As filed with the Securities and Exchange Commission on June 19, 2009
Registration No. [ ]
===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[ ] Pre-Effective Amendment No._____
[ ] Post-Effective Amendment No._____
(Check appropriate box or boxes)
FRANKLIN INVESTORS SECURITIES TRUST
(Exact Name of Registrant as Specified in Charter)
(650) 312-2000
(Registrant's Area Code and Telephone Number)
ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
(Address of Principal Executive Offices)
(Number, Street, City, State, Zip Code)
CRAIG S. TYLE, ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
(Name and Address of Agent for Service of Process)
(Number, Street, City, State, Zip Code)
Approximate Date of Public Offering: As soon as practicable after this
Registration Statement becomes effective under the Securities Act of 1933, as
amended.
[Title of securities being registered: Class A, Class C and Advisor Class
shares of beneficial interest, without par value, of Franklin Total Return
Fund. No filing fee is due because Registrant is relying on section 24(f) of
the Investment Company Act of 1940, as amended.]
It is proposed that this filing will become effective on July 20, 2009
pursuant to Rule 488.
PART A
HSBC INVESTOR CORE PLUS FIXED INCOME FUND
HSBC INVESTOR INTERMEDIATE DURATION FIXED INCOME FUND
HSBC INVESTOR NEW YORK TAX-FREE BOND FUND
(each a Series of HSBC Investor Funds)
HSBC INVESTOR CORE PLUS FIXED INCOME FUND (ADVISOR)
(a Series of HSBC Advisor Funds Trust)
3435 Stelzer Road
Columbus, Ohio 43219-3035
1-800-782-8183
July 27, 2009
Dear Shareholder:
I am writing to let you know that special meetings of the shareholders of the
HSBC Investor Core Plus Fixed Income, HSBC Investor Core Plus Fixed Income
Fund (Advisor), HSBC Investor Intermediate Duration Fixed Income and HSBC
Investor New York Tax-Free Bond Funds (each a "Target Fund" and collectively,
the "Target Funds") will be held on August 27, 2009. The purpose of the
meetings is to vote on proposals to reorganize each Target Fund into certain
funds (each an "Acquiring Fund" and collectively, the "Acquiring Funds")
managed by Franklin Advisers, Inc. that are part of the Franklin Templeton
family of funds. If you are a shareholder of record in one or more of the
Target Funds as of the close of business on July 10, 2009, you have the
opportunity to vote on the proposal(s) that affect your Target Fund(s). This
package contains information about the proposals and the materials to use
when casting your vote. The following table shows the Target Funds and the
corresponding Acquiring Funds, as well as the share class of the Acquiring
Fund that will be issued to each corresponding share class of the Target Fund:
- ---------------------------------------------------------------------
TARGET FUND ACQUIRING FUND
- ---------------------------------------------------------------------
HSBC Investor Core Plus Fixed Franklin Total Return Fund
Income Fund
- ---------------------------------------------------------------------
Class A Class A
- ---------------------------------------------------------------------
Class B Class A
- ---------------------------------------------------------------------
Class C Class C
- ---------------------------------------------------------------------
HSBC Investor Core Plus Fixed Franklin Total Return Fund
Income Fund (Advisor)
- ---------------------------------------------------------------------
Class I Advisor Class
- ---------------------------------------------------------------------
HSBC Investor Intermediate Franklin Total Return Fund
Duration Fixed Income Fund
- ---------------------------------------------------------------------
Class A Class A
- ---------------------------------------------------------------------
Class B Class A
- ---------------------------------------------------------------------
Class C Class C
- ---------------------------------------------------------------------
Class I Advisor Class
- ---------------------------------------------------------------------
HSBC Investor New York Tax-Free Franklin New York
Bond Fund Intermediate-Term Tax-Free
Income Fund
- ---------------------------------------------------------------------
Class A Class A
- ---------------------------------------------------------------------
Class B Class A
- ---------------------------------------------------------------------
Class C Class C
- ---------------------------------------------------------------------
Class I Advisor Class
- ---------------------------------------------------------------------
Each proposal has been carefully reviewed by the Boards of Trustees of the
HSBC Investor Funds and HSBC Advisor Funds Trust (together, the "Board of
Trustees"). In light of the decision of HSBC Global Asset Management (USA)
Inc. ("AMUS"), the investment adviser for the Target Funds, to exit the
business of advising fixed income investment companies in the United States
(other than money market funds) and the small asset size of the Target Funds,
the Board of Trustees believes that on a long-term basis the Target Funds may
not continue to be a competitive investment option. The Target Funds
currently possess assets that are below critical mass and are not generating
economies of scale. After reviewing AMUS's decision, the Board determined
that the best course of action was to seek to reorganize each Target Fund
into another fund with similar investment objectives and policies.
The Trustees recommend that you vote for the proposed reorganizations.
Should a reorganization be approved by shareholders of a Target Fund and
other conditions to the reorganization be satisfied, your current shares in
that Target Fund will be exchanged for shares of the corresponding Acquiring
Fund even if the reorganizations of the other Target Funds are not approved
or effected. More information on the specific details of and reasons for
your Target Fund's reorganization is contained in the enclosed combined
Prospectus/Proxy Statement.
Although we are disappointed that the Target Funds have not grown
sufficiently in size to allow them to continue to be competitive long-term
investment vehicles, we believe that shareholders will be well served by the
proposed reorganizations, which will allow them to remain invested in similar
funds.
Please read the enclosed materials carefully and cast your vote on the proxy
card(s). Please vote your shares promptly. YOUR VOTE IS EXTREMELY
IMPORTANT, NO MATTER HOW LARGE OR SMALL YOUR HOLDINGS MAY BE.
VOTING IS QUICK AND EASY. To cast your vote, simply complete the proxy
card(s) enclosed in this package. Be sure to sign the card(s) before mailing
it (them) in the postage-paid envelope. You may also vote your shares by
touch-tone telephone. Simply call the toll-free number on your proxy
card(s), enter the control number found on the card(s), and follow the
recorded instructions. If we do not hear from you after a reasonable amount
of time, you may receive a call from our proxy solicitor, Computershare
Limited, reminding you to vote. If you have any questions before you vote,
please call AMUS at 1-800-782-8183. Thank you for your participation in this
important initiative.
