 75,335
========= ============ ======= =========== ======= ==========
Year ended April 30, 1994 -
Shares sold...................................... 527,823 $ 6,523,254 174,501 $ 1,732,415 500,010 $5,000,099
Shares issued in reinvestment of distributions... 33,180 410,352 16,250 160,950 5,594 57,001
Shares redeemed.................................. (111,639) (1,417,140) (66,382) (692,594) -- --
Changes from exercise of exchange privilege:
Shares sold.................................... 1,634,135 21,097,953 329,826 3,285,773 -- --
Shares redeemed................................ (798,157) (10,079,182) (283,890) (2,774,855) -- --
--------- ------------ ------- ----------- ------- ----------
Net increase..................................... 1,285,342 $ 16,535,237 170,305 $ 1,711,689 505,604 $5,057,100
========= ============ ======= =========== ======= ==========
|
*For the period August 17, 1993 (effective date) to April 30, 1994.
FRANKLIN STRATEGIC SERIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONT.)
5. PURCHASES AND SALES OF SECURITIES
Aggregate purchases and sales of securities (excluding purchases and sales of short-term securities) for the six months ended October 31, 1994 were as follows:
FRANKLIN
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN INSTITUTIONAL
CALIFORNIA STRATEGIC GLOBAL SMALL CAP GLOBAL HEALTH MIDCAP
GROWTH FUND INCOME FUND UTILITIES FUND GROWTH FUND CARE FUND GROWTH FUND
----------- ----------- ------------- ----------- ----------- -----------
Purchases............................. $2,968,195 $7,045,400 $15,539,097 $23,402,711 $4,479,884 $4,364,879
========== ========== =========== =========== ========== ==========
Sales................................. $2,006,516 $2,987,102 $11,422,370 $14,352,307 $2,981,449 $4,081,199
========== ========== =========== =========== ========== ==========
|
6. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Franklin Advisers, Inc., under the terms of an agreement, provides investment advice, administrative services, office space and facilities to each Fund, except for the Institutional MidCap Growth Fund, and receives fees computed monthly based on the net assets of each Fund, at an annual rate of .625 of 1% of the average daily net assets up to and including $100 million; .50 of 1% of the average daily net assets over $100 million, up to and including $250 million; .45 of 1% of the average daily net assets over $250 million, up to and including $10 billion; .44 of 1% of the average daily net assets over $10 billion, up to and including $12.5 billion; .42 of 1% of the average daily net assets over $12.5 billion, up to and including $15 billion; and .40 of 1% of the average daily net assets over $15 billion. Franklin Institutional Services Corporation (FISCO) serves as the investment adviser for the Institutional MidCap Growth Fund, and receives fees computed monthly at the annual rate of .65% of the Fund's average daily net assets.
The terms of the agreements provide that annual aggregate expenses of the Series' be limited to the extent necessary to comply with the limitations set forth in the laws, regulations and administrative interpretations of the states in which the Series' shares are registered. The Series' expenses did not exceed these limitations; however, for the six months ended October 31, 1994, Franklin Advisers, Inc. and FISCO agreed in advance to waive the management fees, as indicated below, in an effort to minimize the Series' expenses. Additionally, Franklin Advisers, Inc. made payments of $16,782, $4,386, $10,876 and $5,103 for other expenses as shown in the Statement of Operations for the California Growth Fund, the Strategic Income Fund, the Global Health Fund and the Institutional MidCap Growth Fund, respectively.
FRANKLIN ADVISERS, INC. FISCO
--------------------------------------------------------------------------- -------------
FRANKLIN
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN INSTITUTIONAL
CALIFORNIA STRATEGIC GLOBAL SMALL CAP GLOBAL HEALTH MIDCAP
GROWTH FUND INCOME FUND* UTILITIES FUND GROWTH FUND CARE FUND GROWTH FUND
----------- ----------- -------------- ----------- ----------- ------------
Management fees earned............. $17,471 $13,400 $376,876 $87,092 $21,275 $16,534
Less reduction of fees............. 17,471 13,400 -- 71,859 21,275 16,534
------- ------- -------- ------- -------- --------
Management fees paid............... $ -- $ -- $376,876 $15,233 $ -- $ --
======= ======= ======== ======= ======== ========
|
Pursuant to a shareholder service agreement with Franklin/Templeton Investor Services, Inc., the Series pays costs on a per shareholder account basis. Shareholder servicing costs of $60,882 were incurred for the six months ended October 31, 1994, of which $60,033 was for services provided by Franklin/Templeton Investor Services, Inc. In an effort to minimize such costs, Franklin/Templeton Investor Services, Inc. agreed in advance to waive shareholder servicing costs of $1,743 in the California Growth Fund, $45 in the Strategic Income Fund, $3,774 in the Global Health Fund, and $3 in the Institutional MidCap Growth Fund.
*For the period May 24, 1994 (effective date) to October 31, 1994.
FRANKLIN STRATEGIC SERIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONT.)
6. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONT.)
Under the terms of a Distribution Agreement pursuant to Rule 12b-1 of the Investment Company Act of 1940, the Funds, except for the Institutional MidCap Growth Fund, will reimburse Franklin/Templeton Distributors, Inc. in an amount up to .25% per annum of the Series' average daily net assets for costs incurred in the promotion, offering and marketing of the Funds' shares. Costs incurred by the Series under the agreement aggregated $203,949 for the six months ended October 31, 1994.
In its capacity as underwriter for the shares of the Funds, except for the Institutional MidCap Growth Fund, Franklin/Templeton Distributors, Inc. received commissions on sales of the Funds' shares. Commissions received by Franklin/Templeton Distributors, Inc., and the amounts which were subsequently paid to other dealers for the six months ended October 31, 1994 were as follows:
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
CALIFORNIA STRATEGIC GLOBAL SMALL CAP GLOBAL HEALTH
GROWTH FUND INCOME FUND* UTILITIES FUND GROWTH FUND CARE FUND
---------- ----------- ------------- ----------- -----------
Total commissions received..... $20,833 $8,221 $448,662 $146,325 $56,650
======= ====== ======== ======== =======
Paid to other dealers.......... $18,418 $8,221 $396,414 $129,481 $50,087
======= ====== ======== ======== =======
|
*For the period May 24, 1994 (effective date) to October 31, 1994.
Commissions are deducted from the gross proceeds received from the sale of the shares of the Funds, and as such are not expenses of the Funds.
Certain officers and trustees of the Series are also officers and/or directors of Franklin/Templeton Distributors, Inc., Franklin Advisers, Inc., and Franklin/Templeton Investors Services, Inc. all wholly-owned subsidiaries of Franklin Resources, Inc.
At October 31, 1994, Franklin Resources owned 42% of the California Growth Fund, 95% of the Strategic Income Fund, 1% of the Global Utilities Fund, 4% of the Small Cap Fund, 14% of the Global Health Fund, and 100% of the Institutional MidCap Growth Fund.
7. RESTRICTED SECURITIES
A restricted security is a security which has not been registered with the Securities & Exchange Commission pursuant to the Securities Act of 1933. The Series may purchase restricted securities through a private offering which cannot be sold without prior registration under the Securities Act of 1933, unless such sale is pursuant to an exemption therefrom. Subsequent costs of registration of such securities are borne by the issuer. A secondary market exists for certain privately placed securities. The Series values these securities as disclosed in Note 1. At October 31, 1994, the California Growth Fund held restricted securities with a value aggregating $288, representing less than one percent of the Fund's net assets. Such securities are:
ACQUISITION
SHARES SECURITY DATE COST VALUE
- ------ -------- ----------- ------ -----
198 Lynx Therapeutics, Inc.................... 10/19/92 $ 40 $ --
288 Lynx Therapeutics, Inc., pfd., Series A... 10/19/92 $288 $288
|
FRANKLIN STRATEGIC SERIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONT.)
8. RULE 144A SECURITIES
Rule 144A provides a non-exclusive safe harbor exemption from the registration requirements of the Securities Act of 1933 for specified resale of restricted securities to qualified institutional investors. The Series values these securities as disclosed in Note 1. At October 31, 1994, Rule 144A securities were held as follows:
FRANKLIN FRANKLIN FRANKLIN
STRATEGIC GLOBAL SMALL CAP
INCOME FUND UTILITIES FUND GROWTH FUND
----------- -------------- -----------
Value.......................... $227,219 $7,157,416 $432,850
======== ========== ========
Ratio of value to net assets... 4.20% 5.62% 1.21%
======== ========== ========
|
See the accompanying Statement of Investments in Securities and Net Assets for specific information on such securities.
9. FINANCIAL HIGHLIGHTS
Selected data for each share of beneficial interest outstanding throughout the periods, by Fund, are as follows:
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------------------------------------------------------
NET
REALIZED & NET
NET ASSET NET UNREALIZED DISTRIBUTIONS DISTRIBUTIONS ASSET
YEAR VALUE AT INVEST- GAIN (LOSS) TOTAL FROM FROM NET FROM VALUE
ENDED BEGINNING MENT ON INVESTMENT INVESTMENT CAPITAL TOTAL AT END TOTAL
APRIL 30 OF PERIOD INCOME SECURITIES OPERATIONS INCOME GAINS DISTRIBUTIONS OF PERIOD RETURN*
- ----------------------------------------------------------------------------------------------------------------------------------
FRANKLIN CALIFORNIA GROWTH FUND
199(1) $10.04 $0.07 $(0.168) $(0.098) $(0.072) -- -- $ 9.87 (1.77)%**
1993 9.87 0.12 0.340 0.460 (0.120) -- -- 10.21 4.72
1994 10.21 0.14 2.425 2.565 (0.145) (0.580) (0.725) 12.05 25.55
1994(6) 12.05 0.07 1.320 1.390 (0.055) (0.595) (0.650) 12.79 12.31
FRANKLIN STRATEGIC INCOME FUND
1994(5) 10.00 0.29 (0.033) 0.257 (0.067) -- (0.067) 10.19 2.57
FRANKLIN GLOBAL UTILITIES FUND
1993(2) 10.00 0.22 1.270 1.490 (0.130) -- -- 11.36 18.08**
1994 11.36 0.30 1.280 1.580 (0.299) (0.042) (0.341) 12.60 14.04
1994(6) 12.60 0.19 0.044 0.234 (0.173) (0.331) (0.504) 12.33 2.07
FRANKLIN SMALL CAP GROWTH FUND
1992(3) 10.00 0.04 (0.460) (0.420) -- -- -- 9.58 (19.96)**
1993 9.58 0.07 0.657 0.727 (0.087) -- -- 10.22 7.66
1994 10.22 0.03 2.944 2.974 (0.043) (0.401) (0.444) 12.75 29.26
1994(6) 12.75 0.02 1.456 1.476 (0.012) (0.574) (0.586) 13.64 12.41
FRANKLIN GLOBAL HEALTH CARE FUND
1992(3) 10.00 0.02 (1.180) (1.160) -- -- -- 8.84 (55.14)**
1993 8.84 0.09 0.037 0.127 (0.087) -- -- 8.88 1.41
1994 8.88 0.07 1.856 1.926 (0.078) (0.298) (0.376) 10.43 21.93
1994(6) 10.43 0.04 1.540 1.580 (0.021) (0.149) (0.170) 11.84 15.44
|
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------
NET RATIO OF INVESTMENT
ASSETS EXPENSES INCOME TO
YEAR AT END TO AVERAGE AVERAGE PORTFOLIO
ENDED OF PERIOD NET NET ASSETS TURNOVER
APRIL 30 (IN 000'S) ASSETS*** (SEE NOTE 6) RATE
- ------------------------------------------------------------------
FRANKLIN CALIFORNIA GROWTH FUND
1992(1) $ 3,091 --% 1.27%** 13.73%
1993 3,412 -- 1.23 38.28
1994 4,646 0.09 1.16 135.12
1994(6) 7,001 0.25** 1.31** 41.20
FRANKLIN STRATEGIC INCOME FUND
1994(5) 5,408 0.25** 7.12** 85.28
FRANKLIN GLOBAL UTILITIES FUND
1993(2) 14,227 -- 3.89** --
1994 124,188 0.84 2.95 16.28
1994(6) 127,283 1.09** 3.19** 10.37
FRANKLIN SMALL CAP GROWTH FUND
1992(3) 1,268 -- 2.45** 2.41
1993 6,026 -- 0.84 63.15
1994 23,915 0.30 0.24 89.60
1994(6) 35,843 0.58** 0.32** 56.04
FRANKLIN GLOBAL HEALTH CARE FUND
1992(3) 1,368 -- 1.68** 41.01
1993 3,422 -- 1.13 62.74
1994 5,795 0.10 0.68 110.82
1994(6) 9,178 0.24** 0.76** 48.19
|
FRANKLIN STRATEGIC SERIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONT.)
