SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No.)
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section.240-14a-11(c) or
Section.240-14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2)
FRANKLIN INVESTORS SECURITIES TRUST
(Name of Registrant as Specified in its Charter)
FRANKLIN INVESTORS SECURITIES TRUST
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
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pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
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[ ] Fee paid previously with preliminary material.
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the Form or Schedule and the date of its filing.
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[LOGO]
FRANKLIN(R)TEMPLETON(R)INVESTMENTS
FRANKLIN CONVERTIBLE SECURITIES FUND
IMPORTANT SHAREHOLDER INFORMATION
These materials are for a Special Shareholders' Meeting scheduled for October 3,
2002 at 10:00 a.m. Pacific time. The enclosed materials discuss two proposals
(the "Proposals" or, each, a "Proposal") to be voted on at the meeting, and
contain your proxy statement and proxy card. A proxy card is, in essence, a
ballot. When you vote your proxy, it tells us how you wish to vote on important
issues relating to your Fund. If you specify a vote for both Proposals, your
proxy will be voted as you indicate. If you specify a vote for one of the
Proposals, but not both, your proxy will be voted as specified on such Proposal
and, on the Proposal(s) for which no vote is specified, will be voted FOR such
Proposal(s). If you simply sign and date the proxy card, but do not specify a
vote for any Proposal, your proxy will be voted FOR both Proposals.
WE URGE YOU TO SPEND A FEW MINUTES REVIEWING THE PROPOSALS IN THE PROXY
STATEMENT. THEN, PLEASE FILL OUT AND SIGN THE PROXY CARD AND RETURN IT TO US SO
THAT WE KNOW HOW YOU WOULD LIKE TO VOTE. WHEN SHAREHOLDERS RETURN THEIR PROXIES
PROMPTLY, THE FUND MAY BE ABLE TO SAVE MONEY BY NOT HAVING TO CONDUCT ADDITIONAL
MAILINGS.
WE WELCOME YOUR COMMENTS. IF YOU HAVE ANY QUESTIONS, CALL FUND INFORMATION AT
1-800/DIAL BEN(R) (1-800/342-5236).
TELEPHONE AND INTERNET VOTING
FOR YOUR CONVENIENCE, YOU MAY BE ABLE TO VOTE BY TELEPHONE OR THROUGH THE
INTERNET, 24 HOURS A DAY. IF YOUR ACCOUNT IS ELIGIBLE, A CONTROL NUMBER AND
SEPARATE INSTRUCTIONS ARE ENCLOSED.
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A LETTER FROM THE PRESIDENT
Dear Fellow Shareholders:
Enclosed for your consideration are a number of important matters relating to
your investment in Franklin Convertible Securities Fund (the "Fund") in
connection with a Special Meeting of Shareholders. The materials which we have
included describe proposals that will affect the future of your Fund.
The Board of Trustees recommends that, among other items, you cast your vote in
favor of:
1. Amending six of the Fund's fundamental investment restrictions; and
2. Eliminating seven of the Fund's fundamental investment restrictions.
PLEASE TAKE A MOMENT TO REVIEW THIS DOCUMENT, AND FILL OUT, SIGN AND
RETURN THE ENCLOSED PROXY CARD
To provide additional investment opportunities for the Fund, we have proposed
amending or eliminating certain of the Fund's fundamental investment
restrictions. The proxy statement includes a question-and-answer format designed
to provide you with a simpler and more concise explanation of certain issues.
Although much of the information in the proxy statement is technical and
required by the various regulations that govern the Fund, we hope that this
format will be helpful to you.
Your vote is important to the Fund. On behalf of the Trustees, thank you in
advance for considering these issues and for promptly returning your proxy card.
Sincerely,
/s/ Edward B. Jamieson
Edward B. Jamieson
PRESIDENT
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[LOGO]
FRANKLIN(R)TEMPLETON(R) INVESTMENTS
FRANKLIN CONVERTIBLE SECURITIES FUND
NOTICE OF SPECIAL SHAREHOLDERS' MEETING
TO BE HELD ON OCTOBER 3, 2002
A Special Shareholders' Meeting ("Meeting") of Franklin Convertible Securities
Fund (the "Fund"), will be held at the Fund's office at One Franklin Parkway,
San Mateo, California 94403-1906, at 10:00 a.m. (Pacific time), on October 3,
2002.
During the Meeting, shareholders of the Fund will vote on the following
Proposals and Sub-Proposals:
1. To approve amendments to certain of the Fund's fundamental investment
restrictions (includes six (6) Sub-Proposals).
(a) To amend the Fund's fundamental investment restriction
regarding borrowing;
(b) To amend the Fund's fundamental investment restriction
regarding underwriting;
(c) To amend the Fund's fundamental investment restriction
regarding lending;
(d) To amend the Fund's fundamental investment restrictions
regarding investments in real estate and commodities;
(e) To amend the Fund's fundamental investment restriction
regarding issuing senior securities; and
(f) To amend the Fund's fundamental investment restrictions
regarding diversification of investments.
2. To approve the elimination of certain of the Fund's fundamental
investment restrictions.
The Board of Trustees has fixed July 15, 2002 as the record date for
determination of shareholders entitled to vote at the Meeting.
Please note that a separate vote is required for each Proposal or Sub-Proposal.
By Order of the Board of Trustees,
Murray L. Simpson
Secretary
San Mateo, California
August 5, 2002
- --------------------------------------------------------------------------------
PLEASE SIGN AND RETURN YOUR PROXY CARD IN THE SELF-ADDRESSED ENVELOPE REGARDLESS
OF THE NUMBER OF SHARES YOU OWN.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
PAGE
PROXY STATEMENT
Information About Voting................................................ 1
Introduction to Proposals 1 and 2....................................... 3
Proposal 1: To Approve Amendments to Certain of the Fund's Fundamental
Investment Restrictions (Includes Six (6) Sub-Proposals)... 4
1a: Borrowing.................................................... 4
1b: Underwriting................................................. 5
1c: Lending...................................................... 6
1d: Real Estate and Commodities.................................. 8
1e: Senior Securities............................................ 9
1f: Diversification of Investments............................... 10
Proposal 2: To Approve the Elimination of Certain of the Fund's
Fundamental Investment Restrictions........................ 12
Information About the Fund............................................. 17
Further Information About Voting and the Meeting....................... 18
EXHIBITS
Exhibit A: Fundamental Investment Restrictions Proposed to be
Amended or Eliminated....................................... A-1
FRANKLIN CONVERTIBLE SECURITIES FUND
PROXY STATEMENT
INFORMATION ABOUT VOTING
WHO IS ASKING FOR MY VOTE?
The Board of Trustees of Franklin Investors Securities Trust (the "Trust"), on
behalf of its separate series Franklin Convertible Securities (the "Fund"), in
connection with the Special Meeting of Shareholders of the Fund to be held
October 3, 2002 (the "Meeting"), has requested your vote on several matters.
WHO IS ELIGIBLE TO VOTE?