Sincerely,
Richard Fabietti
President
HSBC Investor Funds
HSBC Advisor Funds Trust
HSBC INVESTOR CORE PLUS FIXED INCOME FUND
HSBC INVESTOR INTERMEDIATE DURATION FIXED INCOME FUND
HSBC INVESTOR NEW YORK TAX-FREE BOND FUND
(each a Series of HSBC Investor Funds)
HSBC INVESTOR CORE PLUS FIXED INCOME FUND (ADVISOR)
(a Series of HSBC Advisor Funds Trust)
3435 Stelzer Road
Columbus, Ohio 43219-3035
1-800-782-8183
NOTICE OF SPECIAL MEETINGS OF SHAREHOLDERS
TO BE HELD ON AUGUST 24, 2009
To Our Shareholders:
Notice is hereby given that special meetings of shareholders of the HSBC
Investor Core Plus Fixed Income Fund, the HSBC Investor Core Plus Fixed
Income Fund (Advisor), the HSBC Investor Intermediate Duration Fixed Income
Fund and the HSBC Investor New York Tax-Free Bond Fund (each a "Target Fund"
and collectively the "Target Funds") will be held at the offices of Citi Fund
Services Ohio, Inc. at 100 Summer Street, Suite 1500, Boston, Massachusetts
02110, on August 27, 2009 at 10:00 a.m., Eastern Time (the "Meeting"). The
purpose of the Meeting is to consider and act upon the following proposals,
and to transact such other business as may properly come before the Meeting
or any adjournments thereof.
PROPOSAL 1(A). FOR CLASS A, CLASS B AND CLASS C SHAREHOLDERS OF
THE HSBC INVESTOR CORE PLUS FIXED INCOME FUND ONLY. To approve an
Agreement and Plan of Reorganization providing for the (i) transfer
of substantially all of the assets of the HSBC Investor Core Plus
Fixed Income Fund, a series of HSBC Investor Funds, to the Franklin
Total Return Fund (subject to the retention of certain assets to
discharge liabilities) in exchange solely for Class A and Class C
shares of beneficial interest of the Franklin Total Return Fund,
and (ii) distribution of such shares to Class A, Class B, and Class
C shareholders of the HSBC Investor Core Plus Fixed Income Fund in
connection with its liquidation.
PROPOSAL 1(B). FOR SHAREHOLDERS OF THE HSBC INVESTOR CORE PLUS
FIXED INCOME FUND (ADVISOR) ONLY. To approve an Agreement and Plan
of Reorganization providing for the (i) transfer of substantially
all of the assets of the HSBC Investor Core Plus Fixed Income Fund
(Advisor), a series of HSBC Advisor Funds Trust, to the Franklin
Total Return Fund (subject to the retention of certain assets to
discharge liabilities) in exchange solely for Advisor Class shares
of beneficial interest of the Franklin Total Return Fund, and (ii)
distribution of such shares to Class I shareholders of the HSBC
Investor Core Plus Fixed Income Fund (Advisor) in connection with
its liquidation.
PROPOSAL 2. FOR SHAREHOLDERS OF THE HSBC INVESTOR INTERMEDIATE
DURATION FIXED INCOME FUND ONLY. To approve an Agreement and Plan
of Reorganization providing for the (i) transfer of substantially
all of the assets of the HSBC Investor Intermediate Duration Fixed
Income Fund to the Franklin Total Return Fund (subject to the
retention of certain assets to discharge liabilities) in exchange
solely for Class A and C and Advisor Class shares of beneficial
interest of the Franklin Total Return Fund, and (ii) distribution
of such shares to shareholders of the HSBC Investor Intermediate
Duration Fixed Income Fund in connection with its liquidation.
PROPOSAL 3. FOR SHAREHOLDERS OF THE HSBC INVESTOR NEW YORK
TAX-FREE BOND FUND ONLY. To approve an Agreement and Plan of
Reorganization providing for the (i) transfer of substantially all
of the assets of the HSBC Investor New York Tax-Free Bond Fund to
the Franklin New York Intermediate-Term Tax-Free Income Fund
(subject to the retention of certain assets to discharge
liabilities) in exchange solely for Class A and C and Advisor Class
shares of beneficial interest of the Franklin New York
Intermediate-Term Tax-Free Income Fund, and (ii) distribution of
such shares to shareholders of the HSBC Investor New York Tax-Free
Bond Fund in connection with its liquidation.
It is not anticipated that any matters other than the approval of these
proposals will be brought before the Meeting. If, however, any other
business is properly brought before the Meeting, proxies will be voted in
accordance with the judgment of the persons designated as proxies or
otherwise as described in this Prospectus/Proxy Statement. Shareholders of
record of each Target Fund at the close of business on July 10, 2009, are
entitled to notice of, and to vote at, such Meeting and any adjournments
thereof.
You are cordially invited to attend the Meeting. Shareholders are requested
and encouraged to complete, date and sign each enclosed proxy card and return
it promptly in the postage-paid envelope provided for that purpose.
Alternatively, to vote via telephone, please refer to the enclosed proxy
card. If you intend to attend the Meeting in person, you may register your
presence with the registrar and vote your shares in person, even if you have
previously voted your shares by proxy. If you properly execute and return
the enclosed proxy card in time to be voted at the Meeting, your shares
represented by the proxy will be voted at the Meeting in accordance with your
instructions. Unless revoked, proxies that have been executed and returned
by shareholders without instructions will be voted in favor of the proposals.
Each of the enclosed proxies is being solicited on behalf of the Boards of
Trustees of the HSBC Investor Funds and HSBC Advisor Funds Trust (together
the "Board of Trustees").
THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF THE
TARGET FUNDS VOTE FOR THE PROPOSALS.
By order of the Board of Trustees
Jennifer A. English
Secretary
HSBC Investor Funds
HSBC Advisor Funds Trust
July 27, 2009
YOUR VOTE IS IMPORTANT - PLEASE VOTE YOUR SHARES PROMPTLY
Shareholders are invited to attend the Meeting in person. Any shareholder
who does not expect to attend the Meeting in person is urged to vote using
the touch-tone telephone instructions found below or indicate voting
instructions on the enclosed proxy card, date and sign it, and return it in
the envelope provided, which needs no postage if mailed in the United
States. In order to avoid unnecessary expense, we ask your cooperation in
responding promptly, no matter how large or small your holdings may be.
INSTRUCTIONS FOR EXECUTING PROXY CARD
The following general rules for executing proxy cards may be of assistance to
you and help avoid the time and expense involved in validating your vote if
you fail to execute your proxy card properly.
1. INDIVIDUAL ACCOUNTS: Your name should be signed exactly as it appears
in the registration on the proxy card.
2. JOINT ACCOUNTS: Either party may sign, but the name of the party
signing should conform exactly to a name shown in the registration.