9. FINANCIAL HIGHLIGHTS (CONT.)
PER SHARE OPERATING PERFORMANCE
- -------------------------------------------------------------------------------------------------------------------------------
NET
REALIZED & NET
NET ASSET NET UNREALIZED DISTRIBUTIONS DISTRIBUTIONS ASSET
YEAR VALUE AT INVEST- GAIN (LOSS) TOTAL FROM FROM NET FROM VALUE
ENDED BEGINNING MENT ON INVESTMENT INVESTMENT CAPITAL TOTAL AT END TOTAL
APRIL 30 OF PERIOD INCOME SECURITIES OPERATIONS INCOME GAINS DISTRIBUTIONS OF PERIOD RETURN*
- -------------------------------------------------------------------------------------------------------------------------------
FRANKLIN INSTITUTIONAL MIDCAP GROWTH FUND
1994(4) $10.00 $0.15 $ 0.014 $ 0.164 $(0.079) $(0.035) $(0.114) $10.05 1.62%
1994(6) 10.05 0.12 0.149 0.269 (0.134) (0.015) (0.149) 10.17 2.80
|
RATIOS/SUPPLEMENTAL DATA
- ---------------------------------------------------------------
NET RATIO OF INVESTMENT
ASSETS EXPENSES INCOME TO
YEAR AT END TO AVERAGE AVERAGE PORTFOLIO
ENDED OF PERIOD NET NET ASSETS TURNOVER
APRIL 30 (IN 000'S) ASSETS*** (SEE NOTE 6) RATE
- ---------------------------------------------------------------
FRANKLIN INSTITUTIONAL MIDCAP GROWTH FUND
1994(4) $ 5,079 --% 2.21%** 70.53%
1994(6) 5.225 -- 2.35 ** 83.06
|
(1) For the period October 18, 1991 (effective date) to April 30, 1992.
(2) For the period July 2, 1992 (effective date) to April 30, 1993.
(3) For the period February 14, 1992 (effective date) to April 30, 1992.
(4) For the period August 17, 1993 (effective date) to April 30, 1994.
(5) For the period May 24,1994 (effective date) to October 31, 1994.
(6) For the six months ended October 31, 1994.
*Total return measures the change in value of an investment over the periods indicated. It does not include the maximum initial sales charge and assumes reinvestment of dividends and capital gains, if any, at net asset value.
**Annualized
***During the period indicated, Franklin Advisers, Inc. and FISCO agreed to waive in advance a portion of their management fees and made payments of other expenses incurred by the Funds in the Series. Had such action not been taken, the ratios of operating expenses to average net assets would have been as follows:
RATIO OF EXPENSES
TO AVERAGE NET ASSETS
---------------------
FRANKLIN CALIFORNIA GROWTH FUND
1992(1).................................. 1.61%**
1993..................................... 1.99
1994..................................... 1.89
1994(6).................................. 1.48**
FRANKLIN STRATEGIC INCOME FUND
1994(5).................................. 1.08%**
FRANKLIN GLOBAL UTILITIES FUND
1993(2).................................. 1.51%**
1994..................................... 1.28
FRANKLIN SMALL CAP GROWTH FUND
1992(3).................................. 1.74%**
1993..................................... 1.95
1994..................................... 1.58
1994(6).................................. 1.10**
FRANKLIN GLOBAL HEALTH CARE FUND
1992(3).................................. 1.62%**
1993..................................... 2.16
1994..................................... 1.74
1994(6).................................. 1.19**
FRANKLIN INSTITUTIONAL MIDCAP GROWTH FUND
1994(4).................................. 0.91%**
1994(6).................................. 0.86**
|
AGREEMENT AND DECLARATION OF TRUST
of
FRANKLIN CALIFORNIA 250 GROWTH INDEX FUND
a Delaware Business Trust
Principal Place of Business:
777 Mariners Island Boulevard
San Mateo, California 94404
TABLE OF CONTENTS
FRANKLIN CALIFORNIA 250 GROWTH INDEX FUND
AGREEMENT AND DECLARATION OF TRUST
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
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 With Respect to a Particular Series
(b) Liabilities Held With Respect to a
Particular 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 The Board of 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 Meeting
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. Indemnification and Limitation of Liability
3. Trustee's Good Faith Action, Expert
Advice, No Bond or Surety
4. Insurance
ARTICLE VIII Miscellaneous
1. Liability of Third Persons Dealing
with Trustees
2. Termination of Trust or Series
3. Merger and Consolidation
4. Amendments
5. Filing of Copies, References, Headings
6. Applicable Law
7. Provisions in Conflict with Law or Regulations
8. Business Trust Only
9. Use of the Names "Franklin" and
"250 Growth Index"
|
AGREEMENT AND DECLARATION OF TRUST
OF
FRANKLIN CALIFORNIA 250 GROWTH INDEX FUND
WHEREAS, THIS AGREEMENT AND DECLARATION OF TRUST is made and entered into as of the date set forth below by the Trustees named hereunder for the purpose of forming a Delaware business trust in accordance with the provisions hereinafter set forth,
NOW, THEREFORE, the Trustees hereby direct that a Certificate of Trust be filed with Office of the Secretary of State of the State of Delaware and do hereby declare that the Trustees will hold IN TRUST all cash, securities and other assets which the Trust now possesses or may hereafter acquire from time to time in any manner 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 FRANKLIN CALIFORNIA 250 GROWTH INDEX FUND 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, including without limitation the rights referenced in Article VIII, Section 9 hereof;
(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, estates 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 and incorporated herein by reference;
(k) The term "Interested Person" has the meaning given it in Section 2(a)(19) of the 1940 Act;
(1) "Investment Manager" or "Manager" means a party furnishing services to the Trust pursuant to any contract described in Article IV, Section 7(a) hereof;
(m) "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 management investment company registered under the 1940 Act through one or more Series investing 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 division of Series into separate classes of Shares. 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 only one or no Series (or classes) shall be established, the Shares shall have the rights and preferences provided for herein and in Article III, Section 6 hereof to the extent relevant and not otherwise provided for herein, and all references to Series (and classes) shall be construed (as the context may require) to refer to the Trust.
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, if 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 (class of a) particular Series from the assets held with respect to such Series according to the number of Shares of such (class 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 materially changing the proportionate beneficial interest of the Shares of that Series in the assets held with respect to that Series or materially 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(or class). 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 (or class) 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 (or class) and as to the number of Shares of each Series (or class) held from time to time by each.
Section 3. Investments in the Trust. Investments may be accepted by the Trust from such Persons, at such times, on such terms, and for such consideration as the Trustees from time to time may 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. If Shares have been issued, Shareholder approval shall be required to adopt any amendments to this Declaration of Trust which would adversely affect to a material degree the rights and preferences of the Shares of any Series (or class) or to increase or decrease the par value of the Shares of any Series (or class).
Subject to the foregoing Paragraph, the Board of Trustees may 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 (or class) of Shares shall be effective upon the resolution by a majority of the then Trustees, adopting a resolution which sets forth such establishment and designation and the relative rights and preferences of such Series (or class). Each such resolution shall be incorporated herein by reference upon adoption.
Shares of each Series (or class) 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 Held With Respect to a Particular 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 be held with respect 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 held with respect 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 assets held with respect 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 the Trustees, in their sole discretion, deem fair and equitable, and any General Asset so allocated to a particular Series shall be held with respect 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 Held With Respect to a Particular Series. The assets of the Trust held with respect to each particular Series shall be charged against the liabilities of the Trust held with 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 being held with respect 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 held with respect 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. 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, and shall be required by contract to look exclusively, to the assets of that particular Series for payment of such credit, claim, or contract. In the absence of an express contractual agreement so limiting" the claims of such creditors, claimants and contract providers, each creditor claimant and contract provider will be deemed nevertheless to have impliedly agreed to such limitation unless an express provision to the contrary has been incorporated in the written contract or other document establishing the claimant relationship.
(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 (or class) with respect to, nor any redemption or repurchase of, the Shares of any Series (or class) shall be effected by the Trust other than from the assets held with respect 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 held with respect 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 (and, if applicable, by class): that is, the Shareholders of each Series (or class) shall have the right to approve or disapprove matters affecting the Trust and each respective Series (or class) as if the Series (or classes) were separate companies. There are, however, two exceptions to voting by separate Series (or classes). First, if the 1940 Act requires all Shares of the Trust to be voted in the aggregate without differentiation between the separate Series (or classes), 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 (or classes), then only the Shareholders of such affected Series (or classes) 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 held with respect to that Series (subject to the liabilities held with respect to that Series and such rights and preferences as may have been established and designated with respect to classes of Shares within such 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 held with respect to any two or more Series into assets and liabilities held with respect to a single Series.
(i) Elimination of Series. At any time that there are no Shares outstanding of any particular Series (or class) previously established and designated, the Trustees may by resolution of a majority of the then Trustees abolish that Series (or class) and rescind the establishment and designation thereof.
Section 7. Indemnification of Shareholders. If any Shareholder or former Shareholder shall be exposed to liability by reason of a claim or demand relating to his or her being or having been a Shareholder, and not because of his or her acts or omissions, 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 to be held harmless from and indemnified out of the assets of the Trust against all loss and expense arising from such claim or demand.
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 (1) nor more than fifteen
(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 or she 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 or her 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 or her
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. Any Trustee may be removed at any
meeting of Shareholders by a vote of two-thirds of the
outstanding Shares of the Trust. A meeting of Shareholders for
the purpose of electing or removing one or more Trustees may be
called (i) by the Trustees upon their own vote, or (ii) upon the
demand of Shareholders owning 10% or more of the Shares of the
Trust in the aggregate.
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 Manager(s) 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 By-Laws 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. Unless otherwise specified or required by law, any action by the Board of Trustees shall be deemed effective if approved or taken by a majority of the Trustees then in office.
Without limiting the foregoing, the Trust 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 or any Series;
(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 the Trustees 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 Shares, 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 Trust shall not be limited to investing in obligations maturing before the possible termination of the Trust or one or more of its Series The Trust shall not in any way be bound or limited by any present or future law or custom in regard to investment by fiduciaries. The Trust 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 Trust, 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 or she 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 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 (or classes) or other securities to be issued by the Trust. 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 or removal of Trustees as provided in Article IV, Section 1, and (ii) 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.
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 or her 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 (or classes) is to vote as a single class separate from any other Shares, forty percent (40%) of the Shares of each such Series (or classes) 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), 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 (or class) 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 (or class) 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 (or class) 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 (or class) 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 (or class) 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 (or classes).
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 By-Laws 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 (the "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 held with respect 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. Indemnification and Limitation of Liability. The Trustees shall not be responsible or liable in any event for any neglect or wrong-doing 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, and the Trust out of its assets shall indemnify and hold harmless each and every Trustee from and against any and all claims and demands whatsoever arising out of or related to each Trustee's performance of his or her duties as a Trustee of the Trust; provided that nothing herein contained shall indemnify, hold harmless or protect any Trustee from or against any liability to the Trust or any Shareholder to which he or she 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 or her 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 or her capacity as Trustees or Trustee, and such Trustees or Trustee shall not be personally liable thereon.