Shareholders of record at the close of business on July 15, 2002 are entitled to
be present and vote at the Meeting or any adjourned meeting. Each share of
record is entitled to one vote, and each fractional share is entitled to a
proportionate fractional vote, on each matter presented at the Meeting. The
Notice of Meeting, the proxy card, and the proxy statement were mailed to
shareholders of record on or about August 5, 2002.
ON WHAT ISSUES AM I BEING ASKED TO VOTE?
You are being asked to vote on the following proposals:
1. To approve amendments to certain of the Fund's fundamental investment
restrictions (includes six (6) Sub-Proposals); and
2. To eliminate certain of the Fund's fundamental investment restrictions.
HOW DO THE TRUSTEES RECOMMEND THAT I VOTE?
The Trustees unanimously recommend that you vote:
1. FOR the approval of each of the proposed amendments to certain of the
Fund's fundamental investment restrictions; and
2. FOR the approval of the elimination of certain of the Fund's fundamental
investment restrictions.
HOW DO I ENSURE THAT MY VOTE IS ACCURATELY RECORDED?
You may attend the Meeting and vote in person or you may complete and return the
enclosed proxy card. If you are eligible to vote by telephone or through the
internet, a control number and separate instructions are enclosed.
Proxy cards that are properly signed, dated and received at or prior to the
Meeting will be voted as specified. If you specify a vote for either Proposal 1
or 2, your proxy will be voted as you indicate, and either Proposal for which no
vote is specified will be voted FOR that Proposal. If you simply sign and return
the proxy card, but do not specify a vote for either Proposal 1 or Proposal 2,
your shares will be voted as follows: FOR the approval of each of the proposed
amendments to the Fund's fundamental investment restrictions (Sub-Proposals
1a-1f); and FOR the approval of the elimination certain of the Fund's
fundamental investment restrictions (Proposal 2).
MAY I REVOKE MY PROXY?
You may revoke your proxy at any time before it is voted by forwarding a written
revocation or a later-dated proxy to the Fund that is received by the Fund at or
prior to the Meeting, or by attending the Meeting and voting in person.
INTRODUCTION TO PROPOSALS 1 AND 2.
WHY IS THE BOARD RECOMMENDING THE AMENDMENT OR ELIMINATION OF CERTAIN OF THE
FUND'S FUNDAMENTAL INVESTMENT RESTRICTIONS?
The Fund is subject to certain "fundamental" investment restrictions that govern
the Fund's investment activities. Under the Investment Company Act of 1940, as
amended, (the "1940 Act"), "fundamental" investment restrictions may be changed
or eliminated only if shareholders approve such action. The Board is
recommending that shareholders approve the amendment or elimination of certain
of the Fund's fundamental investment restrictions principally because such
fundamental investment restrictions are more restrictive than is required under
the federal securities laws and their amendment or elimination would provide the
Fund with greater investment flexibility to meet its investment objective. The
proposed restrictions not only satisfy current federal regulatory requirements,
but also generally are formulated to provide the Fund with the flexibility to
respond to future legal, regulatory, market or technical changes. The proposed
changes would not affect the Fund's investment objective.
After the Trust was organized as a Massachusetts business trust in 1986, certain
legal and regulatory requirements applicable to investment companies changed.
For example, certain restrictions imposed by state laws and regulations were
preempted by the National Securities Markets Improvement Act of 1996 ("NSMIA")
and therefore are no longer applicable to investment companies. As a result, the
Fund currently is subject to certain fundamental investment restrictions that
are either more restrictive than required under current law, or which are no
longer required at all. For example, the Fund's current restriction on
investments in other investment companies, which is not required under the 1940
Act, precludes the Fund from acquiring certain mandatory convertible securities.
For this reason, the Board is recommending that the Fund's shareholders approve
the amendment or elimination of certain of the Fund's current fundamental
investment restrictions in order to provide the Fund with a more modernized list
of restrictions that will enable the Fund to operate more efficiently, and to
more easily monitor compliance with its investment restrictions.
The Board does not anticipate that the proposed amendments to, or the
elimination of, certain of the Fund's restrictions, individually or in the
aggregate, will materially affect the way the Fund is managed. Should the Board
determine at a later date that a material modification to an investment policy
that would be permitted under the changed restrictions is appropriate for the
Fund, notice of any such change would be provided to shareholders. However, the
Board believes that the proposed changes are in the best interests of the Fund
and its shareholders as they will modernize the subject investment restrictions
and should enhance the Fund's ability to achieve its investment objective.
PROPOSAL 1: TO APPROVE AMENDMENTS TO CERTAIN OF THE FUND'S FUNDAMENTAL
INVESTMENT RESTRICTIONS (THIS PROPOSAL INVOLVES SEPARATE VOTES
ON SUB-PROPOSALS 1A - 1F)
The Fund's existing investment restrictions, together with the recommended
changes to the restrictions, are detailed in Exhibit A, which is entitled,
"Fundamental Investment Restrictions Proposed to be Amended or Eliminated."
Shareholders are requested to vote separately on each Sub-Proposal in Proposal
1. Any Sub-Proposals which are approved by shareholders will be effective
immediately.
SUB-PROPOSAL 1A: TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTION
REGARDING BORROWING.
The 1940 Act requires investment companies to impose certain limitations on
borrowing activities and a fund's borrowing limitations must be fundamental. The
limitations on borrowing are generally designed to protect shareholders and
their investment by restricting a fund's ability to subject its assets to the
claims of creditors who, under certain circumstances, might have a claim to the
fund's assets that would take precedence over the claims of shareholders.
Under the 1940 Act, a fund may borrow up to 33-1/3% of its total assets
(including the amount borrowed) from banks and may borrow up to 5% of its total
assets for temporary purposes from any other person. Generally, a loan is
considered temporary if it is repaid within sixty days. Funds typically borrow
money to meet redemptions or other short-term cash needs in order to avoid
forced, unplanned sales of portfolio securities. This technique allows a fund
greater flexibility by allowing its manager to buy and sell portfolio securities
primarily for investment or tax considerations, rather than for cash flow
considerations.
WHAT EFFECT WILL AMENDING THE CURRENT BORROWING RESTRICTION HAVE ON THE FUND?
The Fund's current investment restriction relating to borrowing prohibits the
Fund from borrowing money, except that the Fund may borrow up to 5% of its total
assets from banks for temporary or emergency purposes. The Fund's current
investment restriction on borrowing also limits the Fund's ability to pledge or
mortgage its assets. Currently, the Fund may not pledge or mortgage its assets
for any purposes, except in order to secure borrowings and then only to an
extent not greater than 5% of the Fund's total assets. The 1940 Act does not
require this type of fundamental investment restriction.