3. All other accounts should show the capacity of the individual signing.
This can be shown either in the form of the account registration itself or
by the individual executing the proxy card. For example:
REGISTRATION VALID SIGNATURE
A. 1) ABC Corp. John Smith, Treasurer
2) ABC Corp. John Smith, Treasurer
c/o John Smith,
Treasurer
B. 1) ABC Corp. Profit Ann B. Collins, Trustee
Sharing Plan
2) ABC Trust Ann B. Collins, Trustee
3) Ann B. Collins, Ann B. Collins, Trustee
Trustee
u/t/d 12/28/78
C. Anthony B. Craft, Cust. Anthony B. Craft
f/b/o Anthony B. Craft,
Jr. UGMA
INSTRUCTIONS FOR VOTING BY TOUCH-TONE TELEPHONE
1. Read the Prospectus/Proxy Statement, and have your proxy card handy.
2. Call the toll-free number indicated on your proxy card.
3. Enter the number found in the shaded box on the front of your proxy card.
4. Follow the recorded instructions to cast your vote.
COMBINED PROSPECTUS/PROXY STATEMENT
DATED JULY 20, 2009
ACQUISITION OF SUBSTANTIALLY ALL OF THE ASSETS OF
HSBC INVESTOR CORE PLUS FIXED INCOME FUND
HSBC INVESTOR CORE PLUS FIXED INCOME FUND (ADVISOR)
HSBC INVESTOR INTERMEDIATE DURATION FIXED INCOME FUND
BY AND IN EXCHANGE FOR SHARES OF
FRANKLIN TOTAL RETURN FUND
AND
ACQUISITION OF SUBSTANTIALLY ALL OF THE ASSETS OF
HSBC INVESTOR NEW YORK TAX-FREE BOND FUND
BY AND IN EXCHANGE FOR SHARES OF
FRANKLIN NEW YORK INTERMEDIATE-TERM TAX-FREE INCOME FUND
This Prospectus/Proxy Statement solicits proxies to be voted at special
meetings of shareholders (the "Meeting") of HSBC Investor Core Plus Fixed
Income Fund, HSBC Investor Core Plus Fixed Income Fund (Advisor), HSBC
Investor Intermediate Duration Fixed Income Fund, and HSBC Investor New York
Tax-Free Bond Fund (each a "Fund" or a "Target Fund" and collectively the
"Target Funds").
The Intermediate Duration Fixed Income Fund and the New York Tax-Free Bond
Fund are each a series of HSBC Investor Funds. There are two series named
Core Plus Fixed Income Fund, one of HSBC Investor Funds offering Class A, B
and C shares and one of HSBC Advisor Funds Trust offering Class I shares.
Each of these series invests all of its investable assets in the same
underlying fund in a master-feeder structure (the "Underlying Portfolio").
The series, Core Plus Fixed Income Fund of HSBC Advisor Funds Trust, is
referred to in this Prospectus/Proxy Statement as Core Plus Fixed Income Fund
(Advisor) to differentiate the Funds.
At each Meeting, shareholders of the Target Fund will be asked to approve an
Agreement and Plan of Reorganization (the "Plan") relating to the
reorganization of each Target Fund into the corresponding fund (an "Acquiring
Fund") advised by Franklin Advisers, Inc., as described more fully in the
Plan (each such reorganization, a "Reorganization" and together, the
"Reorganizations").
The following table outlines the proposed Reorganizations, as well as the
Acquiring Fund shares the shareholders of the Target Fund will receive if a
proposed Reorganization is approved:
- ----------------------------------------------------------------------
TARGET FUND ACQUIRING FUND
- ----------------------------------------------------------------------
Proposal HSBC Investor Core Plus Fixed Franklin Total Return
1(A) Income Fund Fund
- ----------------------------------------------------------------------
Class A Shares Class A Shares
- ----------------------------------------------------------------------
Class B Shares Class A Shares
- ----------------------------------------------------------------------
Class C Shares Class C Shares
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Proposal HSBC Investor Core Plus Fixed Franklin Total Return
1(B) Income Fund (Advisor) Fund
- ----------------------------------------------------------------------
Class I Shares Advisor Class Shares
- ----------------------------------------------------------------------
Proposal 2 HSBC Investor Intermediate Franklin Total Return
Duration Fixed Income Fund Fund
- ----------------------------------------------------------------------
Class A Shares Class A Shares
- ----------------------------------------------------------------------
Class B Shares Class A Shares
- ----------------------------------------------------------------------
Class C Shares Class C Shares
- ----------------------------------------------------------------------
Class I Shares Advisor Class Shares
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Proposal 3 HSBC Investor New York Tax-Free Franklin New York
Bond Fund Intermediate-Term
Tax-Free Income Fund
- ----------------------------------------------------------------------
Class A Shares Class A Shares
- ----------------------------------------------------------------------
Class B Shares Class A Shares
- ----------------------------------------------------------------------
Class C Shares Class C Shares
- ----------------------------------------------------------------------
Class I Shares Advisor Class Shares
- ----------------------------------------------------------------------
The principal offices of the Target Funds are located at 3435 Stelzer Road,
Columbus, Ohio 43219-3035 and can be reached by calling 1-800-782-8183. The
principal offices of the Acquiring Funds are located at One Franklin Parkway,
San Mateo, CA 94403-1906 and can be reached by calling 1-800-342-5236.
The Meeting will be held at the offices of Citi Fund Services Ohio, Inc. at
100 Summer Street, Suite 1500, Boston, Massachusetts 02110, on August 27,
2009 at 10:00 a.m., Eastern Time. The Boards of Trustees of HSBC Investor
Funds and HSBC Advisor Funds Trust (together, the "Board of Trustees"), on
behalf of each Target Fund, are soliciting these proxies. This
Prospectus/Proxy Statement will first be sent to shareholders on or about
July 27, 2009.
If you are a shareholder of a Target Fund whose shareholders vote to approve
the Plan on behalf of that Target Fund, you will receive Acquiring Fund
shares having an aggregate net asset value ("NAV") equivalent to the
aggregate NAV of your investment in that Target Fund as of the time of the
Reorganization, as determined pursuant to the Plan. That Target Fund will
then be liquidated and dissolved. Though shareholders of each Target Fund
are voting on a Reorganization, no Reorganization is dependent on any other
Reorganization, and the Plan represents a separate transaction for each
separate Target Fund and its corresponding Acquiring Fund.