Section 3. 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 to the Trust and to any Shareholder solely for his or her 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 4. Insurance. The Trustees shall be entitled and empowered to the fullest extent permitted by law to purchase with Trust assets insurance 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 or she becomes involved by virtue of his or her capacity or former capacity with the Trust.
ARTICLE VIII
Miscellaneous
Section 1. 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 2. 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 a majority 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 a majority 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 held, severally, with respect 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 held, severally, with respect 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 held with respect 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 3. Merger and Consolidation. The Trustees may
cause (i) the Trust or one or more of its Series to the extent
consistent with applicable law to be merged into or consolidated
with another Trust or company, (ii) the Shares of the Trust or
any Series to be converted into beneficial interests in another
business trust (or series thereof) created pursuant to this
Section 3 of Article VIII, or (iii) the Shares to be exchanged
under or pursuant to any state or federal statute to the extent
permitted by law. Such merger or consolidation, Share conversion
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 including
the power to create one or more separate business trusts to which
all or any part of the assets, liabilities, profits or losses of
the Trust may be transferred and to provide for the conversion of
Shares of the Trust or any Series into beneficial interests in
such separate business trust or trusts (or series thereof).
Section 4. Amendments. This Declaration of Trust may be restated and/or amended at any time by an instrument in writing signed by a majority of the then Trustees and, if required, by approval of such amendment by Shareholders in accordance with Article V, Section 3 hereof. Any such restatement and/or amendment hereto shall be effective immediately upon execution and approval. The Certificate of Trust of the Trust may be restated and/or amended by a similar procedure, and any such restatement and/or amendment shall be effective immediately upon filing with the Office of the Secretary of State of the State of Delaware or upon such future date as may be stated therein.
Section 5. Filing of Copies, References, Headings. The original or a copy of this instrument and of each restatement and/or amendment hereto shall be kept at the office of the Trust where it may be inspected by any Shareholder. Anyone dealing with the Trust may rely on a certificate by an officer of the Trust as to whether or not any such restatements and/or 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 restatements and/or amendments. In this instrument and in any such restatements and/or 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 restatements and/or 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 6. 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 the State of Delaware and the Delaware Business Trust Act, as amended from time to time (the "Act"). The Trust shall be a Delaware business trust pursuant to such Act, and without limiting the provisions hereof, the Trust may exercise all powers which are ordinarily exercised by such a business trust.
Section 7. 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 8. Business Trust Only. It is the intention of the Trustees to create a business trust pursuant to the Delaware Business Trust Act, as amended from time to time (the "Act"), and thereby to create only the relationship of trustee and beneficial owners within the meaning of such Act between the Trustees and each Shareholder. 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 business trust pursuant to such Act. Nothing in this 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 9.. Use of the Names "Franklin" and "250 Growth Index." The names "Franklin" and "250 Growth Index" and all rights to the use of the names "Franklin" and "250 Growth Index" belong to Franklin Resources, Inc. ("Franklin"), the sponsor of the Trust. Franklin has consented to the use by the Trust of the identifying words "Franklin" and "250 Growth Index" and has granted to the Trust a non-exclusive license to use the names "Franklin" and "250 Growth Index" as part of the name of the Trust and the name of any Series of Shares. In the event Franklin or an affiliate of Franklin is not appointed as Manager and/or Principal Underwriter or ceases to be the Manager and/or Principal Underwriter of the Trust or of any Series using such names, the non-exclusive license granted herein may be revoked by Franklin and the Trust shall cease using the names "Franklin" and "250 Growth Index" as part of its name or the name of any Series of Shares, unless otherwise consented to by Franklin or any successor to its interests in such names.
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IN WITNESS WHEREOF, the Trustees named below do hereby make and enter into this Declaration of Trust as of the 22nd day of January 1991.
/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/ S. Joseph Fortunato /s/ Edmund H. Kerr S. Joseph Fortunato Edmund H. Kerr /s/ David W. Garbellano /s/ Frank W. T. LaHaye David W. Garbellano Frank W. T. LaHaye /s/ Henry L. Jamieson /s/ Johannes R. Krahmer Henry L. Jamieson Johannes R. Krahmer THE PRINCIPAL PLACE OF BUSINESS OF THE TRUST IS 777 Mariners Island Boulevard, San Mateo, California 94404 |
CERTIFICATE OF TRUST
FRANKLIN CALIFORNIA 250 GROWTH INDEX FUND
This Certificate of Trust of FRANKLIN CALIFORNIA GROWTH INDEX FUND, a business trust (hereafter called the "Business Trust"), executed by the undersigned trustees, one of whom has a residence in the State of Delaware, and filed under and in accordance with the provisions of the Delaware Business Trust Act (12 Del. C. section 3801 et seq.), sets forth the following:
FIRST: The name of the Business Trust is FRANKLIN CALIFORNIA
250 GROWTH INDEX FUND.
SECOND: The name and business address of the Delaware resident trustee of the Business Trust required by 12 Del. C. section 3807 is as follows:
Name Business Address
Johannes R. Krahmer Morris, Nichols, Arsht
& Tunnell
1201 N. Market Street
Wilmington, Delaware 19899
-1347
|
The name and business address of each of the other trustees of the Business Trust is as follows:
Name Business Address
Frank H. Abbott, III 1045 Sansome Street
San Francisco, California
94025
Harris J. Ashton 22 Gate House Road
Stamford, Connecticut 06902
S. Joseph Fortunato Park Avenue at Morris County
P.O. Box 1945
Morristown, New Jersey
07962-1945
David W. Garbellano 111 New Montgomery St. #402
San Francisco, California
94105
Henry L. Jamieson 777 Mariners Island Blvd.
San Mateo, California 94404
Charles B. Johnson 777 Mariners Island Blvd.
San Mateo, California 94404
Rupert H. Johnson, Jr. 777 Mariners Island Blvd.
San Mateo, California 94404
Edmund H. Kerr 1 Liberty Plaza
New York, New York 10006
Frank W. T. LaHaye 20833 Stevens Creek Blvd.
Suite 102
Cupertino, California 95014
|
THIRD: The nature of the business or purpose or purposes of the Business Trust as set forth in its governing instrument is to conduct, operate and carry on the business of a management investment company registered under the Investment Company Act of 1940, as amended, through one or more series of shares of beneficial interest, investing primarily in securities.
FOURTH: The trustees of the Business Trust, as set forth in its governing instrument, reserve the right to amend, alter, change or repeal any provision contained in this Certificate of Trust, in the manner now or hereafter prescribed by statute.
FIFTH: This Certificate of Trust shall become effective immediately upon filing with the Office of the Secretary of State of the State of Delaware.
[The remainder of this page has been left intentionally blank.]
IN WITNESS WHEREOF, the undersigned, being all of the trustees of Franklin California 250 Growth Index Fund, have duly executed this Certificate of Trust as of this 22nd day January 1991.
/s/ Frank H. Abbott, III Frank H Abbott, III /s/ Harris J. Ashton Harris J. Ashton /s/ S. Joseph Fortunato S. Joseph Fortunato /s/ David W. Garbellano David W. Garbellano /s/ Henry L. Jamieson Henry L. Jamieson /s/ Charles B. Johnson Charles B. Johnson /s/ Rupert H. Johnson, Jr. Rupert H. Johnson, Jr. /s/ Edmund H. Kerr Edmund H. Kerr /s/ Frank W. T. LaHaye Frank W. T. LaHaye /s/ Johannes R. Krahmer Johannes R. Krahmer |
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF TRUST
OF
FRANKLIN CALIFORNIA 250 GROWTH FUND
The undersigned certifies that:
1. The name of the business trust is FRANKLIN CALIFORNIA 250 GROWTH FUND (the "Business Trust").
2. The amendment to the Certificate of Trust of the Business Trust set forth below has been duly authorized by the Board of Trustees of the Business Trust.
The First Article of the Certificate of Trust is hereby amended to read as follows:
"The name of the Business Trust is "FRANKLIN STRATEGIC
SERIES".
3. Pursuant to 12 Del. Code (section) 3810(b) (1)c, this Certificate of Amendment to the Certificate of Trust of the Business Trust shall become effective immediately upon filing with the Office of the Secretary of State of the State of Delaware.
4. This Amendment is made pursuant to the Fourth Article of the Certificate of Trust which reserves to the Trustees the right to amend, alter, change or repeal any provisions contained in the Certificate of Trust.
IN WITNESS WHEREOF, the undersigned, being a trustee of the Business Trust, has duly executed this Certificate of Amendment this 19th day of November 1991.
/s/ Rupert H. Johnson, Jr. |
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF TRUST
OF
FRANKLIN STRATEGIC SERIES
The undersigned certifies that:
1. The name of the business trust is the Franklin Strategic Series (the "Business Trust").
2. The amendment to the Certificate of Trust of the Business Trust set forth below (the "Amendment") has been duly authorized by the Board of Trustees of the Business Trust.
The following Article is hereby added to the Certificate of Trust:
SIXTH: Pursuant to section 3804 of the Delaware Business Trust Act, Del. Code. Ann. tit. 12, sec. 3801-3819 (the "Act"), the debts, liabilities, obligations and expenses incurred, contracted for or otherwise existing with respect to each particular series of the Trust, whether such series is now existing or is hereinafter created, shall be enforceable against the assets of such series only, and not against the assets of the Trust generally.
3. Pursuant to Section 3810(b)(1)(c) of the Act, this Certificate of Amendment to the Certificate of Trust of the Business Trust shall become effective immediately upon filing with the Office of the Secretary of State of the State of Delaware.
4. The Amendment is made pursuant to the authority granted to the Trustees of the Business Trust under Section 3810(b) (2) of the Act and pursuant to the authority set forth in the governing instrument of the Business Trust
IN WITNESS WHEREOF, the undersigned being a trustee of the Business Trust, has duly executed this Certificate of Amendment this 14th day of May 1992.
/s/ Charles B. Johnson Charles B. Johnson Trustee |
AMENDED AND RESTATED
BY-LAWS
for the regulation, except as
otherwise provided by statute or the Agreement and Declaration of Trust of
FRANKLIN CALIFORNIA
250 GROWTH INDEX FUND
a Delaware Business Trust
(As of April 25, 1991)
TABLE OF CONTENTS
BY-LAWS
FRANKLIN CALIFORNIA
250 GROWTH INDEX FUND
ARTICLE I Offices
1. Principal Office
2. Delaware Office
3. Other Offices
ARTICLE II
Meetings of Shareholders
1. Place of Meetings
2. Call of Meeting
3. Notice of Shareholders' Meeting
4. Manner of Giving Notice; Affidavit of Notice
5. Adjourned Meeting; Notice
6. Voting
7. Waiver of Notice of Consent by Absent Shareholders
|
8. Shareholder Action by Written Consent without a Meeting
9. Record Date for Shareholder Notice, Voting and Giving
Consents
10. Proxies
11. Inspectors of Election
ARTICLE III Trustees
1. Powers
2. Number of Trustees
3. Vacancies
4. Place of Meetings and Meetings by Telephone
5. Regular Meetings
6. Special Meetings
7. Quorum
8. Waiver of Notice
9. Adjournment
10. Notice of Adjournment
11. Action Without a Meeting
12. Fees and Compensation of Trustees
13. Delegation of Power to Other Trustees
ARTICLE IV Committees
1. Committees of Trustees
2. Meetings and Action of Committees
ARTICLE V Officers
1. Officers
2. Election of Officers
3. Subordinate Officers
4. Removal and Resignation of Officers
5. Vacancies in Offices
6. Chairman of the Board
7. President
8. Vice President
9. Secretary
10. Treasurer
ARTICLE VI Indemnification of Trustees, Officers Employees and Other Agents
1. Agents, Proceedings and Expenses
2. Actions Other than by Trust
3. Actions by the Trust
4. Exclusion and Indemnification
5. Successful Defense by Agent
6. Required Approval
7. Advance of Expenses
8. Other Contractual Rights
9. Limitations
10. Insurance
11. Fiduciaries of Corporate Employee Benefit Plan
ARTICLE VII Records and Reports
1. Maintenance and Inspection of Share Register
2. Maintenance and Inspection of By-Laws
3. Maintenance and Inspection of Other Records
4. Inspection by Trustees
5. Financial Statements
ARTICLE VIII General Matters
1. Checks, Drafts, Evidence of Indebtedness
2. Contracts and Instruments; How Executed
3. Certificate of Shares
4. Lost Certificates
5. Representation of Shares of Other Entities
6. Fiscal Year
ARTICLE IX Amendments
1. Amendment by Shareholders
2. Amendment by Trustees
3. Incorporation by Reference into Agreement and Declaration of
Trust of the Trust
BY-LAWS
OF
FRANKLIN CALIFORNIA
250 GROWTH INDEX FUND
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 Franklin California 250 Growth Index Fund (the "Trust") at any place within or outside the State of Delaware.