The proposed investment restriction would prohibit borrowing money, except to
the extent permitted by the 1940 Act or any rule, exemption or interpretation
thereunder issued by the U.S. Securities and Exchange Commission (the "SEC"),
and would eliminate the restriction regarding the Fund's ability to pledge or
mortgage its assets. In addition, the Fund's policy that the Fund may borrow up
to 5% to meet redemptions or for other temporary purposes would be eliminated to
avoid unnecessarily limiting its investment manager if the manager determines
that borrowing is in the best interests of the Fund and its shareholders. As a
general matter, section 18 of the 1940 Act limits the Fund's borrowings to not
more than 33-1/3% of the Fund's total assets. Therefore, the proposed
restriction would increase the Fund's borrowing limit to the legally permissible
limit of 33-1/3% of its total assets.
Unlike the current investment restriction, the proposed restriction also would
permit the Fund to borrow money from affiliated investment companies or other
affiliated entities, such as the Fund's manager. In September 1999, the SEC
granted an exemptive order to the Fund, together with other funds in Franklin
Templeton Investments, permitting the Fund to borrow money from other funds in
Franklin Templeton Investments (the "Inter-Fund Lending and Borrowing Order").
The proposed borrowing restriction would permit the Fund, under certain
circumstances and in accordance with the Inter-Fund Lending and Borrowing Order,
to borrow money from other funds in Franklin Templeton Investments at rates that
are more favorable than the rates that the Fund would receive if it borrowed
from banks or other lenders. The proposed borrowing restriction would also
permit the Fund to borrow from other affiliated entities, such as the investment
manager, under emergency market conditions should the SEC permit investment
companies to engage in such borrowing in the future, such as it recently did in
response to the emergency market conditions that existed immediately after the
events of September 11, 2001.
Because the proposed borrowing restriction would provide the Fund with
additional borrowing flexibility, to the extent the Fund uses such flexibility
the Fund may be subject to additional costs, and the risks inherent to
borrowing, such as reduced total return. The additional costs and risks to which
the Fund may be exposed are limited, however, by the borrowing limitations
imposed by the 1940 Act or any rule, exemption or interpretation thereof that
may be applicable.
SUB-PROPOSAL 1B: TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTION
REGARDING UNDERWRITING.
Under the 1940 Act, the Fund's policy concerning underwriting is required to be
fundamental. Under the federal securities laws, a person or company generally is
considered to be an underwriter if the person or company participates in the
public distribution of securities of OTHER ISSUERS, which involves purchasing
the securities from another issuer with the intention of re-selling the
securities to the public. From time to time, a mutual fund may purchase
securities in a private transaction for investment purposes and later sell or
redistribute the securities to institutional investors. Under these or other
circumstances, the Fund could possibly be considered to be within the technical
definition of an underwriter under the federal securities laws. Recent SEC
interpretations clarify, however, that re-sales of privately placed securities
by institutional investors, such as the Fund, do not make the institutional
investor an underwriter in these circumstances. In addition, it is unclear
whether the Fund itself would be deemed to be an underwriter of its own
securities as a result of technical non-compliance with certain provisions under
the 1940 Act. The proposed restriction incorporates these SEC interpretations
and would clarify any ambiguity regarding the Fund's ability to sell its own
shares.
WHAT EFFECT WILL AMENDING THE CURRENT UNDERWRITING RESTRICTION HAVE ON THE
FUND?
The Fund's current fundamental investment restriction relating to underwriting
prohibits the Fund from acting as an underwriter, except insofar as the Fund may
be technically deemed an underwriter under the federal securities laws in
connection with the disposition of portfolio securities. The current restriction
does not, however, provide any clarification regarding whether the Fund may sell
its shares in those limited circumstances when the Fund might be deemed to be an
underwriter.
The proposed restriction is similar to the current investment restriction to the
extent that it specifically permits the Fund to resell restricted securities in
those instances where there may be a question as to whether the Fund is
technically acting as an underwriter. However, the proposed underwriting
restriction clarifies that the Fund may sell its own shares without being deemed
an underwriter. Thus, the proposed fundamental investment restriction merely
clarifies the types of transactions in which the Fund may permissibly engage. It
is not anticipated that adoption of the proposed restriction would involve any
additional material risk to the Fund or affect the way the Fund is currently
managed.
SUB-PROPOSAL 1C: TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTION
REGARDING LENDING.
Under the 1940 Act, a fund must describe, and designate as fundamental, its
policy with respect to making loans. In addition to a loan of cash, the term
"loans" may, under certain circumstances, be deemed to include certain
transactions and investment-related practices. Among those transactions and
practices are lending of portfolio securities, entering into repurchase
agreements and the purchase of certain debt instruments. If a fund adopts a
fundamental policy that prohibits lending, the fund may still invest in debt
securities and enter into securities lending transactions if it provides an
exception from the general prohibition. In addition, the Fund's current
fundamental restriction regarding the lending of portfolio securities limits the
Fund's loans of portfolio securities to an aggregate amount of not more than 10%
of the Fund's total assets at the time of the most recent loan. Securities
lending has become a common practice in the mutual fund industry and involves
the temporary loan of portfolio securities to parties who use the securities for
the settlement of other securities transactions. The collateral delivered to a
fund in connection with such a transaction is then invested to provide the fund
with additional income it might not otherwise have. Securities lending involves
certain risks if the borrower fails to return the securities.
Under SEC staff interpretations, lending by an investment company, under certain
circumstances, may also give rise to issues relating to the issuance of senior
securities. To the extent that the Fund enters into lending transactions under
these limited circumstances, the Fund will continue to be subject to the
limitations imposed under the 1940 Act regarding the issuance of senior
securities. (See Proposal 1f below.)
WHAT EFFECT WILL AMENDING THE CURRENT LENDING RESTRICTION HAVE ON THE FUND?
The Fund's current investment restriction regarding lending prohibits the Fund
from lending money or other assets, except that the Fund may purchase a portion
of an issue of publicly distributed bonds, debentures, notes and other evidences
of indebtedness. Repurchase agreements and securities lending, subject to
certain limitations, also are specifically excluded from this limitation.
Although the Fund's current investment restriction permits the purchase of
certain debt securities, the Fund is only permitted to purchase publicly
distributed debt securities and may not invest in certain types of private
placement debt securities or engage in direct corporate loans, even if such
investments would otherwise be commensurate with the Fund's investment objective
and policies.
The proposed fundamental investment restriction is similar to the Fund's current
investment restriction regarding lending; however, the proposed investment
restriction provides the Fund with greater lending flexibility by permitting the
Fund to invest in non-publicly distributed debt securities, loan participations,
and direct corporate loans. And, unlike the Fund's current investment
restriction, under the proposed restriction, the Fund is only limited by the
1940 Act with respect to the value of loans of its portfolio securities.
The proposed investment restriction would also permit the Fund to take advantage
of the Inter-Fund Lending and Borrowing Order described above. These lending
transactions may include terms that are more favorable than those which would
otherwise be available from lending institutions. The proposed restriction would
permit the Fund, under certain conditions, to lend cash to other Franklin
Templeton funds at rates higher than those that the Fund would receive if the
Fund loaned cash to banks through short-term lending transactions, such as
repurchase agreements. The Board anticipates that this additional flexibility to
lend cash to affiliated investment companies would allow additional investment
opportunities, and could enhance the Fund's ability to respond to changes in
market, industry or regulatory conditions.