This Prospectus/Proxy Statement includes information about the proposed
Reorganizations and the Acquiring Funds that you should know before voting on
the Plan with respect to your Target Fund. You should retain this
Prospectus/Proxy Statement for future reference. Additional information
about the Acquiring Funds and the proposed Reorganizations has been filed
with the U.S. Securities and Exchange Commission (the "SEC") and can be found
in the following documents and are incorporated into this Prospectus/Proxy
Statement by reference:
o The Prospectus of the Franklin Total Return Fund dated March 1, 2009, as
supplemented and amended to date (the "Franklin Total Return Fund
Prospectus"), which is enclosed herewith and is incorporated herein by
reference;
o The Prospectus of the Franklin New York Intermediate-Term Tax-Free
Income Fund dated February 1, 2009, as supplemented and amended to
date (the "Franklin New York Intermediate-Term Tax-Free Income Fund
Prospectus"), which is enclosed herewith and is incorporated herein by
reference;
o The Prospectus of each Target Fund dated February 27, 2009, as
supplemented and amended to date (the "Target Funds Prospectus"),
which is incorporated herein by reference; and
o A Statement of Additional Information ("SAI") dated July 20, 2009,
relating to this Prospectus/Proxy Statement, which has been filed with
the SEC and is incorporated herein by reference.
You may request a free copy of the SAI relating to this Prospectus/Proxy
Statement or the Acquiring Funds' Statements of Additional Information or
annual or semiannual reports without charge by calling 1-800/DIAL BEN(R) or
by writing to Franklin Templeton Investments at One Franklin Parkway, San
Mateo, CA 94403-1906.
You can obtain copies of a Target Fund's current Prospectus, Statement of
Additional Information, or annual or semiannual reports without charge by
contacting the Funds at 1-800-782-8183.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER U.S. GOVERNMENT AGENCY.
MUTUAL FUND SHARES INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
TABLE OF CONTENTS
OVERVIEW
PROPOSALS 1(A) AND 1(B)
Reorganizations of HSBC Investor Core Plus Fixed Income Fund and HSBC
Investor Core Plus Fixed Income Fund (Advisor) into Franklin Total Return Fund
Summary of the Proposals
Comparison of Investment Objectives/Goals and Strategies
Comparison of Principal Risks
Comparative Fee Tables
Expense Example
Comparison of Fund Performance
Acquiring Fund Performance
Key Differences in Rights of Target Fund and Acquiring Fund Shareholders
Proposal 1(A)
Proposal 1(B)
PROPOSAL 2
Reorganization of HSBC Investor Intermediate Duration Fixed Income Fund into
Franklin Total Return Fund
The Proposal
Comparison of Investment Objectives/Goals and Strategies
Comparison of Principal Risks
Comparative Fee Tables
Expense Example
Comparison of Fund Performance
Acquiring Fund Performance
Key Differences in Rights of Target Fund and Acquiring Fund Shareholders
PROPOSAL 3
Reorganization of HSBC Investor New York Tax-Free Bond Fund into Franklin New
York Intermediate-Term Tax-Free Income Fund
The Proposal
Comparison of Investment Objectives/Goals and Strategies
Comparison of Principal Risks
Comparative Fee Tables
Expense Example
Comparison of Fund Performance
Acquiring Fund Performance
Key Differences in Rights of Target Fund and Acquiring Fund Shareholders
THE PROPOSED REORGANIZATIONS
ADDITIONAL INFORMATION ABOUT THE FUNDS
VOTING INFORMATION
ATTACHMENTS
OVERVIEW
This is a summary of information contained elsewhere in this Prospectus/Proxy
Statement, as well as the Plan, the Prospectuses of the Acquiring Funds and
the Target Funds, and the SAI for this Prospectus/Proxy Statement, all of
which are incorporated herein by reference. Shareholders should read the
entire Prospectus/Proxy Statement and the Prospectuses of the Acquiring Funds
(which are included herewith) carefully for more complete information.
WHAT PROPOSAL(S) AM I BEING ASKED TO VOTE ON?
As a Target Fund shareholder, you are being asked to vote on a
Reorganization. A Reorganization consists of the transfer by the Target Fund
of substantially all of its assets, except for assets in an amount deemed
necessary to discharge the Target Fund's liabilities, to a corresponding
Acquiring Fund in exchange for shares of that Acquiring Fund having a value
equal to the net assets of the Target Fund, as determined pursuant to the Plan.
These Acquiring Fund shares will be issued to the Target Fund shareholders as
part of the liquidation of the Target Fund. Shareholders of a share class of
a Target Fund would receive their pro rata portion of the shares of the
applicable class of the corresponding Acquiring Fund as of the time the
Reorganization occurs. Each Reorganization is currently scheduled to take
place as of 4:00 p.m., Eastern Time, on August 28, 2009, or such other date
and time as the parties may agree (the "Closing Date").
WHY ARE THE REORGANIZATIONS BEING PROPOSED?
During 2008, HSBC Global Asset Management (USA) Inc. ("AMUS"), the investment
adviser to the Target Funds, informed the Board of Trustees that it intends
to exit the business of advising fixed income investment companies in the
United States (other than money market funds) in light of a number of
factors, including the Target Funds' small size and limited sales projections.
AMUS and the Board of Trustees engaged in discussions regarding alternatives
for the Target Funds, including the Reorganizations, that would allow AMUS
and Halbis Capital Management (USA) Inc., the investment sub-adviser for the
Target Funds, to exit this business while simultaneously providing benefits
to shareholders of the Target Funds, such as tax-free exchanges of shares
with other mutual funds. At the conclusion of this process, AMUS proposed
that the Board of Trustees approve the Reorganizations, as opposed to other
alternatives, in light of a number of factors, including the strength and
reputation of Franklin Advisers, Inc., the investment advisor of the
Acquiring Funds.
In considering whether to approve the Reorganizations and to recommend
approval of the Reorganizations to the shareholders of the Target Funds, the
Trustees considered, among other things:
o The terms and conditions of the Plan;
o The relative compatibility of investment objectives/goals and
restrictions and principal investment policies of the Acquiring Funds
with those of the Target Funds;
o The relative past performance of the Acquiring Funds and the Target
Funds;
o The anticipated effect of the Reorganizations on the fees and expense
ratios experienced by Target Fund shareholders if they become
shareholders of the Acquiring Funds;
o The capabilities, practices and resources of the management of
Franklin Advisers, Inc. and its affiliates in managing the Acquiring
Funds;
o The anticipated federal income tax treatment of the Reorganizations
and tax consequences to the Target Funds and their shareholders;
o Anticipated dispositions of portfolio securities in connection with
the Reorganizations;
o The costs incurred in connection with the Reorganizations, and the
payment of certain of the expenses of the Reorganizations by Franklin
Advisers, Inc., AMUS or entities under common ownership with Franklin
Advisers, Inc. or AMUS;
o Alternatives to the proposed Reorganizations, including liquidation of
the Target Funds and the viability of the Target Funds absent approval
of the proposed Reorganizations;
o Whether shareholders of the Target Funds are expected to experience
any dilution as a result of the Reorganizations; and
o Benefits to and recommendation of AMUS.