Section 2. DELAWARE OFFICE. The Board of Trustees shall establish a registered office in the State of Delaware and shall appoint as the Trust's registered agent for service of process in the State of Delaware an individual resident of the State of Delaware or a Delaware corporation or a corporation authorized to transact business in the State of Delaware; in each case the business office of such registered agent for service of process shall be identical with the registered Delaware office of the Trust.
Section 3. 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 1. PLACE OF MEETINGS. Meetings of shareholders shall be held at any place 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 Agreement and Declaration of Trust of the 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 Agreement and Declaration of Trust of the 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 0F 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 Agreement and Declaration of
Trust of the 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.
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 Agreement and Declaration of Trust of the 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 OF TRUSTEES. The exact number of Trustees within the limits specified in the Agreement and Declaration of Trust of the Trust shall be fixed from time to time by a written instrument signed or a resolution approved at a duly constituted meeting by a majority of the Board of Trustees.
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 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) calendar days before the time of the holding of the meeting. In case the notice is delivered personally or by telephone or 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 Agreement and Declaration of Trust of the 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 Agreement and Declaration of Trust of the Trust except as otherwise expressly provided herein or by resolution of the Board of Trustees. Except where applicable law may require a Trustee to be present in person, a Trustee represented by another Trustee pursuant to such power of attorney shall be deemed to be present for purposes of establishing a quorum and satisfying the required majority vote.
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 Agreement and Declaration of Trust of the 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. Alternate members shall be given notice of meetings of committees and shall have the right to attend all meetings of committees. 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 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 by the principal executive officer or by such other 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. The President may make temporary appointments to a vacant office pending action by the Board of Trustees.
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, 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 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 operating officer of the Trust and shall, subject to the control of the Board of Trustees and the Chairman, 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, the Executive Vice President (who shall be considered first ranked) and such other Vice Presidents as shall be 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 the President or the Chairman of the Board or by these By-Laws.
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, 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 to be given by these By-Laws or by applicable law 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 and chief accounting 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 it is determined that person acted in good faith and reasonably believed: (a) in the case of conduct in his official capacity as a Trustee of the Trust, that his conduct was in the Trust's best interests and (b), in all other cases, that his conduct was at least not opposed to the Trust's best interests and (c) in the case of a criminal proceeding, that he 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 that 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 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
(b) 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
(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 upon (a) receipt of a written
affirmation by the agent of his good faith belief that he has met
the standard of conduct necessary for indemnification under this
Article and a written undertaking by or on behalf of the agent,
to repay the amount of the advance if it is ultimately determined
that he has not met those requirements, together with at least
one of the following as a condition to the advance: (i) security
for the undertaking; or (ii) the existence of insurance
protecting the Trust against losses arising by reason of any
lawful advances; or (iii) a majority of a quorum consisting of
Trustees who are not parties to the proceeding and are not
interested persons of the Trust, or an independent legal counsel
in a written opinion, shall determine, based on a review of
readily available facts that there is reason to believe that the
agent ultimately will be found entitled to indemnification, and
(b) a determination that the facts then known to those making the
determination would not preclude indemnification under this
Article. Determinations and authorizations of payments under this
Section must be made in the manner specified in Section 6 of this
Article for determining that the indemnification is permissible.
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 of the 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 and the Agreement and Declaration of Trust of the Trust.
Section ll. 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 in such manner and by such person or persons as shall be designated from time to time in accordance with the 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 Agreement and Declaration of Trust of the 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 applicable law or by the Agreement and Declaration of Trust of the Trust, these By-Laws may be adopted, amended, or repealed by the Board of Trustees.
SECTION 3. INCORPORATION BY REFERENCE INTO AGREEMENT AND DECLARATION OF TRUST OF THE TRUST. These By-Laws and any amendments thereto shall be incorporated by reference to the Agreement and Declaration of Trust of the Trust.
CERTIFICATE OF SECRETARY
I, Deborah R. Gatzek, Secretary of Franklin Strategic Series, a business trust organized under the laws of the State of Delaware, do hereby certify that the following resolution was adopted by a majority of the trustees present at a meeting held at the offices of the trust at 777 Mariners Island Boulevard, San Mateo, California, on April 19, 1994:
WHEREAS, the Board of Trustees has determined that it is advisable and in the best interests of the shareholders of the Trust to revise the Trust's By-Laws to specifically provide for the use of proxies which are communicated by an electronic, telephonic, computerized or telecommunications method;
NOW THEREFORE, BE IT RESOLVED, that Section 10 of Article II is hereby resolved to read as follows:
"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. Except as otherwise provided in the Agreement and Declaration of Trust or these By-Laws, matters relating to the giving, voting or validity of proxies will be governed by the Delaware General Corporation Law relating to proxies, and Delaware judicial interpretations thereunder, as if the Trust were a Delaware corporation and Shareholders of the Trust were shareholders of a Delaware corporation."
IN WITNESS WHEREOF, I have subscribed my name this 27th day of October, 1994.
/s/Deborah R. Gatzek Deborah R. Gatzek Secretary |
FRANKLIN STRATEGIC SERIES
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT made between FRANKLIN STRATEGIC SERIES, a Delaware business trust, hereinafter called the "Trust", and FRANKLIN ADVISERS, INC., a California corporation, hereinafter called 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 "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 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 Franklin Emerging Growth Fund and Franklin Global Health Care Fund (the "Funds") and any separate series of the Trust hereinafter organized; 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 Funds.
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 Funds' assets and to administer the Funds' affairs, subject to the direction of the Board of Trustees and the officers of the Fund, 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 Funds in any way or otherwise be deemed an agent of the Funds.
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 Funds 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, and (ii) office furnishings, facilities and equipment as may be reasonably required for managing the affairs and conducting the business of the Funds, including conducting correspondence and other communications with the shareholders of the Funds, maintaining all internal bookkeeping, accounting and auditing services and records in connection with the Funds' 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 Funds' assets subject to and in accordance with the investment objectives and policies of the Funds 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 Funds' 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 Funds' investment securities shall be exercised. The Manager shall render 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 which it has made with respect to the investment of the Funds' 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 orders for the execution of the Funds' securities transactions. When placing such orders, the Manager shall seek to obtain the best net price and execution for the Funds, 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 Funds 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 Funds 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 Funds' transactions from among:
(i) Those brokers and dealers who provide quotations and other services to the Funds, specifically including the quotations necessary to determine the Funds' 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 Funds, or which place the Manager in a better position to make decisions in connection with the management of the Funds' 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 Funds' officers are satisfied that the best execution is obtained, the sale of shares of the Funds may also be considered as a factor in the selection of broker-dealers to execute the Funds' portfolio transactions.
(c) When the Manager has determined that the Funds should tender securities pursuant to a "tender offer solicitation," Franklin 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 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 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 Funds.
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 Funds in the preparation of registration statements, reports and other documents required by Federal and state securities laws and with such information as the Funda 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 Funds' 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 Funds and its investment activities.
3. Expenses of the Funds. It is understood that the Funds will pay all of its own expenses other than those expressly assumed by the Manager herein, which expenses payable by the Funds 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 their shares;
D. Expenses of obtaining quotations for calculating the value of the Funds' 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 Funds;
G. Brokerage fees and commissions in connection with the purchase and sale of securities for the Funds;
H. Costs, including the interest expense, of borrowing money;
I. Costs incident to meetings of the Board of Trustees and shareholders of the Funds, reports to the Funds' shareholders, the filing of reports with regulatory bodies and the maintenance of the Funds' legal existence;
J. Legal fees, including the legal fees related to the registration and continued qualification of the Funds' shares for sale;
K. Costs of printing stock certificates representing shares of the Funds.
L. Trustees' fees and expenses to trustees who are not directors, officers, employees or stockholders of the Manager or any of its affiliates;
M. Costs and expense of registering and maintaining the registration of the Funds and their shares under Federal and any applicable state laws; including the printing and mailing of prospectuses to its shareholders;
N. Trade association dues; and
O. The Funds' pro rata portion of fidelity bond, errors and omissions, and trustees and officer liability insurance premiums.
4. Compensation of the Manager. The Funds shall pay a monthly fee in cash to the Manager computed and accrued daily and paid monthly at an annual rate based upon a percentage of the value of each 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. The initial management fee under this Agreement shall be payable on the first business day of the first month following the effective date of this Agreement, and shall be reduced by the amount of any advance payments made by the Funds relating to the previous month.
A. For purposes of calculating such fee, the value of the net assets of the Funds shall be the average daily net assets during the month for which the payment is being made, determined in the same manner as the Funds use to compute the value of their net assets in connection with the determination of the daily net asset value of their shares, all as set forth more fully in each Fund's current prospectus. The annual rate of the management fee payable shall be as follows:
.625 of 1% of the value of average daily net assets up to and including $100 million; and
.50 of 1% of the value of average daily net assets over $100 million, up to and including $250 million; and
.45 of 1% of the value of average daily net assets over $250 million up to and including $10 billion; and
.44 of 1% of the value of average daily net assets over $10 billion up to and including $12.5 billion; and
.42 of 1% of the value of average daily net assets over $12.5 billion up to and including $15 billion; and
.40 of 1% of the value of average daily net assets over $15 billion.
B. The management fee payable by the Funds 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 as set forth in paragraph 2.B.(c) of this Agreement. 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 monthly management fee shall be prorated for the portion of any month in which this Agreement is in effect which is not a complete month according to the proportion which the number of calendar days in the fiscal quarter during which the Agreement is in effect bears to the number of calendar days in the month, and shall be payable within 10 days after the date of termination.
5. Activities of the Manager. The services of the Manager
to the Funds 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 Act, it is understood that trustees, officers, agents and shareholders of the Funds 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 Funds 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 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 Funds or to any shareholder 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 Funds for any and all costs, expenses, and counsel and trustees' fees reasonably incurred by the Fund sin 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 Funds incur 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 Fund'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 Funds for any expenditures related to the institution of an administrative proceeding or civil litigation by the Funds 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 Funds 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 Funds may have or may assert against the Manager or others for costs, expenses or damages heretofore incurred by the Funds or for costs, expenses or damages the Funds 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 Fund, or director or officer of the Manager, from liability in violation of Sections 17(h) and (i) of the 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. The Agreement is renewable annually thereafter for successive periods not to exceed one (l) year (i) by a vote of a majority of the outstanding voting securities of the Funds or by a vote of the Board of Trustees of the Fund, and (ii) by a vote of a majority of the Trustees of the Funds who are not parties to the Agreement (other than as Trustees of the Fund), 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 Funds seeking to terminate the Agreement, on 60 days' written notice to the Manager;
(ii) shall immediately terminate with respect to the Funds 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 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 24th day of February, 1992.