It is not anticipated that adoption of the proposed restriction would involve
any additional risk, as the proposed restriction would not affect the way the
Fund is currently managed.
SUB-PROPOSAL 1D: TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTIONS
REGARDING INVESTMENTS IN REAL ESTATE AND COMMODITIES.
Under the 1940 Act, a fund's investment policies regarding investments in real
estate and commodities must be fundamental. The Fund's real estate and
commodities restrictions are currently contained in two separate investment
restrictions. The proposed restriction would combine these two restrictions into
one, as well as clarify the types of financial commodities and other instruments
in which the Fund may invest.
WHAT EFFECT WILL AMENDING THE REAL ESTATE AND COMMODITIES RESTRICTIONS HAVE
ON THE FUND?
The proposed restriction will combine the limitations on investing in both real
estate and commodities into one restriction.
REAL ESTATE: The Fund's current fundamental investment restriction relating to
real estate prohibits the Fund from acquiring, leasing or holding real estate,
except the Fund may invest in the securities of real estate investment trusts.
The proposed real estate restriction is substantially the same as the current
real estate limitation. Accordingly, the Fund will continue to be prohibited
from directly investing in real estate, and will still be permitted to purchase
or sell securities of real estate investment trusts. In addition, the proposed
restriction will clarify the Fund's ability to hold and sell real estate
acquired by the Fund as a result of owning a security or other instrument.
COMMODITIES: The current fundamental investment restriction on commodities
states that the Fund may not purchase or sell commodities and commodity
contracts, puts, calls, straddles, spreads or any combination thereof. However,
the Fund may write exchange listed call options, purchase put options on
securities in its portfolio, purchase call options to the extent necessary to
cancel call options previously written, purchase listed call options, and
purchase call and put options on stock indices for defensive hedging purposes.
The Fund's current fundamental investment restriction relating to commodities is
combined with a fundamental investment restriction relating to investments in
oil, gas, and other mineral development programs. The Fund is proposing to
eliminate the restriction on investing in oil, gas, and mineral development
programs. (See Proposal 2 below.)
The most common types of commodities are physical commodities such as wheat,
cotton, rice and corn. Under the federal securities and commodities laws,
certain financial instruments such as futures contracts and options thereon,
including currency futures, stock index futures or interest rate futures, are
also considered to be commodities. Funds typically invest in such futures
contracts and options on these and other types of commodity contracts for
hedging purposes, to implement a tax or cash management strategy, or to enhance
returns.
The proposed commodities restriction clarifies that the Fund has the flexibility
to invest in financial futures contracts and related options. The proposed
restriction would permit investment in financial futures instruments for either
investment or hedging purposes. Although the Fund has for many years had the
ability to invest in options on securities and options on stock indices, it has
not done so. The Fund does not intend to begin investing in financial futures
contracts and related options. Therefore, it is not anticipated that the
proposed restriction would involve any additional risk. Using financial futures
instruments can involve substantial risks, and will be utilized only if the
investment manager believes such risks are advisable.
SUB-PROPOSAL 1E: TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTION
REGARDING ISSUING SENIOR SECURITIES.
Under the 1940 Act, the Fund must have an investment policy describing its
ability to issue senior securities. A "senior security" is an obligation of a
fund, with respect to its earnings or assets, that takes precedence over the
claims of the fund's shareholders with respect to the same earnings or assets.
The 1940 Act generally prohibits an open-end fund from issuing senior securities
in order to limit the fund's ability to use of leverage. In general, a fund uses
leverage when it borrows money to enter into securities transactions or acquires
an asset without being required to make payment until a later time.
SEC staff interpretations allow a fund under certain conditions to engage in a
number of types of transactions that might otherwise be considered to create
"senior securities," for example, short sales, certain options and futures
transactions, reverse repurchase agreements and securities transactions that
obligate the fund to pay money at a future date (such as when-issued, forward
commitment or delayed delivery transactions). According to SEC staff
interpretations, when engaging in these types of transactions, a fund must mark
on its books, or set aside in a segregated account with its custodian bank, cash
or other liquid securities to cover its future obligations, in order to avoid
the creation of a senior security. This procedure limits the amount of a fund's
assets that may be invested in these types of transactions and the fund's
exposure to the risks associated with senior securities.
WHAT EFFECT WILL AMENDING THE RESTRICTION REGARDING ISSUING SENIOR SECURITIES
HAVE ON THE FUND?
The current fundamental investment restriction relating to senior securities
prohibits the Fund from issuing senior securities, except that the Fund may
enter into repurchase agreements or make borrowings, mortgages and pledges as
provided in the Fund's current fundamental restrictions on borrowing.
The proposed restriction would amend the Fund's current fundamental investment
restriction by allowing the Fund to issue senior securities as permitted under
the 1940 Act and any relevant rule, exemption, or interpretation issued by the
SEC. The proposed restriction would clarify that the Fund may, provided that
certain conditions are met, engage in those types of transactions that have been
interpreted by the SEC staff as not constituting senior securities, such as
repurchase transactions.
The Fund has no present intention of changing its current investment strategies
regarding transactions that may be interpreted as resulting in the issuance of
senior securities. Therefore, the Board does not anticipate that any additional
material risk to the Fund will occur as a result of amending the current
restriction on senior securities.
SUB-PROPOSAL 1F: TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTIONS
REGARDING DIVERSIFICATION OF INVESTMENTS.
The 1940 Act prohibits a "diversified" investment company, like the Fund, from
purchasing securities of any one issuer if, at the time of purchase, with
respect to 75% of the fund's total assets, more than 5% of total assets would be
invested in the securities of that issuer, or the fund would own or hold more
than 10% of the outstanding voting securities of that issuer. Up to 25% of a
fund's total assets may be invested without regard to these limitations. Under
the 1940 Act, these 5% and 10% limitations do not apply to securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities, or to the
securities of other investment companies.
WHAT EFFECT WILL AMENDING THE CURRENT INVESTMENT DIVERSIFICATION RESTRICTIONS
HAVE ON THE FUND?
The Fund currently has separate restrictions regarding the diversification of
investments. The proposed restriction would combine these two restrictions into
one. The Fund currently may not invest more than 5% of the value of its gross
assets in the securities of any one issuer. In addition, the Fund currently is
restricted from purchasing more than 10% of the outstanding voting securities of
any one issuer.
The Fund's current diversification restrictions apply the 5% and 10% limitations
as to 100% of the Fund's total assets, rather than the lower statutorily imposed
75% limit. The current investment restrictions also do not exclude securities of
other investment companies from the diversification requirements, as permitted
by the 1940 Act. The 1940 Act further excludes the securities of the U.S.
government and its agencies and instrumentalities. While the current restriction
excludes U.S. government securities from the 5% issuer requirement, this
exclusion is general and does not encompass all aspects of the 1940 Act
diversification provision.