Upon concluding these considerations, the Board of Trustees determined that
each Reorganization is in the best interests of the corresponding Target Fund
and its shareholders and unanimously approved each Reorganization, subject to
shareholder approval.
For more information regarding the factors considered by the Trustees, please
refer to the "The Proposed Reorganizations - Reasons for the Reorganizations
and Trustees' Considerations" section below.
HOW WOULD A REORGANIZATION BENEFIT SHAREHOLDERS OF A TARGET FUND?
Among other features, a Reorganization would offer shareholders of a Target
Fund the opportunity to invest in a larger combined portfolio that has
similar investment goals and principal investment strategies. Shareholders
also will benefit from a tax-free exchange (except with respect to any
anticipated capital gain distributions) of their Target Fund shares for
Acquiring Fund shares. Shareholders of a Target Fund will also benefit from
the ability to exchange their Acquiring Fund shares into other Franklin
Templeton funds that offer a wide variety of investment goals and strategies.
Franklin Advisers, Inc. is a wholly owned subsidiary of Franklin Resources,
Inc., a publicly owned global investment organization operating as Franklin
Templeton Investments. Franklin Resources, Inc. has more than $421 billion in
assets under management as of April 30, 2009. The scale of the fund complex,
the investment options and strategies that will be available to Target Fund
shareholders, and the shareholder services offered, together with Franklin
Advisers, Inc.'s demonstrated long-term success in providing sound investment
management expertise, provide Target Fund shareholders with potentially
attractive alternatives to the benefits historically received from AMUS.
WHO BEARS THE EXPENSES ASSOCIATED WITH THE REORGANIZATIONS?
Franklin Advisers, Inc. and AMUS have agreed to bear or arrange for an entity
under common ownership to bear expenses incurred in connection with the
Reorganizations, including any costs directly associated with preparing,
filing, printing, and distributing to the shareholders of each of the Target
Funds all materials relating to this Prospectus/Proxy Statement and
soliciting shareholder votes, as well as the conversion costs associated with
the Reorganizations. However, both the Target Funds and the Acquiring Funds
may incur brokerage fees and other transaction costs associated with the
disposition and/or purchase of securities in contemplation of or as a result
of the Reorganizations.
IS A REORGANIZATION CONSIDERED A TAXABLE EVENT FOR FEDERAL INCOME TAX
PURPOSES?
As a condition to each Reorganization, each participating Target Fund and its
corresponding Acquiring Fund will receive an opinion of counsel substantially
to the effect that, on the basis of certain assumptions made and
representations to be made on behalf of the Target Fund and the Acquiring
Fund, the existing provisions of the Internal Revenue Code ("Code"), Treasury
regulations promulgated thereunder, administrative positions of the Internal
Revenue Service, and judicial decisions, for federal income tax purposes:
o the Reorganization, as set forth in the Plan, will constitute a
tax-free reorganization under section 368(a) of the Code;
o no gain or loss will be recognized by the Acquiring Fund upon the
receipt of the Target Fund's assets solely in exchange for shares of
the Acquiring Fund;
o no gain or loss will be recognized by the Target Fund upon transfer of
the assets of the Target Fund to the corresponding Acquiring Fund
solely in exchange for shares of the Acquiring Fund or upon the
distribution of the shares of the Acquiring Fund to the Target Fund
shareholders in exchange for their shares of the Target Fund;
o no gain or loss will be recognized by shareholders of the Target Fund
upon exchange of their shares for shares of the Acquiring Fund in the
Reorganization;
o the aggregate tax basis of the Acquiring Fund shares received by each
shareholder of the Target Fund pursuant to the Reorganization will be
the same as the aggregate tax basis of the shares of the Target Fund
held by such shareholder as of the time of the Reorganization;
o the holding period of the Acquiring Fund shares received by each
shareholder of the Target Fund pursuant to the Reorganization will
include the period during which shares of the Target Fund exchanged
therefor were held by such shareholder, provided the shares of the
Target Fund were held as capital assets on the date of the
Reorganization;
o the tax basis of the assets of the Target Fund acquired by the
Acquiring Fund will be the same as the tax basis of such assets to the
Target Fund immediately prior to the Reorganization; and
o the holding period of the Target Fund's assets in the hands of the
Acquiring Fund will include the period during which those assets were
held by the Target Fund.
The foregoing opinions may state that no opinion is expressed as to the
effect of the Reorganization on the Acquiring Fund, the Target Fund or the
Target Fund's shareholders with respect to any asset as to which unrealized
gain or loss is required to be recognized for federal income tax purposes at
the end of a taxable year (or on the termination or transfer thereof) under a
mark-to-market system of accounting.
LIQUIDATION OF HSBC MASTER FUNDS. HSBC Investor Intermediate Duration Fixed
Income Fund, HSBC Investor Core Plus Fixed Income Fund and HSBC Investor Core
Plus Fixed Income Fund (Advisor), each of which is organized as a feeder fund
in a master-feeder structure with the corresponding master fund classified as
a partnership, own 97.8%, 12.9% and 68.8%, respectively, of their
corresponding master funds as of April 30, 2009. A liquidating
distribution in-kind by a master fund to its corresponding feeder fund should
not result in any gain or loss to either the master fund or the feeder fund.
In general, the tax basis of the assets (other than money) distributed by a
master fund to its corresponding feeder fund in liquidation of the feeder
fund's interest in the master fund will be an amount equal to the feeder
fund's tax basis in its master fund shares reduced by the amount of any money
distributed in the same transaction. The holding period of the assets
received by a feeder fund in such liquidating distribution will include the
period the assets were held by the master fund. References below to the
assets and tax attributes (e.g., capital losses, realized gain (loss) or
unrealized appreciation (depreciation) of portfolio investments) of a feeder
include its pro rata share of the assets and tax attributes of its
corresponding master fund.