FRANKLIN STRATEGIC SERIES
By: /s/ Charles B. Johnson FRANKLIN ADVISERS, INC. |
By: Rupert H. Johnson, Jr.
Mc-FD1.ADM
FRANKLIN MIDCAP GROWTH FUND
Franklin Strategic Series
ADMINISTRATION AGREEMENT
THIS ADMINISTRATION AGREEMENT is made between FRANKLIN MIDCAP GROWTH FUND (the "Fund"), a series of Franklin Strategic Series, a Massachusetts business trust and FRANKLIN ADVISERS, INC., a California Corporation, hereinafter called the "Administrator."
WHEREAS, the Fund has been organized and operates as a series of an investment company registered under the Investment Company Act of 1940 for the purpose of investing and reinvesting its assets in securities, as set forth in the Trust's Agreement and Declaration of Trust, its By-Laws and its Registration Statements under the Investment Company Act of 1940 and the Securities Act of 1933, all as heretofore amended and supplemented;
WHEREAS, the Fund, desires to avail itself of the services, assistance and facilities of an administrator and to have an administrator perform various administrative and other services for it; and,
WHEREAS, the Administrator is engaged in the business of rendering administrative services to investment companies, and desires to provide these services to the Fund;
NOW THEREFORE, in consideration of the terms and conditions hereinafter set forth, it is agreed as follows:
1. Employment of the Administrator. The Fund hereby employs the Administrator to administer its affairs, subject to the direction of the Board of Trustees and the officers of the Fund, for the period and on the terms hereinafter set forth. The Administrator 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 Administrator 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 in any way or otherwise be deemed an agent of the Fund.
2. Obligations of and Services to be Provided by the
Administrator. The Administrator undertakes to provide the
services hereinafter set forth and to assume the following
obligations:
A. Office Space, Furnishings, Facilities,Equipment,
and Personnel.
The Administrator shall furnish to the Fund adequate
(i) office space, which may be space within the offices
of the Administrator or in such other place as may be
agreed upon from time to time, and (ii) office
furnishings, facilities and equipment as may be
reasonably required for managing the affairs and
conducting the business of the Fund, including
complying with the securities reporting requirements of
the United States and the various states in which the
Fund does business, conducting correspondence and other
communications with the shareholders of the Fund,
maintaining all internal bookkeeping, accounting,
auditing services and records in connection with the
Fund's investment and business activities, and
computing its net asset value. The Administrator shall
employ or provide and compensate the executive,
secretarial and clerical personnel necessary to provide
such services. The Administrator shall also compensate
all officers and employees of the Fund who are officers
or employees of the Administrator.
B. Provision of Information Necessary for Preparation of Securities Registration Statements, Amendments and Other Materials.
The Administrator, its officers and employees will make available and provide accounting and statistical information required by the Fund or its Underwriter in the preparation of registration statements, reports and other documents required by Federal and state securities laws and with such information as the Fund or its Underwriter 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.
C. Other Obligations and Services. The Administrator shall make available its officers and employees to the Board of Trustees and officers of the Fund for consultation and discussions regarding the administration of the Fund and its 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 Administrator herein, which expenses payable by the Fund shall include:
A. Fees to the Administrator 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;
D. Expenses, if any, of obtaining quotations for calculating the value of the Fund's net assets;
E. Salaries and other compensation of any of its executive officers who are not officers, trustees, stockholders or employees of the Administrator;
F. Taxes levied against the Fund or the Fund;
G. Costs, including the interest expense, of borrowing money;
H. Costs incident to meetings of the Board of Trustees, reports to the Fund to its shareholders, the filing of reports with regulatory bodies and the maintenance of the Fund's legal existence;
I. Legal fees, including the legal fees related to the registration and continued qualification of the Fund's shares for sale;
J. Costs of printing share certificates representing shares of the Fund;
K. Trustees' fees and expenses to trustees who are not directors, officers, employees or stockholders of the Administrator or any of its affiliates;
L. Trade association dues; and
M. Its pro rata portion of the fidelity bond insurance premium and trustees and officers errors and omissions insurance premium.
4. Compensation of the Administrator. The Fund shall pay a monthly administration fee in cash to the Administrator based upon a percentage of the value of the Fund's net assets, calculated as set forth below, on the first business day of each month in each year as compensation for the services rendered and obligations assumed by the Administrator during the preceding month. The initial administration fee under this Agreement shall be payable on the first business day of the first month following the effective date of this Agreement, and shall be reduced by the amount of any advance payments made by the Fund relating to the previous month.
A. For purposes of calculating such fee, the value of the net assets of the Fund shall be the average daily net assets during the month for which the payment is being made, determined in the same manner as the Fund uses to compute the value of its net assets in connection with the determination of the daily net asset value of its shares, all as set forth more fully in the Fund's current prospectus. The Fund shall pay an annual administration fee equal to 15/100 of 1% of the value of the Fund's net assets.
B. If this Agreement is terminated prior to the end of any month, the monthly administration fee for the Fund shall be prorated for the portion of any month in which this Agreement is in effect which is not a complete month according to the proportion which the number of calendar days in the fiscal quarter during which the Agreement is in effect bears to the number of calendar days in the month, and shall be payable within 10 days after the date of termination.
5. Activities of the Administrator. The services of the Administrator to the Fund hereunder are not to be deemed exclusive, and the Administrator 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 the Fund and By- Laws of the Fund and to Section 10(a) of the Investment Company Act of 1940, it is understood that Trustees, officers, agents and shareholders of the Fund are or may be interested in the Administrator or its affiliates as trustees, directors, officers, agents or stockholders, and that directors, officers, agents or stockholders of the Administrator or its affiliates are or may be interested in the Fund as Trustees, officers, agents, shareholders or otherwise, and that the Administrator 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 Fund, the By-Laws and the Investment Company Act of 1940.
6. Liabilities of the Administrator.
A. In the absence of willful misfeasance, bad faith, gross negligence, or reckless disregard of obligation or duties hereunder on the part of the Administrator, the Administrator shall not be subject to liability to the Fund 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.
B. Notwithstanding the foregoing, the Administrator agrees to reimburse the Fund for any and all costs, expenses, and counsel and trustees' fees reasonably incurred by the Fund 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 Fund incurs as the result of action or inaction of the Administrator or any of its affiliates or any of their officers, directors, employees or shareholders where the action or inaction necessitating such expenditures (i) is directly or indirectly related to any transactions or proposed transaction in the shares or control of the Administrator or its affiliates (or litigation related to any pending or proposed or future transaction in such shares or control); or, (ii) is within the control of the Administrator or any of its affiliates or any of their officers, trustees, employees or shareholders. The Administrator shall not be obligated, pursuant to the provisions of this Subsection 6(B), to reimburse the Fund for any expenditures related to the institution of an administrative proceeding or civil litigation by the Fund or a shareholder seeking to recover all or a portion of the proceeds derived by any shareholder of the Administrator or any of its affiliates from the sale of his shares of the Administrator, or similar matters. So long as this Agreement is in effect, the Administrator shall pay to the Fund the amount due for expenses subject to Subsection 6(B) of this Agreement within 30 days after a bill or statement has been received by the Administrator therefor. This provision shall not be deemed to be a waiver of any claim the Fund may have or may assert against the Administrator or others for costs, expenses or damages heretofore incurred by the Fund or for costs, expenses or damages the Fund 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 Fund, or director or officer of the Administrator, from liability in violation of Sections 17(h) and (i) of the Investment Company Act of 1940.
7. Duration and Termination.
A. This Agreement shall become effective on the date written below and shall continue in effect until terminated by the Fund or the Administrator on 60 days written notice to the other.
B. 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.
10. Limitation of Liability. The Administrator acknowledges that it has received notice of and accepts the limitations of the Fund's liability as set forth in its Agreement and Declaration of Fund. The Administrator agrees that the Fund's obligations hereunder shall be limited to the assets of the Fund, and that the Administrator shall not seek satisfaction of any such obligation from any shareholders of the Fund nor from any trustee, officer, employee or agent of the Fund.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and effective on the 12th day of April, 1993.
FRANKLIN MIDCAP GROWTH FUND
Franklin Strategic Series
By /s/ Deborah R. Gatzek Deborah R. Gatzek Title: Vice President |
FRANKLIN ADVISERS, INC.
By Rupert H. Johnson, Jr.
Rupert H. Johnson, Jr.
Title: President
FISCO MIDCAP GROWTH FUND
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT made between FRANKLIN STRATEGIC SERIES, a Delaware business trust ("Trust"), on behalf of the FISCO MIDCAP GROWTH FUND (the "Fund"), and FRANKLIN INSTITUTIONAL SERVICES CORPORATION, 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.
WHEREAS, 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; 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 or dealers are equally able to provide such best price and execution and that, in selecting among such brokers and dealers with respect to particular trades, it is desirable to choose those brokers or dealers who furnish research, statistical, quotations and other information to the Fund and the Manager in accord 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) It is acknowledged that the Manager may contract with one or more firms to undertake some or all of the manager's investment management services as set forth herein pursuant to an agreement which is subject to substantially the same provisions as contained in paragraphs 6, 7 and 10 herein.
(d) 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.
(e) 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.
(f) 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 their 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 their 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 monthly 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. The initial management fee under this Agreement shall be payable on the first business day of the first month following the effective date of this Agreement, and shall be reduced by the amount of any advance payments made by the Fund relating to the previous month.
A. For purposes of calculating such fee, the value of the net assets of the Fund shall be the average daily net assets of the Fund during each month, determined in the same manner as the Fund uses to compute the value of its net assets in connection with the determination of the net asset value of its shares, all as set forth more fully in the Fund's current prospectus and statement of additional information. The annual rate of the management fee payable by the Fund shall be .65% of the Fund's average daily net assets.
B. The management fee payable by the Fund shall be reduced or eliminated to the extent that Distributors has actually received cash payments of tender offer solicitation fees less certain costs and expenses incurred in connection therewith and to the extent necessary to comply with the limitations on expenses which may be borne by the Fund as set forth in the laws, regulations and administrative interpretations of those states in which the Fund's shares are registered. The Manager may, 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 Fund 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 Fund 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 Fund for any and all costs, expenses, and counsel and trustees' fees reasonably incurred by the Fund 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 Fund 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 transaction 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 Fund for any expenditures related to the institution of an administrative proceeding or civil litigation by the Fund 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 Fund 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 Fund may have or may assert against the Manager or others for costs, expenses or damages heretofore incurred by the Fund or for costs, expenses or damages the Fund 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 the 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 or interested
persons of any 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 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 17th day of August, 1993.
FRANKLIN STRATEGIC SERIES on behalf of the
FISCO MIDCAP GROWTH FUND
By:/s/ Rupert H. Johnson, Jr. FRANKLIN INSTITUTIONAL SERVICES CORPORATION By: /s/ Charles E. Johnson |
FRANKLIN STRATEGIC INCOME FUND
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT made between FRANKLIN STRATEGIC SERIES, a Delaware business trust ("Trust"), on behalf of the FRANKLIN STRATEGIC INCOME FUND (the "Fund"), 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.
WHEREAS, 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; 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 or dealers are equally able to provide such best price and execution and that, in selecting among such brokers and dealers with respect to particular trades, it is desirable to choose those brokers or dealers who furnish research, statistical, quotations and other information to the Fund and the Manager in accord 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) It is acknowledged that the Manager may contract with one or more firms to undertake some or all of the manager's investment management services as set forth herein pursuant to an agreement which is subject to substantially the same provisions as contained in paragraphs 6, 7 and 10 herein.
(d) 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.
(e) 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.
(f) 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 their 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 their 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 monthly 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. The initial management fee under this Agreement shall be payable on the first business day of the first month following the effective date of this Agreement, and shall be reduced by the amount of any advance payments made by the Fund relating to the previous month.