The proposed fundamental investment restriction would exclude from the 5% and
10% limitations securities issued by other investment companies (whether
registered or unregistered under certain SEC rules or orders). Under the amended
investment restriction, the Fund would be able to invest cash held at the end of
the day in money market funds or other short-term investments (such as
unregistered money market funds) without regard to the 5% and 10% investment
limitations. The Fund, together with the other funds in Franklin Templeton
Investments, obtained an exemptive order from the SEC (the "Cash Sweep Order")
that permits the funds in Franklin Templeton Investments to invest their
uninvested cash in one or more registered Franklin Templeton money market funds.
The funds in Franklin Templeton Investments have also filed an application for
an exemptive order seeking to amend the Cash Sweep Order to permit the funds in
Franklin Templeton Investments, consistent with current SEC positions, to invest
their uninvested cash in unregistered money market funds sponsored by Franklin
Templeton Investments. Amending the Fund's current investment restriction
regarding diversification would enable the Fund to take advantage of the
investment opportunities presented by the Cash Sweep Order and, to the extent
granted by the SEC, any amendment to the Cash Sweep Order permitting investment
of uninvested cash balances in an unregistered money market fund sponsored by
Franklin Templeton Investments.
The proposed fundamental investment restriction on diversification is consistent
with the definition of a diversified investment company under the 1940 Act and
the Cash Sweep Order issued by the SEC. In addition, the proposed investment
restriction would provide the Fund with greater investment flexibility
consistent with the provisions of the 1940 Act and future rules or SEC
interpretations. However, it is not currently anticipated that the adoption of
the proposed restriction would materially change the way the Fund is managed.
THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS
THAT YOU VOTE "FOR" SUB-PROPOSALS 1A-1F
PROPOSAL 2: TO APPROVE THE ELIMINATION OF CERTAIN OF THE FUND'S
FUNDAMENTAL INVESTMENT RESTRICTIONS
The Fund's existing investment restrictions, together with those recommended to
be eliminated, are detailed in Exhibit A, which is entitled "Fundamental
Investment Restrictions Proposed to be Amended or Eliminated." If shareholders
approve Proposal 2, the elimination of such investment restrictions will be
effective immediately.
WHY IS THE BOARD RECOMMENDING THAT CERTAIN FUNDAMENTAL INVESTMENT
RESTRICTIONS BE ELIMINATED, AND WHAT EFFECT WILL THEIR ELIMINATION HAVE ON
THE FUND?
Some of the Fund's fundamental investment restrictions were originally adopted
to comply with state securities laws and regulations. Due to the passage of
NSMIA, and changes in SEC staff positions, these fundamental restrictions are
either no longer required by law or are no longer relevant to the operation of
the Fund. Since NSMIA eliminated the states' ability to substantively regulate
investment companies, the Fund is no longer legally required to adopt or
maintain investment restrictions relating to (i) investing for control or
management; (ii) investments in companies with less than three years of
continuous operation; (iii) management ownership of securities; and (iv) oil and
gas programs.
Certain other fundamental investment restrictions of the Fund are restatements
of restrictions that are already included within the 1940 Act or were former
interpretations of the SEC staff. In some instances, these SEC staff
interpretations have been updated or superseded entirely. These restrictions
include those relating to (i) margin; (ii) short sales; and (iii) investments in
other investment companies.
The Board has determined that eliminating these seven restrictions (referred to
in this Proposal 2 as the "Restrictions") is consistent with the federal
securities laws. By reducing the total number of investment restrictions that
can be changed only by a shareholder vote, the Board believes that the Fund will
be able to reduce the costs and delays associated with holding future
shareholder meetings for the purpose of revising fundamental policies that
become outdated or inappropriate. The Board believes that the elimination of the
Restrictions is in the best interest of the Fund's shareholders as it will
provide the Fund with increased flexibility to pursue its investment objective.
WHICH SEVEN (7) RESTRICTIONS IS THE BOARD RECOMMENDING THAT THE FUND
ELIMINATE?
CONTROL OR MANAGEMENT:
The Fund has a current fundamental investment restriction which prohibits the
Fund from investing for purposes of exercising control or management. This
restriction was enacted in response to various state securities laws and is no
longer required under NSMIA. Typically, if a fund acquires a large percentage of
the securities of a single issuer, it will be deemed to have invested in such
issuer for the purposes of exercising control or management. This restriction
was intended to ensure that a mutual fund would not be engaged in the business
of managing another company.
Eliminating the restriction will not have any impact on the day to day
management of the Fund because the Fund has no present intention to invest in an
issuer for the purposes of exercising control or management.
MARGIN ACCOUNTS:
The Fund has a current fundamental investment that prohibits it from purchasing
securities on margin. This restriction was originally included in the Fund's
list of investment limitations in response to the various state law requirements
to which mutual funds were subject. As discussed earlier in the introduction,
under NSMIA the Fund is no longer required to retain a fundamental policy
regarding these types of investment activities.
As a general matter, elimination of this fundamental restriction relating to
purchasing securities on margin should not have an impact on the day to day
management of the Fund, since the 1940 Act prohibitions on these types of
transactions would continue to apply to the Fund. The Fund's ability to purchase
securities on margin raises senior security issues and is specifically
prohibited under the 1940 Act. Elimination of the restriction, therefore, would
not affect the Fund's inability to purchase on margin. Finally, the Fund has not
previously, nor does it currently intend to, engage in these investment
activities.
SHORT SALES:
The Fund has a current fundamental investment that prohibits the Fund from
engaging in short sales of securities, but does permit the Fund to sell
securities "short against the box" on the terms and conditions described in the
SAI. A "short against the box" is a short sale where the Fund owns an equal
amount of the securities sold short or owns securities that are convertible or
exchangeable, without payment of further consideration, into an equal amount of
such securities.
The 1940 Act does not require the Fund to adopt a fundamental investment
restriction regarding short sales, except to the extent that these transactions
may result in senior securities. The elimination of this fundamental restriction
relating to short sales of securities should not have an impact on the day to
day management of the Fund, since the 1940 Act limitations on these types of
transactions would continue to apply to the Fund. In addition, the Fund will
maintain its current policy of limiting the collateral held for short sales to
20% of its total assets.
THREE YEARS OF COMPANY OPERATION:
The Fund's current fundamental investment restriction relating to investments in
newer companies prohibits the Fund from investing in the securities of
companies, including their predecessors, that have a record of less than three
years continuous operation. This restriction was based upon state securities
laws which have been pre-empted by NSMIA. Therefore, the Board proposes that the
restriction be eliminated.
INVESTMENT IN OTHER INVESTMENT COMPANIES:
The Fund's current fundamental investment restriction regarding investments in
other investment companies is based, in part, on state laws, which have been
preempted by NSMIA. The Fund's current fundamental restriction prohibits the
Fund from investing in other investment companies, except in connection with a
merger, consolidation, acquisition or reorganization; or except to the extent
the Funds invest their uninvested daily cash balances in shares of the Franklin
Money Fund and other money market funds in Franklin Templeton Investments. The
1940 Act, however, does not require a fund to adopt such a provision as a
fundamental investment restriction.