ORDERLY REORGANIZATION OF THE TARGET FUNDS. The parties have agreed to
cooperate to facilitate the orderly reorganization of the Target Funds into
the Acquiring Funds. This transition may include the sale of some of the
portfolio securities of the Target Funds prior to the Reorganizations. The
sale of securities may result in the realization of capital gains to the
Target Funds that, to the extent not offset by capital losses, would be
distributed to shareholders prior to the Closing Date, and those
distributions (if any) would be taxable to shareholders who hold shares in
taxable accounts. The parties anticipate that any such sales of portfolio
securities by the HSBC Investor Intermediate Duration Fixed Income Fund as a
result of the Reorganization (as distinct from normal portfolio turnover)
will be limited in scope and likely not result in any material amounts of
capital gains to be distributed to shareholders by such Fund. The parties
anticipate that approximately 30% of the assets of each of HSBC Investor Core
Plus Fixed Income Fund and HSBC Investor Core Plus Fixed Income Fund
(Advisor) and 37% of the assets of the HSBC Investor New York Tax-Free Bond
Fund will be sold as a result of the Reorganization (as distinct from normal
portfolio turnover). Because the Target Funds reorganizing into Franklin
Total Return Fund are in a net capital loss position at April 30, 2009,
taking into account any available capital loss carryovers, current year
realized net capital loss and net unrealized depreciation in the value of
portfolio investments, it is not anticipated that the sale of such securities
prior to the Reorganization will result in any material amounts of capital
gains to be distributed to shareholders by such Funds. Because the HSBC
Investor New York Tax-Free Bond Fund is in small net gain capital position at
April 30, 2009 of $245,510 or $0.06 per share, taking into account any
available net unrealized appreciation in value of portfolio investments and
realized capital losses, which net capital gain position as a percentage of
such Target Fund's net assets at that date equals less one percent (1%), it
is not anticipated that the sale of securities by the HSBC Investor New York
Tax-Free Bond Fund prior to the Reorganization will result in any material
amount of capital gains to be distributed to shareholders by such Target
Fund. However, the amount of capital gains realized by the Target Funds prior
to the Closing Date will differ, due to changes in portfolio composition and
changes in market values of portfolio securities. The transaction costs
incurred in connection with the sale of portfolio securities prior to the
Reorganizations are estimated to be $232 for the HSBC Investor Core Plus
Fixed Income Fund and HSBC Investor Core Plus Fixed Income Fund (Advisor),
$79 for the HSBC Investor New York Tax-Free Bond Fund and $9 for the HSBC
Investor Intermediate Duration Fixed Income Fund.
GENERAL LIMITATION ON CAPITAL LOSSES. Capital losses can generally be carried
forward to each of the eight (8) years succeeding the loss year to offset
future capital gains. Each Acquiring Fund will succeed to the tax attributes
of the corresponding Target Fund, including any available capital loss
carryforwards, as of the Closing Date. Based on the respective net asset
values of the Target Funds as of April 30, 2009, the Reorganization will
result in a more than 50% "change in ownership" of each Target Fund, as the
smaller Fund in comparison to the corresponding Acquiring Fund as of the same
date (March 31, 2009 in the case of Franklin New York Intermediate-Term
Tax-Free Fund). As a result, the capital loss carryovers (together with any
current year realized net capital loss and net unrealized depreciation in the
value of portfolio investments, collectively referred to as "aggregate
capital loss carryovers") of a Target Fund will be subject to an annual
limitation for federal income tax purposes. The final amounts of unrealized
capital gain or (loss), capital loss carryovers and realized capital gain or
loss at the time of the Reorganizations may differ from the amounts that are
shown below. In addition, for five years beginning after the Closing Date,
no combined Fund will be permitted to offset gains "built-in" to either the
applicable Target Fund or the applicable Acquiring Fund at the time of the
Reorganization against capital losses (including capital loss carry-forwards)
built in to the other Fund at the time of the Reorganization. At April 30,
2009 (March 31, 2009 in the case of Franklin New York Intermediate-Term
Tax-Free Fund) the aggregate capital loss carryovers of the Target Funds, as
compared to those of the corresponding Acquiring Funds, and the approximate
annual limitation on the use of a Target Fund's aggregate capital loss
carryovers following the Reorganization are as follows:
- ----------------------------------------------------------------------------------------
HSBC Core HSBC Core Plus HSBC Franklin Total
Plus Fixed Fixed Income Intermediate Return Fund
Income Fund Fund (Advisor) Duration Fixed [Acquiring
[Target Fund] [Target Fund] Income Fund Fund]
Line Tax Attributes [Target Fund]
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
1 Capital loss
carryovers (1)
- ------------------------------------------------------------------------------------------
Expiring ($787,733)
2012-2016
- ------------------------------------------------------------------------------------------
Expiring 2016 ($1,002,028) ($85,092)
- ------------------------------------------------------------------------------------------
Expiring ($44,803,103)
2009-2016
- ------------------------------------------------------------------------------------------
2 Realized capital ($915,623) ($1,417,616) ($4,602) ($34,529,519)
gain (loss) on a
book basis at
4/30/09
- ------------------------------------------------------------------------------------------
3 Unrealized ($1,343,609) ($6,341,025) ($1,222,358) ($78,397,586)
appreciation
(depreciation) on
a book basis at
4/30/09
- ------------------------------------------------------------------------------------------
4 Aggregate capital ($3,046,965) ($8,760,669) ($1,312,052) ($157,730,208)
loss carryovers
[L1+L2+L3]
- ------------------------------------------------------------------------------------------
5 Unrealized -15.2% -13.4% -9.9% -4.7%
appreciation
(deprecation) as
a percentage of
NAV [L3/L6]
- ------------------------------------------------------------------------------------------
6 Net assets at $8,864,585 $47,375,293 $12,328,901 $1,677,821,831
4/30/09
- ------------------------------------------------------------------------------------------
7 Long-term 4.6% 4.6% 4.6% n/a
tax-exempt rate
[June 2009]
- ------------------------------------------------------------------------------------------
8 Annual limitation $408,657 $2,184,001 $568,362 n/a
[L6 x L7]
- ------------------------------------------------------------------------------------------
(1) Each Target Fund and Acquiring Fund as of the close of the
last fiscal year ended at October 31, 2008.
- --------------------------------------------------------------
HSBC
Investor
New York Franklin
Tax-Free New York
Income Intermediate-
Fund Term Tax-Free
[Target [Acquiring
Line Tax Attributes Fund] Fund]
- ---------------------------------------------------------------
- ---------------------------------------------------------------
1 Capital loss n/a
carryovers (1)
- ---------------------------------------------------------------
Expiring ($2,276,205)
2009-2016
- ---------------------------------------------------------------
2 Realized capital ($60,226) ($4,792,798)
gain (loss) on a
book basis at
4/30/09 for Target
Fund and at
3/31/09 for
Acquiring Fund
- ---------------------------------------------------------------
3 Unrealized $305,636 $2,153,063
appreciation
(depreciation) at
4/30/09 for Target
Funds on a book
basis and 3/31/09
for Acquiring Fund
on a tax basis
- ---------------------------------------------------------------
4 Aggregate capital n/a ($4,915,940)
loss carryovers
[L1+L2+L3]
- ---------------------------------------------------------------
5 Net capital gain $245,410 n/a
position
[L1+L2+L3]
- ---------------------------------------------------------------
6 Unrealized 0.7% 0.6%
appreciation
(deprecation) as a
percentage of NAV
[L3/L7]
- ---------------------------------------------------------------
7 Net assets of $42,511,462 $350,775,531
Target Fund at
4/30/09 and
Acquiring Fund at
3/31/09
- ---------------------------------------------------------------
8 Long-term 4.6% n/a
tax-exempt rate
[June 2009]
- ---------------------------------------------------------------
9 Annual limitation $1,959,778 n/a
[L7 x L8]
- ---------------------------------------------------------------
(1) Target Fund and Acquiring Fund as of the close of the last
fiscal year ended at October 31, 2008 and September 30, 2008,
respectively.