A. For purposes of calculating such fee, the value of the net assets of the Fund shall be the average daily net assets of the Fund during each month, determined in the same manner as the Fund uses to compute the value of its net assets in connection with the determination of the net asset value of its shares, all as set forth more fully in the Fund's current prospectus and statement of additional information. The annual rate of the management fee payable by the Fund shall be as follows:
.625 of 1% of the value of net assets up to and including $100,000,000; and
.50 of 1% of the value of net assets over $100,000,00 and not over $250,000,000; and
.45 of 1% of the value of net assets in excess of $250,000,000.
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 Fund 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 Fund 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 Fund for any and all costs, expenses, and counsel and trustees' fees reasonably incurred by the Fund 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 Fund 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 transaction 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 Fund for any expenditures related to the institution of an administrative proceeding or civil litigation by the Fund 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 Fund 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 Fund may have or may assert against the Manager or others for costs, expenses or damages heretofore incurred by the Fund or for costs, expenses or damages the Fund 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 the 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 or interested
persons of any 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 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 24th day of May, 1994.
FRANKLIN STRATEGIC SERIES on behalf of the
FRANKLIN STRATEGIC INCOME FUND
By: /s/ Harmon E. Burns
Title Vice President
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FRANKLIN ADVISERS, INC.
By: Charles B. Johnson
Title
SUBADVISORY AGREEMENT
FRANKLIN STRATEGIC SERIES
(on behalf of the Franklin Strategic Income Fund)
THIS SUBADVISORY AGREEMENT made as of the 24th day of May 1994, by and between FRANKLIN ADVISERS, INC., a corporation organized and existing under the laws of the State of California (hereinafter called "FAI"), and TEMPLETON INVESTMENT COUNSEL, INC., a Florida corporation (hereinafter called "TICI").
W I T N E S S E T H
WHEREAS, FAI is registered as an investment adviser under the Investment Advisers Act of 1940 (the "Advisers Act"), and is engaged in the business of supplying investment advice, and investment management services, as an independent contractor; and
WHEREAS, FAI has been retained to render investment management services to Franklin Strategic Series Fund (the "Fund"), a series of Franklin Strategic Series (the "Trust"), an investment management company registered with the U.S. Securities and Exchange Commission (the "SEC") pursuant to the Investment Company Act of 1940 (the "1940 Act"); and
WHEREAS, FAI desires to retain TICI to render investment advisory, research and related services to the Fund pursuant to the terms and provisions of this Agreement, and TICI is interested in furnishing said services.
NOW, THEREFORE, in consideration of the covenants and the mutual promises hereinafter set forth, the parties hereto, intending to be legally bound hereby, mutually agree as follows:
1. FAI hereby retains TICI and TICI hereby accepts such engagement, to furnish certain investment advisory services with respect to the assets of the Fund, as more fully set forth herein.
(a) Subject to the overall policies, control,
direction and review of the Trust's Board of Trustees (the
"Board") and to the instructions and supervision of FAI, TICI
will provide a continuous investment program for the Fund,
including allocation of the Fund's assets among the various
securities markets of the world and, investment research and
advice with respect to securities and investments and cash
equivalents in the Fund. So long as the Board and FAI determine,
on no less frequently than an annual basis, to grant the
necessary delegated authority to TICI, and subject to paragraph
(b) below, TICI will determine what securities and other
investments will be purchased, retained or sold by the Fund, and
will place all purchase and sale orders on behalf of the Fund
except that orders regarding U.S. domiciled securities and money
market instruments may also be placed on behalf of the Fund by
FAI.
(b) In performing these services, TICI shall adhere to the Fund's investment objectives, policies and restrictions as contained in its Prospectus and Statement of Additional Information, and in the Trust's Declaration of Trust, and to the investment guidelines most recently established by FAI and shall comply with the provisions of the 1940 Act and the rules and regulations of the SEC thereunder in all material respects and with the provisions of the United States Internal Revenue Code of 1986, as amended, which are applicable to regulated investment companies.
(c) Unless otherwise instructed by FAI or the Board, and subject to the provisions of this Agreement and to any guidelines or limitations specified from time to time by FAI or by the Board, TICI shall report daily all transactions effected by TICI on behalf of the Fund to FAI and to other entities as reasonably directed by FAI or the Board.
(d) TICI shall provide the Board at least quarterly, in advance of the regular meetings of the Board, a report of its activities hereunder on behalf of the Fund and its proposed strategy for the next quarter, all in such form and detail as requested by the Board. TICI shall also make an investment officer available to attend such meetings of the Board as the Board may reasonably request.
(e) In carrying out its duties hereunder, TICI shall comply with all reasonable instructions of the Fund or FAI in connection therewith. Such instructions may be given by letter, telex, telefax or telephone confirmed by telex, by the Board or by any other person authorized by a resolution of the Board, provided a certified copy of such resolution has been supplied to TICI.
2. In performing the services described above, TICI shall use its best efforts to obtain for the Fund the most favorable price and execution available. Subject to prior authorization of appropriate policies and procedures by the Board, TICI may, to the extent authorized by law and in accordance with the terms of the Fund's Prospectus and Statement of Additional Information, cause the Fund to pay a broker who provides brokerage and research services an amount of commission for effecting a portfolio investment transaction in excess of the amount of commission another broker would have charged for effecting that transaction, in recognition of the brokerage and research services provided by the broker. To the extent authorized by applicable law, TICI shall not be deemed to have acted unlawfully or to have breached any duty created by this Agreement or otherwise solely by reason of such action.
3. (a) TICI shall, unless otherwise expressly provided and authorized, have no authority to act for or represent FAI or the Fund in any way, or in any way be deemed an agent for FAI or the Fund.
(b) It is understood that the services provided by TICI are not to be deemed exclusive. FAI acknowledges that TICI may have investment responsibilities, or render investment advice to, or perform other investment advisory services, for individuals or entities, including other investment companies registered pursuant to the 1940 Act, ("Clients") which may invest in the same type of securities as the Fund. FAI agrees that TICI may give advice or exercise investment responsibility and take such other action with respect to such Clients which may differ from advice given or the timing or nature of action taken with respect to the Fund.
4. TICI agrees to use its best efforts in performing the services to be provided by it pursuant to this Agreement.
5. FAI has furnished or will furnish to TICI as soon as available copies properly certified or authenticated of each of the following documents:
(a) the Trust's Declaration of Trust, as filed with the Secretary of State of the State of Delaware on March 22, 1991, and any other organizational documents and all amendments thereto or restatements thereof;
(b) resolutions of the Trust's Board of Trustees authorizing the appointment of TICI and approving this Agreement;
(c) the Trust's original Notification of Registration on Form N-8A under the 1940 Act as filed with the SEC and all amendments thereto;
(d) the Trust's current Registration Statement on Form N-1A under the Securities Act of 1933, as amended and under the 1940 Act as filed with the SEC, and all amendments thereto, as it relates to the Fund;
(e) the Fund's most recent Prospectus and Statement of Additional Information; and
(f) the Investment Management Agreement between the Fund and FAI.
FAI will furnish TICI with copies of all amendments of or supplements to the foregoing documents.
6. TICI will treat confidentially and as proprietary information of the Fund all records and other information relative to the Fund and prior, present or potential shareholders, and will not use such records and information for any purpose other than performance of its responsibilities and duties hereunder, except after prior notification to and approval in writing by the Fund, which approval shall not be unreasonably withheld and may not be withheld where TICI may be exposed to civil or criminal contempt proceedings for failure to comply when requested to divulge such information by duly constituted authorities, or when so requested by the Fund.
7. FAI shall pay a monthly fee in cash to TICI based upon a percentage of the value of the Fund's net assets, calculated as set forth below, on the first business day of each month in each year as compensation for the services rendered and obligations assumed by TICI during the preceding month. The advisory fee under this Agreement shall be payable on the first business day of the first month following the effective date of this Agreement, and shall be reduced by the amount of any advance payments made by FAI relating to the previous month.
(a) For purposes of calculating such fee, the value of the net assets of the Fund shall be the average daily net assets of the Fund during each month, determined in the same manner as the Fund uses to compute the value of its net assets in connection with the determination of the net asset value of its shares, all as set forth more fully in the Fund's current Prospectus. The rate of the monthly fee payable to TICI shall be based upon the following annual rates:
.3125 of 1% of the value of net assets up to and including $100,000,000; and
.25 of 1% of the value of net assets over $100,000,00 and not over $250,000,000; and
.225 of 1% of the value of net assets in excess of $250,000,000.
(b) FAI and TICI shall share equally in any voluntary reduction or waiver by FAI of the management fee due FAI under the Management Agreement between FAI and the Fund.
(c) If this Agreement is terminated prior to the end of any month, the monthly fee shall be prorated for the portion of any month in which this Agreement is in effect which is not a complete month according to the proportion which the number of calendar days in the month during which the Agreement is in effect bears to the total number of calendar days in the month, and shall be payable within 10 days after the date of termination.
8. Nothing herein contained shall be deemed to relieve or deprive the Board of its responsibility for and control of the conduct of the affairs of the Fund.
9. (a) In the absence of willful misfeasance, bad faith, gross negligence, or reckless disregard of its obligations or duties hereunder on the part of TICI, neither TICI nor any of its directors, officers, employees or affiliates shall be subject to liability to FAI or the Fund or to any shareholder of the Fund for any error of judgment or mistake of law or any other 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 paragraph 9(a), to the extent that FAI is found by a court of competent jurisdiction, or the SEC or any other regulatory agency to be liable to the Fund or any shareholder (a "liability"), for any acts undertaken by TICI pursuant to authority delegated as described in Paragraph 1(a), TICI shall indemnify and save FAI and each of its affiliates, officers, directors and employees (each a "Franklin Indemnified Party") harmless from, against, for and in respect of all losses, damages, costs and expenses incurred by a Franklin Indemnified Party with respect to such liability, together with all legal and other expenses reasonably incurred by any such Franklin Indemnified Party, in connection with such liability.
(c) No provision of this Agreement shall be construed to protect any director or officer of FAI or TICI, from liability in violation of Sections 17(h) or (i), respectively, of the 1940 Act.
10. During the term of this Agreement, TICI will pay all expenses incurred by it in connection with its activities under this Agreement other than the cost of securities (including brokerage commissions, if any) purchased for the Fund. The Fund and FAI will be responsible for all of their respective expenses and liabilities.
11. This Agreement shall be effective as of January 1, 1993 and shall continue in effect for two years. It is renewable annually thereafter for successive periods not to exceed one year each (i) by a vote of the Board or by the vote of a majority of the outstanding voting securities of the Fund, and (ii) by the vote of a majority of the Trustees of the Trust who are not parties to this Agreement or interested persons thereof, cast in person at a meeting called for the purpose of voting on such approval.
12. This Agreement may be terminated at any time, without payment of any penalty, by the Board or by vote of a majority of the outstanding voting securities of the Fund, upon sixty (60) days' written notice to FAI and TICI, and by FAI or TICI upon sixty (60) days' written notice to the other party.
13. This Agreement shall terminate automatically in the event of any transfer or assignment thereof, as defined in the 1940 Act, and in the event of any act or event that terminates the Management Agreement between FAI and the Fund.
14. In compliance with the requirements of Rule 31a-3 under the 1940 Act, TICI hereby agrees that all records which it maintains for the Fund are the property of the Fund and further agrees to surrender promptly to the Fund, or to any third party at the Fund's direction, any of such records upon the Fund's request. TICI further agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the records required to be maintained by Rule 31a-1 under the 1940 Act.
15. This Agreement may not be materially amended, transferred, assigned, sold or in any manner hypothecated or pledged without the affirmative vote or written consent of the holders of a majority of the outstanding voting securities of the Fund and may not be amended without the written consent of FAI and TICI.
16. 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.