Upon elimination of this restriction, the Fund would remain subject to the
restrictions under Section 12(d) of the 1940 Act relating to the Fund's ability
to invest in other investment companies, except where the Fund has received an
exemption from such restrictions. The 1940 Act restrictions generally specify
that the Fund may not purchase more than 3% of another fund's total outstanding
voting stock, commit more than 5% of its assets to the purchase of another
fund's securities, or have more than 10% of its total assets invested in
securities of all other funds.
In addition, the Fund, which currently is permitted to invest in mandatory
convertible securities but not to invest in other investment companies, will be
able to purchase certain mandatory convertible securities trusts that are
registered as closed-end investment companies. Mandatory convertible securities,
which have many attributes of equity securities, are a significant and growing
part of the convertible securities market. Mandatory convertibles typically pay
a fixed quarterly dividend or interest payment, are non-callable for the life of
the security, and are convertible into common stock on the mandatory conversion
date where the number of shares received at maturity is determined by the
difference between the price of the common stock at maturity and the price of
the common stock at issuance. Mandatory convertible securities offer investors a
form of yield enhancement in return for giving up some of the upside potential
in the form of a conversion premium. This security structure is a significant
and growing part of the convertible securities market and the yield and equity
sensitivity of these securities make them particularly attractive investments
for the Fund.
Mandatory convertible securities come in many forms. One increasingly popular
structure due to favorable tax treatment is a trust that holds a combination of
a debt instrument that pays the fixed quarterly premium with a forward contract
that ensures delivery of the equity at maturity. However, in some cases, these
trusts are registered as closed end investment companies although they are not
actively managed and do not charge any management fees (any expenses are prepaid
by the issuer). Consequently, under its present fundamental investment
restrictions, the Fund may not acquire mandatory convertible securities
structured as registered investment companies.
Furthermore, eliminating the Fund's current restriction would permit the Fund to
take advantage of the investment opportunities presented by the Cash Sweep Order
(discussed in Sub-Proposal 1f), since the Cash Sweep Order contemplates relief
from the 1940 Act restrictions relating to investments in other investment
companies in certain limited circumstances. Therefore, the Board is recommending
that the restriction be eliminated.
MANAGEMENT OWNERSHIP OF SECURITIES:
The Fund's current fundamental investment restriction prohibits the Fund from
investing in companies in which certain affiliated persons of the Fund have an
ownership interest. This restriction was based on state law provisions that have
been pre-empted by NSMIA. In addition, the 1940 Act provisions addressing
conflicts of interest would continue to apply to the Fund. Therefore, the Board
is recommending that the restriction be eliminated.
OIL AND GAS PROGRAMS:
The Fund has a fundamental investment restriction that prohibits the Fund from
investing in interests in oil, gas or other mineral exploration or development
programs. The Fund's fundamental investment restriction regarding oil and gas
programs was based on state securities laws that had been adopted by a few
jurisdictions, but have since been pre-empted by NSMIA. Accordingly, the Board
proposes that the restriction be eliminated.
WHAT ARE THE RISKS, IF ANY, IN ELIMINATING THE RESTRICTIONS?
The Board does not anticipate that eliminating the Restrictions will result in
any significant additional risk to the Fund. Although the Fund's Restrictions,
as drafted, are no longer legally required, the Fund's ability to invest in
these seven areas will continue to be subject to the limitations of the 1940
Act, or any rule, SEC staff interpretation, and any exemptive orders granted
under the 1940 Act. Moreover, the Fund does not currently intend to change its
present investment practices as a result of eliminating the Restrictions.
THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS
THAT YOU VOTE "FOR" PROPOSAL 2
INFORMATION ABOUT THE FUND
THE INVESTMENT MANAGER. Franklin Advisers, Inc. ("Advisers"), One Franklin
Parkway, San Mateo, California 94403-1906, serves as the Fund's investment
manager. Advisers is wholly owned by Franklin Resources, Inc.
("Resources"). Resources is a publicly owned holding company, the principal
shareholders of which are Charles B. Johnson and Rupert H. Johnson, Jr., who
own approximately 17.7% and 14.6%, respectively, of its outstanding shares.
Resources, a global investment organization operating as Franklin Templeton
Investments, is primarily engaged, through various subsidiaries, in providing
investment management, share distribution, transfer agent and administrative
services to a family of investment companies. Resources is a New York Stock
Exchange, Inc. ("NYSE") listed holding company (NYSE:BEN). Charles E.
Johnson, Vice President of the Fund, is the son and nephew, respectively, of
brothers Charles B. Johnson, Chairman of the Board and Trustee of the Fund,
and Rupert H. Johnson, Jr., Trustee and Vice President of the Fund.
THE FUND ADMINISTRATOR. Under an agreement with Advisers, Franklin Templeton
Services, LLC ("FT Services"), whose principal address is also One Franklin
Parkway, San Mateo, California 94403-1906, provides certain administrative
services and facilities for the Fund. FT Services is a wholly owned subsidiary
of Resources and is an affiliate of Advisers and the Fund's principal
underwriter.
THE UNDERWRITER. The underwriter for the Fund is Franklin Templeton
Distributors, Inc., One Franklin Parkway, San Mateo, California 94403-1906.
THE TRANSFER AGENT. The transfer agent, registrar and dividend disbursement
agent for the Fund is Franklin Templeton Investor Services, LLC, One Franklin
Parkway, San Mateo, California 94403-1906.
THE CUSTODIAN. Bank of New York, Mutual Funds Division, 90 Washington Street,
New York, NY 10286, acts as custodian of the Fund's securities and other assets.
REPORTS TO SHAREHOLDERS AND FINANCIAL STATEMENTS. The Fund's last audited
financial statements and annual report, for the fiscal year ended October 31,
2001, and its semi-annual report dated April 30, 2002, are available free of
charge. To obtain a copy, please call 1-800/DIAL BEN(R) or forward a written
request to Franklin Templeton Investor Services, LLC, P.O. Box 997151,
Sacramento, CA 95899-9983.
PRINCIPAL SHAREHOLDERS. As of July 15, 2002, Class A shares of the Fund had
15,643,494.627 shares outstanding and Class C shares of the Fund had
4,997,824.704 shares outstanding. The Fund had total net assets of
$239,563,341.25 on that date. From time to time, the number of shares held in
"street name" accounts of various securities dealers for the benefit of their
clients may exceed 5% of the total shares outstanding. To the knowledge of the
Fund's management, as of July 15, 2002 there were no other holders, beneficially
or of record, of more than 5% of the Fund's outstanding shares.
In addition, to the knowledge of the Fund's management, as of July 15, 2002 no
Director of the Fund owned 1% or more of the outstanding shares of the Fund, and
the Officers and Trustees of the Fund owned, as a group, less than 1% of the
outstanding shares of the Fund.