The actual annual loss limitation will equal the aggregate net asset value of
a Target Fund on the Closing Date of the Reorganization multiplied by the
long-term tax-exempt rate for ownership changes during the month in which the
Reorganization closes (such limitation is increased by the amount of any
built-in gain, i.e., unrealized appreciation in value of investments, of a
Target Fund on the Closing Date that is recognized in a taxable year). This
annual limitation on use of a Target Fund's aggregate capital loss carryovers
may result in some portion of such carryovers expiring unutilized, depending
on the facts at time of closing the Reorganization. However, the aggregate
capital loss carryovers of the Acquiring Funds will continue to be available,
provided, among other things, that the Acquiring Fund is larger than the sum
of its corresponding Target Funds on the Closing Date. This being the case,
the benefits of each Acquiring Fund's aggregate capital loss carryovers will
accrue post-Reorganization to the shareholders of both the Acquiring Fund and
its corresponding Target Funds. This might be viewed as resulting in a
slight reduction in the available tax benefits for the shareholders of the
Acquiring Fund, although such capital loss carryovers are a tax benefit only
to the extent such losses offset future capital gains.
Buying shares in a fund that has material unrealized appreciation in
portfolio investments may be less tax efficient than buying shares in a fund
with no such unrealized appreciation in value of investments. Conversely,
buying shares in a fund with unrealized depreciation in value of investments
may be more tax efficient because such deprecation when realized will offset
other capital gains that might otherwise be distributed to shareholders
causing the shareholders to pay tax on such distributions. These same
considerations apply in the case of a reorganization. The shareholders of the
Target Funds will be subject to either greater or less appreciation
(depreciation) in value of portfolio investments as a result of the
Reorganization. In case of the Target Funds reorganizing into Franklin Total
Return Fund, based on each Target Fund's unrealized depreciation in value of
investments on a book basis as a percentage of its net asset value at April
30, 2009 ranging from 9.9% to 15.2% as compared to that of Franklin Total
Return Fund of 4.7% at April 30, 2009 and 5.0% on a combined basis, the
shareholders of such Target Funds will be exposed to slightly less unrealized
depreciation in value of investments post-Reorganization relative to what
they are presently exposed. In the case of the HSBC Investor New York
Tax-Free Income Fund, based on that Target Fund's unrealized appreciation in
value of investments on a book basis as a percentage of its net asset value
at April 30, 2009 of 0.7% as compared to that of Franklin New York
Intermediate-Term Tax-Free Fund of 0.6% at March 31, 2009 and 0.6% on a
combined basis, the shareholders of the HSBC Investor New York Tax-Free
Income Fund will be exposed to approximately the same unrealized appreciation
in value of investments post-Reorganization relative to what they re
presently exposed.
TRACKING YOUR BASIS AND HOLDING PERIOD; STATE AND LOCAL TAXES. After the
Reorganization, you will continue to be responsible for tracking the adjusted
tax basis and holding period for your shares for federal income tax
purposes. You should consult your tax adviser regarding the effect, if any,
of the Reorganization in light of your individual circumstances. You should
also consult your tax adviser about the state and local tax consequences, if
any, of the Reorganization because this discussion only relates to the
federal income tax consequences.
HAS EACH TARGET FUND'S BOARD OF TRUSTEES APPROVED THE PROPOSED
REORGANIZATIONS?
The Board of Trustees of each Target Fund has unanimously approved the
proposals and recommends that you vote in favor of the Reorganizations by
voting to approve the Plan.
HOW DO THE REORGANIZATIONS AFFECT CERTAIN TARGET FUNDS' MASTER-FEEDER
STRUCTURES?
Each of the HSBC Investor Core Plus Fixed Income Fund, HSBC Investor Core
Plus Fixed Income Fund (Advisor) and HSBC Investor Intermediate Duration
Fixed Income Fund are organized as feeder funds in a "master-feeder
structure." This means that it invests all of its investable assets in
another investment company, an Underlying Portfolio, as opposed to investing
directly in portfolio securities.
If a Reorganization is approved for one of these Target Funds, the Underlying
Portfolio in which the Target Fund invests will conduct an in-kind
liquidation no later than the Closing Date, meaning that it will deliver to
the Target Fund all of its assets (or such pro rata share of its assets as is
appropriate given such Target Fund's relative ownership of beneficial
interests in the Underlying Portfolio). Approval of a Reorganization for a
Target Fund investing in a master-feeder structure is also approval of the
in-kind liquidation by the applicable Underlying Portfolio. It is
anticipated that such in-kind liquidations will not result in any gain or
loss to either the Underlying Portfolio (master fund) or the corresponding
Target Fund (feeder fund). Please refer to the "Is a Reorganization
considered a taxable event for federal income tax purposes? -- Liquidation of
HSBC Master Funds" section above.
For more information regarding the mechanics of the Reorganizations, please
refer to the "The Proposed Reorganizations - Agreement and Plan of
Reorganization" section below.
HOW WILL THE NUMBER OF SHARES OF AN ACQUIRING FUND THAT I WILL RECEIVE BE
DETERMINED?
As a Target Fund shareholder, you will receive your pro rata share of the
Acquiring Fund shares of the appropriate class received by the Target Fund in
the Reorganization. The number of shares a Target Fund will receive will be
based on the relative net asset values of the Target Fund and the
corresponding Acquiring Fund as of 4:00 p.m., Eastern Time, on the Closing
Date. The Target Fund's assets will be valued using the valuation procedures
used to value the assets of the corresponding Acquiring Fund.
The total value of your holdings should not change as a result of a
Reorganization, except to the extent that the Acquiring Funds' valuation
procedures differ from the Target Funds' valuation procedures. For example,
if the value of a portfolio asset held by a Target Fund is higher when using
that Target Fund's valuation procedures (as compared to using the
corresponding Acquiring Fund's valuation procedures), then the application of
the Acquiring Fund's valuation procedures on the Closing Date will cause the
dollar value of your holdings in the Acquiring Fund after the Reorganization
to be less than the dollar value of your holdings in the Target Fund prior to
the Reorganization. AMUS is monitoring this matter and will continue to do
so up to the closing of the Reorganizations. AMUS does not believe that
differences in the valuation procedures of the Acquiring Funds and Target
Funds would have any material impact on shareholders in connection with the
Reorganizations.