17. The terms "majority of the outstanding voting securities" of the Fund and "interested persons" shall have the meanings as set forth in the 1940 Act.
18. This Agreement shall be interpreted in accordance with and governed by the laws of the State of California of the United States of America.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and attested by their duly authorized officers.
FRANKLIN ADVISERS, INC.
By: /s/ Charles B. Johnson
Title Chairman of the Board
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TEMPLETON INVESTMENT COUNSEL, INC.
By: /s/ Donald Reed
Title President
|
Franklin Strategic Income Fund hereby acknowledges and agrees to the provisions of paragraphs 9(a) and 10 of this Agreement.
FRANKLIN STRATEGIC SERIES on behalf of
FRANKLIN STRATEGIC INCOME FUND
By: /s/ Harmon E. Burns
Title Vice President
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FRANKLIN CALIFORNIA GROWTH FUND
AMENDED AND RESTATED MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT made between FRANKLIN STRATEGIC SERIES, a Delaware business trust (the "Trust"), on behalf of FRANKLIN CALIFORNIA GROWTH FUND (the "Fund"), a series of the Trust, and FRANKLIN ADVISERS, INC., a California corporation, hereinafter called 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 "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 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; 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 in any way or otherwise be deemed an agent of the Fund.
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, and (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 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 which it has 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 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 Fund shares 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 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 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 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 their 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 legal existence;
J. Legal fees, including the legal fees related to the registration and continued qualification of the Fund's shares for sale;
K. Costs of printing stock certificates representing shares of the Fund.
L. Trustees' fees and expenses to trustees who are not directors, officers, employees or stockholders of the Manager or any of its affiliates;
M. Costs and expense of registering and maintaining the registration of the Fund and their shares under Federal and any applicable state laws; including the printing and mailing of prospectuses to its shareholders;
N. Trade association dues; and
O. 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 monthly fee in cash to the Manager computed and accrued daily and paid monthly at an annual rate based upon a percentage of the value of each 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. The initial management fee under this Agreement shall be payable on the first business day of the first month following the effective date of this Agreement, and shall be reduced by the amount of any advance payments made by the Fund relating to the previous month.
A. For purposes of calculating such fee, the value of the net assets of the Fund shall be the average daily net assets during the month for which the payment is being made, determined in the same manner as the Fund uses to compute the value of their net assets in connection with the determination of the daily net asset value of their shares, all as set forth more fully in each Fund's current prospectus. The annual rate of the management fee payable shall be as follows:
.625 of 1% of the value of average daily net assets up to and including $100 million; and
.50 of 1% of the value of average daily net assets over $100 million, up to and including $250 million; and
.45 of 1% of the value of average daily net assets over $250 million up to and including $10 billion; and
.44 of 1% of the value of average daily net assets over $10 billion up to and including $12.5 billion; and
.42 of 1% of the value of average daily net assets over $12.5 billion up to and including $15 billion; and
.40 of 1% of the value of average daily net assets over $15 billion.
B. The management fee payable by the Fund shall be reduced or eliminated to the extent that Distributors has actually received cash payments of tender offer solicitation fees less certain costs and expenses incurred in connection therewith as set forth in paragraph 2.B.(c) of this Agreement. 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 Act, it is understood that trustees,
officers, agents and shareholders of the Fund 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 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 Fund or to any shareholder 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 Fund for any and all costs, expenses, and counsel and trustees' fees reasonably incurred by the Fund in the preparation, printing and distribution of proxy statements, amendments to its Registration Statement, holdings of meetings of its shareholders or the Trust's 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 Fund 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 Fund for any expenditures related to the institution of an administrative proceeding or civil litigation by the Fund 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 Fund 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 Fund may have or may assert against the Manager or others for costs, expenses or damages heretofore incurred by the Fund or for costs, expenses or damages the Fund 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 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. The Agreement is renewable annually thereafter for successive periods not to exceed one (l) year (i) by a vote of a majority of the outstanding voting securities of the 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 seeking to terminate the Agreement, 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 Act.
D. Any notice under this Agreement shall be given in writing addressed and delivered, or mailed post-paid, to the other party at any office of such party.
8. Severability. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby.
9. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed and effective on the 12th day of July, 1993.
.
FRANKLIN STRATEGIC SERIES on behalf of
FRANKLIN CALIFORNIA GROWTH FUND
By: /s/ Charles B. Johnson FRANKLIN ADVISERS, INC. By: /s/ Rupert H. Johnson, Jr. |
FRANKLIN STRATEGIC SERIES
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 For All Series Except Strategic Income Series
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 except that this Agreement shall not apply to the Fund's Strategic Income Series, and the terms "Fund" and "Shares" shall exclude any and all classes of shares of the Strategic Income Series for purposes of this Agreement.
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 STRATEGIC SERIES
By: /s/ Deborah R. Gatzek Accepted: |
Franklin/Templeton Distributors, Inc.
By: /s/ Greg Johnson DATED: 3/29/95 |
FRANKLIN STRATEGIC SERIES
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 For Strategic Income Series Only
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 of our Strategic Income Series (the "Shares") to authorized persons in accordance with applicable Federal and State securities laws. The Shares may be made available in 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 the 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 retains the right to make direct sales of the 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 the 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 class of Shares and its shareholders only, transactions involving the reorganization of the Fund or the Strategic Income Series, and transactions involving the merger or combination of the Fund or the 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 class of 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 class of 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 the 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 the 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 the 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 the 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 the Shares.
10. Furnishing of Information. We will furnish to you such information with respect to each 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 Strategic Income Series,
for successive periods not to exceed one year (i) by a vote of
(a) a majority of the outstanding voting securities of such
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 the Strategic Income 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 such 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 such 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 STRATEGIC SERIES
By: /s/ Deborah R. Gatzek Accepted: |
Franklin/Templeton Distributors, Inc.
By:/s/ Greg Johnson DATED: April 23, 1995 |
CUSTODY AGREEMENT
THIS CUSTODY AGREEMENT ("Agreement") is made and entered into as of May 24, 1994, by and between FRANKLIN STRATEGIC SERIES, 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.
"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.
"Trust" shall mean the Franklin Strategic Series and any separate series of the Trust hereinafter organized.
"Writing" shall mean a communication in writing, a communication by telex, the Custodian's Global Custody Instruction SystemTM, facsimile transmission, bank wire 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 test keys, 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 Strategic Series 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/ Maria Gomes By /s/ M. Elliott Maria Gomes Michael J. Elliott Its: Assistant Vice President Its: Vice President |
"Trust": FRANKLIN STRATEGIC SERIES
By /s/ Harmon E. Burns
Its Vice President
|
CONSENT OF INDEPENDENT AUDITORS
To the Board of Trustees of
Franklin Strategic Series:
We consent to the inclusion in Post-
Effective Amendment No. 14 to the Registration Statement of
Franklin Strategic Series on Form N-1A (File No. 33-39088)
of our report dated May 30, 1995 on our audit of the
statement of assets and liabilities of the Franklin Natural
Resources Fund, as of May 26, 1995
/s/ COOPERS & LYBRAND L.L.P.
San Francisco, California
May 30, 1995
|
Franklin California 250 Growth Fund
777 Mariners Island Blvd.
San Mateo, California 94404
Gentlemen:
The undersigned hereby subscribes for the purchase of 200,000.00 shares of beneficial interest (the "Shares") of the Franklin California 250 Growth Fund (the "Fund"), at $10.00 per share for a total investment of $2,000,000.00 In connection with said subscription, the undersigned hereby represents that:
1. There is no present reason to anticipate any change in circumstances or any other occasion or event which would cause the undersigned to sell or redeem the Shares shortly after the purchase thereof.
2. There are no agreements or arrangements between the undersigned and the Fund, or any of its officers, trustees, employees or the investment manager of the Fund, or any affiliated persons thereof with respect to the resale, future distribution or redemption of the Shares.
3. The sale of the Shares will only be made by redemption to the Fund and not be a transfer to any third party.
4. The undersigned is aware that in issuing and selling these Shares, the Fund is relying upon the aforementioned representations.
5. The undersigned is fully aware that the organization expenses of the Fund, including the costs and expenses of registration of the Shares, are being charged to the operation of the Fund over a period of five years, and that in the event the undersigned redeems any portion of these Shares prior to the end of said amortization period, the undersigned will reimburse the Fund for the pro rata share of the unamortized organization expenses (by a reduction of the redemption proceeds) in the same proportion as the number of Shares being redeemed bears to the total number of remaining initial Shares acquired by the undersigned hereunder.
FRANKLIN RESOURCES, INC.
By: /s/ Harmon E. Burns
Harmon E. Burns,
Executive Vice President
Dated: August 20, 1991
|
To: All Franklin Templeton Funds Listed on Schedule A
777 Mariners Island Blvd.
San Mateo, CA 94404
Gentlemen:
We propose to invest $100.00 in the Class II shares (the "Shares") of each of the Funds listed on the attached Schedule A (the "Funds"), on the business day immediately preceding the effective date for each Fund's Class II shares, at a purchase price per share equivalent to the net asset value per share of each Fund's Class I shares on the date of purchase. We will purchase the Shares in a private offering prior to the effectiveness of the post-effective amendment to the Form N-1A registration statement under which each Fund's Class II shares are initially offered, as filed by the Fund under the Securities Act of 1933. The Shares are being purchased to serve as the seed money for each Fund's Class II shares prior to the commencement of the public offering of Class II shares.
In connection with such purchase, we understand that 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.
We consent to the filing of this Investment Letter as an exhibit to the form N-1A registration statement of each Fund.
Sincerely,
FRANKLIN RESOURCES, INC.
By: /s/ Harmon E. Burns
Harmon E. Burns
Executive Vice President
Date: April 12, 1995
|
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
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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
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FRANKLIN STRATEGIC SERIES
Preamble to Amended and Restated Distribution Plan
The following Amended and Restated Distribution Plan (the "Plan") has been adopted pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the "Act") by Franklin Strategic Series (the "Trust") for the use of four series entitled Franklin California Growth Fund, Franklin Small Cap Growth Fund, Franklin Global Health Care Fund and Franklin Global Utilities Fund (may be collectively or separately hereinafter referred to as the "Funds" or a "Fund"). The Plan has been approved by a majority vote 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 Agreements between the Trust on behalf of the Funds 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 Agreements 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 Funds 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 of Trustees determined that the Plan should provide for such payments and that adoption of the Plan would be prudent and in the best interests of each 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 each Fund and its shareholders.
AMENDED AND RESTATED DISTRIBUTION PLAN
1. The Funds shall reimburse Distributors or others for all expenses incurred by Distributors or others in the promotion and distribution of the shares of the Funds, 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 Funds to Distributors or others pursuant to Paragraph 1 herein shall be 0.25% per annum of the average daily net assets of each Fund. Said reimbursement shall be made quarterly by each Fund to Distributors or others.
3. In addition to the payments which the Funds are authorized to make pursuant to paragraphs 1 and 2 hereof, to the extent that the Funds, the Manager, Distributors or other parties on behalf of a 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 a 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 a vote of 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 a Fund with respect to such Fund, or by vote of a majority of the non- interested trustees, on not more than sixty (60) days' written notice, or by Distributors on not more that sixty (60) days' written notice and shall terminate automatically in the event of any act that constitutes an assignment of the Management Agreements between the Trust, on behalf of the Funds, 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 by a Fund for distribution pursuant to Paragraph 2 hereof without approval by majority vote of a Fund's outstanding voting securities with respect to such Fund.
8. All material amendments to the Plan, or any agreements entered into pursuant to this Plan, shall be approved by a vote of the non-interested trustees, cast in person at a meeting called for the purpose of voting on any such amendment.
9. So long as the Plan is in effect, the selection and nomination of the Trust's non-interested trustees shall be committed to the discretion of such non-interested trustees.