FURTHER INFORMATION ABOUT VOTING AND THE MEETING
SOLICITATION OF PROXIES. Your vote is being solicited by the Board. The cost of
soliciting these proxies will be borne by the Fund. The Fund reimburses
brokerage firms and others for their expenses in forwarding proxy material to
the beneficial owners and soliciting them to execute proxies. The Fund has
engaged Alamo Direct Mail Services, Inc. to solicit proxies from brokers, banks,
other institutional holders and individual shareholders for an anticipated cost
of approximately $17,000, including out-of-pocket expenses. The Fund expects
that the solicitation will be primarily by mail, but also may include telephone,
personal interviews or other means. The Fund does not reimburse Trustees and
officers of the Fund, or regular employees and agents of Advisers involved in
the solicitation of proxies. The Fund intends to pay all costs associated with
the solicitation and the Meeting. VOTING BY BROKER-DEALERS. The Fund expects
that, before the Meeting, broker-dealer firms holding shares of the Fund in
"street name" for their customers will request voting instructions from their
customers and beneficial owners. If these instructions are not received by the
date specified in the broker-dealer firms' proxy solicitation materials,
broker-dealers may not vote on the items to be considered at the Meeting on
behalf of their customers and beneficial owners.
QUORUM. 40% of the Fund's shares entitled to vote, present in person or
represented by proxy, constitutes a quorum at the Meeting. The shares over which
broker-dealers have discretionary voting power, the shares that represent
"broker non-votes" (i.e., shares held by brokers or nominees as to which: (i)
instructions have not been received from the beneficial owners or persons
entitled to vote; and (ii) the broker or nominee does not have discretionary
voting power on a particular matter), and the shares whose proxies reflect an
abstention on any item are all counted as shares present and entitled to vote
for purposes of determining whether the required quorum of shares exists.
REQUIRED VOTE. Provided that a quorum is present, Sub-Proposals 1a-1f,
amendments to fundamental investment restrictions, and Proposal 2, elimination
of certain fundamental investment restrictions, each require the affirmative
vote of the lesser of: (i) more than 50% of the outstanding voting securities of
the Fund; or (ii) 67% or more of the voting securities of the Fund present at
the Meeting, if the holders of more than 50% of the outstanding voting
securities are present or represented by proxy. Abstentions and broker non-votes
will be treated as votes not cast and, therefore, will not be counted for
purposes of obtaining approval of each Proposal.
ADJOURNMENT. In the event that a quorum is not present at the Meeting or, in the
event that a quorum is present but sufficient votes have not been received to
approve a Proposal, the Meeting may be adjourned to permit further solicitation
of proxies. The presiding officer of the Fund for the Meeting or the affirmative
vote of a majority of the persons designated as proxies may adjourn the Meeting
to permit further solicitation of proxies or for other reasons consistent with
Massachusetts law and the Fund's Declaration of Trust, as restated and amended,
and By-Laws. Unless otherwise instructed by a shareholder granting a proxy, the
persons designated as proxies may use their discretionary authority to vote on
questions of adjournment.
OTHER MATTERS AND DISCRETION OF PERSONS NAMED IN THE PROXY. The Fund is not
required, and does not intend, to hold regular annual meetings of shareholders.
Shareholders wishing to submit proposals for consideration for inclusion in a
proxy statement for the next meeting of shareholders should send their written
proposals to the Fund's offices, One Franklin Parkway, San Mateo, California
94403-1906, so they are received within a reasonable time before any such
meeting. No business other than the matters described above is expected to come
before the Meeting, but should any other matter requiring a vote of shareholders
arise, including any question as to an adjournment or postponement of the
Meeting, the persons named on the enclosed proxy card will vote on such matters
according to their best judgment in the interests of the Fund.
By Order of the Board of Trustees,
Murray L. Simpson
SECRETARY
Dated: August 5, 2002
San Mateo, California
THIS PAGE INTENTIONALLY LEFT BLANK.
EXHIBIT A
FUNDAMENTAL INVESTMENT RESTRICTIONS PROPOSED
TO BE AMENDED OR ELIMINATED
- -------------------------------------------------------------------------------
PROPOSAL CURRENT FUNDAMENTAL PROPOSED FUNDAMENTAL
OR RESTRICTION RESTRICTION
SUB-PROPOSAL RESTRICTION THE FUND MAY NOT: THE FUND MAY NOT:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1a Borrowing 1. Borrow money or mortgage Borrow money, except to
or pledge any of the the extent permitted by
assets of the Trust, the 1940 Act or any
except that borrowings rules, exemptions or
(and a pledge of assets interpretations
therefor) for temporary thereunder that may be
or emergency purposes adopted, granted or
may be made from banks issued by the SEC.
in an amount up to 5% of
total asset value.
- -------------------------------------------------------------------------------
1b Underwriting 4. Act as underwriter of Act as an underwriter
securities issued by except to the extent the
other persons, except Fund may be deemed to be
insofar as the Fund may an underwriter when
be technically deemed an disposing of securities
underwriter under the it owns or when selling
federal securities laws its own shares.
in connection with the
disposition of portfolio
securities.
- -------------------------------------------------------------------------------
1c Lending 3. Lend any funds or other Make loans to other
assets, except by the persons except (a)
purchase of publicly through the lending of
distributed bonds, its portfolio securities,
debentures, notes or (b) through the purchase
other debt securities of debt securities, loan
and except that participations and/or
securities of the Fund engaging in direct
may be loaned to corporate loans in
securities dealers or accordance with its
other institutional investment objectives and
investors if at least policies, and (c) to the
102% cash collateral is extent the entry into a
pledged and maintained repurchase agreement is
by the borrower, deemed to be a loan. The
provided such loans may Fund may also make loans
not be made if, as a to other investment
result, the aggregate of companies to the extent
such loans exceeds 10% permitted by the 1940 Act
of the value of the or any exemptions
Fund's total assets at therefrom which may be
the time of the most granted by the SEC.
recent loan. The entry
into repurchase
agreements is not
considered a loan for
purposes of this
restriction.
A-1
- -------------------------------------------------------------------------------
1d Commodities 10. Invest in commodities Purchase or sell real
and commodity contracts, estate and commodities,
puts, calls, straddles, except that the Fund may
spreads or any purchase or sell
combination thereof securities of real estate
(however, the Fund may investment trusts and
write exchange listed purchase, hold or sell
call options, purchase real estate acquired as a
put options on result of ownership of
securities in its securities or other
portfolio, purchase call instruments, may purchase
options to the extent or sell currencies, may
necessary to cancel call enter into futures
options previously contracts on securities,
written, purchase listed currencies, and other
call options provided indices or any other
that the value of the financial instruments,
call options purchased and may purchase and sell
will not exceed 5% of options on futures
the Fund's net assets, contracts.
and purchase call and
put options on stock
indices for defensive
hedging purposes).
Real Estate 9. Acquire, lease or hold
real estate (although
the Fund may invest in
real estate
investment trusts).