10. This Plan shall take effect on the 1st day of July, 1993.
This Plan and the terms and provisions thereof are hereby accepted and agreed to by the Trust, on behalf of the Funds, and Distributors as evidenced by their execution hereof.
FRANKLIN STRATEGIC SERIES on behalf of
Franklin California Growth Fund,
Franklin Small Cap Growth Fund, Franklin Global
Health Care Fund and Franklin Global Utilities Fund
By: /s/ Charles B. Johnson |
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
By: /s/ Rupert H. Johnson, Jr. |
CLASS II DISTRIBUTION PLAN
I. Investment Company: FRANKLIN STRATEGIC SERIES
II. Fund and Class: FRANKLIN GLOBAL UTILITIES FUND - CLASS II
III. Maximum Per Annum Rule 12b-1 Fees for Class II Shares
(as a percentage of average daily net assets of the class)
A. Distribution Fee: 0.75%
B. Service Fee: 0.25%
PREAMBLE TO CLASS II DISTRIBUTION PLAN
The following Distribution Plan (the "Plan") has been adopted pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the "Act") by the Investment Company named above ("Investment Company") for the class II shares (the "Class") of 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 |
FRANKLIN STRATEGIC SERIES
Preamble to Distribution Plan
The following Distribution Plan (the "Plan") has been adopted pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the "Act") by Franklin Strategic Series (the "Trust") for the use of Franklin Strategic Income Fund (the "Fund"), which Plan shall take effect on the 24th day of May, 1994 (the "Effective Date of the Plan"). 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. ("Advisers") and the terms of the Underwriting Agreement between the Trust on behalf of the Fund and Franklin/Templeton Distributors, Inc. ("Distributors"). The Board of Trustees concluded that the compensation of Advisers, under the Management Agreement, and of Distributors, under the Underwriting Agreement, was fair and not excessive; however, the Board of Trustees also recognized that uncertainty may exist from time to time with respect to whether payments to be made by the Fund to Advisers, Distributors, or others or by Advisers or Distributors to others may be deemed to constitute distribution expenses of the Fund. Accordingly, the Board of Trustees determined that the Plan should provide for such payments and that adoption of the Plan would be prudent and in the best interest of the Fund and its shareholders. Such approval included a determination that in the exercise of their reasonable business judgment and in light of their fiduciary duties, there is a reasonable likelihood that the Plan will benefit the Fund and its shareholders.
DISTRIBUTION PLAN
1. The Fund shall reimburse Distributors or others for all expenses incurred by Distributors or others in the promotion and distribution of the shares of the Fund, including but not limited to, the printing of prospectuses and reports used for sales purposes, expenses of preparing and distributing sales literature and related expenses, advertisements, and other distribution- related expenses, including a prorated portion of Distributors' overhead expenses attributable to the distribution of Fund shares, as well as any distribution or service fees paid to securities dealers or their firms or others who have executed a servicing agreement with the Trust on behalf of 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 0.25% per annum of the average daily net assets of the Fund. Said reimbursement shall be made quarterly by the Fund to Distributors or others.
3. In addition to the payments which the Fund is authorized to make pursuant to paragraphs 1 and 2 hereof, to the extent that the Fund, Advisers, Distributors or other parties on behalf of the Fund, Advisers or Distributors make payments that are deemed to be payments by the Fund for the financing of any activity primarily intended to result in the sale of shares issued by the Fund within the context of Rule 12b-1 under the Act, then such payments shall be deemed to have been made pursuant to the Plan.
In no event shall the aggregate asset-based sales charges which include payments specified in paragraphs 1 and 2, plus any other payments deemed to be made pursuant to the Plan under this paragraph, exceed the amount permitted to be paid pursuant to the Rules of Fair Practice of the National Association of Securities Dealers, Inc., Article III, Section 26(d).
4. Distributors shall furnish to the Board 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 a vote of 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 a majority of the non-interested trustees, on not more than sixty (60) days' written notice, or by Distributors on not more than sixty (60) days' written notice, and shall terminate automatically in the event of any act that constitutes an assignment of the Management Agreement between the Trust on behalf of the Fund and Advisers.
7. The Plan, and any agreements entered into pursuant to this Plan, may not be amended to increase materially the amount to be spent for distribution pursuant to Paragraph 2 hereof without approval by a majority of the Fund's outstanding voting securities.
8. All material amendments to the Plan, or any agreements entered into pursuant to this Plan, shall be approved by a vote of the non-interested trustees cast in person at a meeting called for the purpose of voting on any such amendment.
9. So long as the Plan is in effect, the selection and nomination of the Trust's non-interested trustees shall be committed to the discretion of such non-interested trustees.
This Plan and the terms and provisions thereof are hereby accepted and agreed to by the Trust and Distributors as evidenced by their execution hereof.
FRANKLIN STRATEGIC SERIES
on behalf of Franklin Strategic Income Fund
By:/s/ Harmon E. Burns |
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
By:/s/ Charles B. Johnson |
FRANKLIN STRATEGIC SERIES
on behalf of FRANKLIN NATURAL RESOURCES FUND
Preamble to Distribution Plan
The following Distribution Plan (the "Plan") has been adopted pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the "Act") by Franklin Strategic Series ("Trust") for the use of its series named Franklin Natural Resources Fund (the "Fund"), which Plan shall take effect on the date the shares of the Fund are first offered (the "Effective Date of the Plan"). The Plan has been approved by a majority of the Board of Trustees of the Trust (the "Board"), including a majority of the trustees who are not interested persons of the Trust and who have no direct or indirect financial interest in the operation of the Plan (the "non-interested trustees"), cast in person at a meeting called for the purpose of voting on such Plan.
In reviewing the Plan, the Board considered the schedule and nature of payments and terms of the Management Agreement between the Trust on behalf of the Fund and Franklin Advisers, Inc. ("Advisers") and the terms of the Underwriting Agreement between the Trust on behalf of the Fund and Franklin/Templeton Distributors, Inc. ("Distributors"). The Board concluded that the compensation of Advisers, under the Management Agreement, and of Distributors, under the Underwriting Agreement, was fair and not excessive; however, the Board also recognized that uncertainty may exist from time to time with respect to whether payments to be made by the Fund to Advisers, Distributors, or others or by Advisers or Distributors to others may be deemed to constitute distribution expenses of the Fund. Accordingly, the Board determined that the Plan should provide for such payments and that adoption of the Plan would be prudent and in the best interest of the Fund and its shareholders. Such approval included a determination that in the exercise of their reasonable business judgment and in light of their fiduciary duties, there is a reasonable likelihood that the Plan will benefit the Fund and its shareholders.
DISTRIBUTION PLAN
1. The Fund shall reimburse Distributors or others for all expenses incurred by Distributors or others in the promotion and distribution of the shares of the Fund, as well as for shareholder services provided for existing shareholders of the Fund. These expenses may include, but are not limited to, the expenses of the printing of prospectuses and reports used for sales purposes, preparing and distributing sales literature and related expenses, advertisements, recordkeeping services for employee benefit plan shareholders, and other distribution- related expenses, including a prorated portion of Distributors' overhead expenses attributable to the distribution of Fund shares. These expenses may also include any distribution or service fees paid to securities dealers or their firms or others. Agreements for the payment of service fees to securities dealers or their firms or others shall be in a form which has been approved from time to time by the Board, including the non- interested trustees.
2. The maximum amount which may be reimbursed by the Fund to Distributors or others pursuant to Paragraph 1 herein shall be 0.35% per annum of the average daily net assets of the Fund. Said reimbursement shall be made quarterly by the Fund to Distributors or others.
3. In addition to the payments which the Fund is authorized to make pursuant to paragraphs 1 and 2 hereof, to the extent that the Fund, Advisers, Distributors or other parties on behalf of the Fund, Advisers or Distributors make payments that are deemed to be payments by the Fund for the financing of any activity primarily intended to result in the sale of shares issued by the Fund within the context of Rule 12b-1 under the Act, then such payments shall be deemed to have been made pursuant to the Plan.
In no event shall the aggregate asset-based sales charges which include payments specified in paragraphs 1 and 2, plus any other payments deemed to be made pursuant to the Plan under this paragraph, exceed the amount permitted to be paid pursuant to the Rules of Fair Practice of the National Association of Securities Dealers, Inc., Article III, Section 26(d).
4. Distributors shall furnish to the Board, for its review, on a quarterly basis, a written report of the monies reimbursed to it and to others under the Plan, and shall furnish the Board with such other information as the Board may reasonably request in connection with the payments made under the Plan in order to enable the Board to make an informed determination of whether the Plan should be continued.
5. The Plan shall continue in effect for a period of more than one year only so long as such continuance is specifically approved at least annually by a vote of the Board, including the non-interested trustees, cast in person at a meeting called for the purpose of voting on the Plan.
6. The Plan, and any agreements entered into pursuant to this Plan, may be terminated at any time, without penalty, by vote of a majority of the outstanding voting securities of the Fund or by vote of a majority of the non-interested trustees, on not more than sixty (60) days' written notice, or by Distributors on not more than sixty (60) days' written notice, and shall terminate automatically in the event of any act that constitutes an assignment of the Management Agreement between the Trust on behalf of the Fund and Advisers.
7. The Plan, and any agreements entered into pursuant to this Plan, may not be amended to increase materially the amount to be spent for distribution pursuant to Paragraph 2 hereof without approval by a majority of the Fund's outstanding voting securities.
8. All material amendments to the Plan, or any agreements entered into pursuant to this Plan, shall be approved by a vote of the non-interested trustees cast in person at a meeting called for the purpose of voting on any such amendment.
9. So long as the Plan is in effect, the selection and nomination of the Trust's non-interested trustees shall be committed to the discretion of such non-interested trustees.
This Plan and the terms and provisions thereof are hereby accepted and agreed to by the Trust and Distributors as evidenced by their execution hereof.
FRANKLIN STRATEGIC SERIES
on behalf of the Franklin Natural Resources Fund
By:
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
By:
POWER OF ATTORNEY
The undersigned officers and trustees of FRANKLIN STRATEGIC SERIES (the "Registrant") hereby appoint MARK H. PLAFKER, HARMON E. BURNS, DEBORAH R. GATZEK, KAREN L. SKIDMORE AND LARRY L. GREENE (with full power to each of them to act alone) his attorney-in-fact and agent, in all capacities, to execute, and to file any of the documents referred to below relating to Post- Effective Amendments to the Registrant's registration statement on Form N-1A under the Investment Company Act of 1940, as amended, and under the Securities Act of 1933 covering the sale of shares by the Registrant under prospectuses becoming effective after this date, including any amendment or amendments increasing or decreasing the amount of securities for which registration is being sought, with all exhibits and any and all documents required to be filed with respect thereto with any regulatory authority. Each of the undersigned grants to each of said attorneys, full authority to do every act necessary to be done in order to effectuate the same as fully, to all intents and purposes as he could do if personally present, thereby ratifying all that said attorneys-in-fact and agents, may lawfully do or cause to be done by virtue hereof.
The undersigned officers and trustees hereby execute this Power of Attorney as of this 16thday of February 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/ S. Joseph Fortunato /s/ David W. Garbellano S. Joseph Fortunato, David W. Garbellano, Trustee Trustee /s/ Harmon E. Burns /s/ Frank W. T. LaHaye Harmon E. Burns, 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 Strategic Series (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 Mateo, California, on February 16, 1995.
RESOLVED, that a Power of Attorney, substantially in the form of the Power of Attorney presented to this Board, appointing Harmon E. Burns, Deborah R. Gatzek, Karen L. Skidmore, Larry L. Greene and Mark H. Plafker as attorneys-in-fact for the purpose of filing documents with the Securities and Exchange Commission, be executed by each Trustee and designated officer.
I declare under penalty of perjury that the matters set
forth in this certificate are true and correct of my own
knowledge.
Dated: February 16, 1995 /s/ Deborah R. Gatzek
Deborah R. Gatzek
Secretary
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