- -------------------------------------------------------------------------------
1e Senior 13. Issue senior securities, Issue senior securities,
Securities as defined in the 1940 except to the extent
Act (except that this permitted by the 1940 Act
restriction does not or any rules, exemptions
prevent the Fund from or interpretations
entering into repurchase thereunder that may be
agreements or making adopted, granted or
borrowings, mortgages issued by the SEC.
and pledges).
A-2
- -------------------------------------------------------------------------------
1f Diversification 15. Invest more than 5% of Purchase the securities
of the value of the gross of any one issuer (other
Investments assets of the Fund in than the U.S. government
the securities of any or any of its agencies or
one issuer (but this instrumentalities or
limitation does not securities of other
apply to investments in investment companies) if
securities issued or immediately after such
guaranteed by the U.S. investment (a) more than
government or its 5% of the value of the
agencies or Fund's total assets would
instrumentalities). be invested in such
issuer or (b) more than
10% of the outstanding
voting securities of such
issuer would be owned by
the Fund, except that up
to 25% of the value of
the Fund's total assets
may be invested without
regard to such 5% and 10%
limitations.
6. Purchase the securities
of any issuer which
would result in owning
more than 10% of any
class of the outstanding
voting securities of
such issuer. To the
extent permitted by
exemptions granted under
the Investment Company
Act of 1940, as amended
(1940 Act), the Funds
may invest in shares of
money market funds
managed by the manager
or its affiliates.
- -------------------------------------------------------------------------------
2 Control or 11. Invest in companies for Proposed to be Eliminated.
Management the purpose of
exercising control or
management.
- -------------------------------------------------------------------------------
2 Margin 2. Buy any securities on Proposed to be Eliminated.
margin....
- -------------------------------------------------------------------------------
2 Short Sales 2. ...sell any securities Proposed to be Eliminated.
short (except that the
Fund may sell securities
"short against the box").
- -------------------------------------------------------------------------------
2 Three Years 8. Purchase any Proposed to be Eliminated.
of Company securities issued by a
Operation corporation that has not
been in continuous
operation for three
years, but such period
may include the
operation of a
predecessor.
A-3
- -------------------------------------------------------------------------------
2 Investment 12. Purchase securities of Proposed to be Eliminated.
in Other other investment
Investment companies, except in
Companies connection with a
merger, consolidation,
acquisition, or
reorganization; or
except to the extent the
Funds invest their
uninvested daily cash
balances in shares of
the Franklin Money Fund
and other money market
funds in Franklin
Templeton Investments
provided i) their
purchases and redemptions
of such money fund shares
may not be subject to any
purchase or redemption
fees, ii) their investments
may not be subject to
duplication of management
fees, nor to any charge
related to the expense of
distributing the Fund's
shares (as determined under
Rule 12b-1, as amended,
under the federal
securities laws) and
(iii) provided aggregate
investments by the Fund
in any such money fund do
not exceed (A) the greater
of (i) 5% of the Fund's
total net assets or
(ii) $2.5 million, or
(B) more than 3% of the
outstanding shares of any
such money fund.
A-4
- -------------------------------------------------------------------------------
2 Management 7. Purchase from or sell to Proposed to be Eliminated.
Ownership its officers and
of trustees, or any firm of
Securities 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 retain
securities of any issuer
if, to the knowledge of
the trust, one or more
of its officers,
trustees or investment
advisor 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.
- -------------------------------------------------------------------------------
2 Oil and Gas 10. ...invest in interests Proposed to be Eliminated.
Programs in oil, gas or other
mineral programs.
A-5
- -------------------------------------------------------------------------------
137 PROXY 07/02
PROXY SPECIAL SHAREHOLDERS' MEETING OF PROXY
FRANKLIN CONVERTIBLE SECURITIES FUND
OCTOBER 3, 2002
The undersigned hereby revokes all previous proxies for his/her shares and
appoints Rupert H. Johnson, Jr., Harmon E. Burns, Murray L. Simpson, Barbara J.
Green and David P. Goss, and each of them, proxies of the undersigned with full
power of substitution to vote all shares of Franklin Convertible Securities Fund
("Convertible Securities Fund") that the undersigned is entitled to vote at the
Convertible Securities Fund's Special Shareholders' Meeting to be held at 920
Park Place, San Mateo, CA 94403-1907 at 10:00 a.m., Pacific time on October 3,
2002, including any postponements or adjournments thereof, upon the matters set
forth below and instructs them to vote upon any matters that may properly be
acted upon at the Meeting.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF FRANKLIN INVESTORS
SECURITIES TRUST ON BEHALF OF THE CONVERTIBLE SECURITIES FUND. IT WILL BE VOTED
AS SPECIFIED. IF NO SPECIFICATION IS MADE, THIS PROXY SHALL BE VOTED FOR
PROPOSALS 1 (INCLUDING 6 SUB-PROPOSALS) AND 2. IF ANY OTHER MATTERS PROPERLY
COME BEFORE THE MEETING TO BE VOTED ON, THE PROXY HOLDERS WILL VOTE, ACT AND
CONSENT ON THOSE MATTERS IN ACCORDANCE WITH THE VIEWS OF MANAGEMENT. MANAGEMENT
IS NOT AWARE OF ANY SUCH MATTERS.
VOTE VIA THE INTERNET: WWW.FRANKLINTEMPLETON.COM
VOTE VIA THE TELEPHONE: 1-800/597-7836
CONTROL NUMBER: 999 9999 9999 999
Please sign exactly as your name appears on this
Proxy. If signing for estates, trusts or
corporations, title or capacity should be stated.
If shares are held jointly, each holder should
sign.
_____________________________________
Signature
______________________________________
Signature
________________________________ .2002 FCS_12548
Dated
YES NO
I PLAN TO ATTEND THE MEETING. [ ] [ ]
(Continued on the other side)
PLEASE MARK VOTES AS INDICATED IN THIS EXAMPLE [x]
THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2.
PROPOSAL 1. To approve amendments to certai of the Fund's fundamental investment
restrictions (includes six(6) Sub-Proposals):
1A. To amend the Fund's fundamental investment restriction
regarding borrowing.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
1B. To amend the Fund's fundamental investment restriction
regarding underwriting.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
1C. To amend the Fund'd fundamental investment restriction
regarding lending.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
1D. To amend the Fund's fundamental investment restrictions
regarding investments in real estate and commodities.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
1E. To amend the Fund's fundamental investment restriction
regarding issuing senior securities.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
1F. To amend the Fund's fundamental investment restrictions
regarding diversification of investments.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
PROPOSAL 2. To approve the elimination ofcertain of the Fund's fundamental
investment restrictions.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
IMPORTANT: PLEASE SIGN, DATE AND MAIL IN YOUR PROXY...TODAY
---------
PLEASE SIGN AND PROMPTLY RETURN IN THE ACCOMPANYING ENVELOPE.
NO POSTAGE REQUIRED IF MAILED IN THE U.S.