For more information regarding valuation procedures, please refer to the "Do
the procedures for pricing fund shares differ between the Target Funds and
the Acquiring Funds?" section below.
HOW DO THE FEES OF THE ACQUIRING FUNDS COMPARE TO THOSE OF THE TARGET FUNDS?
As a result of the proposed Reorganizations, shareholders of the:
o HSBC Investor New York Tax-Free Bond Fund are expected to experience a
higher contractual investment management fee, but lower total fund
operating expenses (with the exception of holders of Advisor Class
shares, which would have higher total fund operating expenses), as a
percentage of average daily net assets, as shareholders in the
Franklin New York Intermediate-Term Tax-Free Fixed Income Fund.
o HSBC Investor Core Plus Fixed Income Fund and HSBC Investor Core Plus
Fixed Income Fund (Advisor) are expected to experience a lower
contractual investment management fee and lower total fund operating
expenses (with the exception of holders of Advisor Class shares, which
would experience higher total fund operating expenses), as a
percentage of average daily net assets, as shareholders of the
Franklin Total Return Fund. Shareholders could also expect to
experience (with the exception of current holders of Class B and Class
C shares of the HSBC Investor Core Plus Fixed Income Fund) higher net
operating expenses as a percentage of average daily net assets.
o HSBC Investor Intermediate Duration Fixed Income Fund are expected to
experience a lower contractual investment management fee and lower
total fund operating expenses, as a percentage of average daily net
assets, as shareholders of the Franklin Total Return Fund.
Shareholders could also expect to experience (with the exception of
current holders of Class B and Class C shares of the Target Fund)
higher net operating expenses as a percentage of average daily net
assets.
As a shareholder in the HSBC Investor Core Plus Fixed Income Fund, the HSBC
Investor Core Plus Fixed Income Fund (Advisor) and the HSBC Investor
Intermediate Duration Fixed Income Fund, it is worth considering that the
lower net operating expenses experienced by those Funds as compared to the
Franklin Total Return Fund are solely a result of a written expense
limitation agreement with AMUS that terminates on March 1, 2010.
WILL I HAVE TO PAY ANY FRONT-END SALES CHARGES ON SHARES RECEIVED IN THE
REORGANIZATIONS?
No. You will not have to pay any front-end sales charge on any shares of an
Acquiring Fund received as part of the Reorganizations.
With respect to Class A shares of the Acquiring Funds, shareholders will be
subject to any applicable front-end sales charge on subsequent purchases into
such Acquiring Fund to the extent that such shareholders do not qualify for a
reduction or elimination of a sales load under the Acquiring Fund's
policies. Both of the Acquiring Funds offer a cumulative quantity discount
and a letter of intent program. To qualify for a Class A front-end sales
charge reduction, shareholders must notify the Acquiring Funds in advance of
their purchase. An Acquiring Fund shareholder and his or her spouse and
children under the age of 21 (and certain other accounts) may combine
purchases of Class A shares for the purpose of qualifying for the front-end
sales charge reductions offered by the Acquiring Funds.
Under the cumulative quantity discount, an Acquiring Fund shareholder may
combine certain existing holdings of Acquiring Fund shares - referred to as
"cumulative quantity discount eligible shares" - with a current purchase of
Class A shares to determine if the Acquiring Fund shareholder qualifies for a
sales charge breakpoint. Under the Acquiring Funds' letter of intent
program, the sales load charge may be reduced on purchases of Class A shares
made during a 13-month period provided a letter of intent is executed and
filed with the Acquiring Funds. Any letter of intent or that you established
as a shareholder of the Target Fund will not be transferred to the Acquiring
Fund and must be re-established with the Acquiring Fund if you desire to
continue similar arrangements as a shareholder of the Acquiring Fund.
For a detailed discussion of these programs for the Acquiring Funds, see the
"Sales Charge Reductions and Waivers" section of the Acquiring Funds'
prospectuses, which is enclosed herewith, and the "Buying and Selling Shares"
section of the respective statements of additional information.
For more information concerning the fees and expenses applicable to each
Acquiring Fund, see the applicable "Comparative Fee Table" in each of the
following proposals.
WILL I HAVE TO PAY ANY CONTINGENT DEFERRED SALES CHARGES ON SHARES EXCHANGED
IN THE REORGANIZATIONS?
No. You will not have to pay any contingent deferred sales charge on any
shares of a Target Fund exchanged as part of the Reorganizations.
Class B shares of the Target Funds, which have a maximum contingent deferred
sales charge of 4.00%, will be exchanged for Class A shares of the Acquiring
Funds, which have no contingent deferred sales charge other than a 0.75%
contingent deferred sales charge on redemptions made within 18 months of a
purchase of shares worth $1 million or more. Class A shares received as
part of the Reorganizations will not be subject to the 0.75% contingent
deferred sales charge. However, shareholders will be subject to the 0.75%
contingent deferred sales charge on subsequent purchases of Class A shares of
an Acquiring Fund worth $1 million or more, to the extent that such
shareholders do not qualify for a reduction or elimination of the contingent
deferred sales charge under the Acquiring Fund's policies.
For more information concerning the fees and expenses applicable to each
Acquiring Fund, see the applicable "Comparative Fee Table" in each of the
following proposals.
ARE THE INVESTMENT OBJECTIVES/GOALS AND STRATEGIES OF THE TARGET FUNDS
SIMILAR TO THE INVESTMENT GOALS AND STRATEGIES OF THE CORRESPONDING ACQUIRING
FUNDS?
Each Target Fund's investment objectives/goals and strategies are similar to
those of its corresponding Acquiring Fund. For a detailed comparison of each
Fund's investment objectives and strategies, see the applicable "Comparison
of Investment Objectives/Goals and Strategies" section below.
DO THE FUNDAMENTAL AND NON-FUNDAMENTAL INVESTMENT POLICIES DIFFER BETWEEN THE
TARGET FUNDS AND THE ACQUIRING FUNDS?
Although the language may differ between the fundamental investment policies
of the Target Funds and the Acquiring Funds, the policies are similar and
include investment policies required by the Investment Company Act of 1940,
as amended ("1940 Act"). In addition, certain Acquiring Funds and Target
Funds have adopted additional fundamental and/or non-fundamental policies
that the corresponding Acquiring Fund or Target Fund has not. For a detailed
comparison of the Target Funds' and the Acquiring Funds' fundamental and
non-fundamental investment policies, see Attachment I to this
Prospectus/Proxy Statement.
DO THE PRINCIPAL RISKS ASSOCIATED WITH INVESTMENTS IN A TARGET FUND DIFFER
FROM THE PRINCIPAL RISKS ASSOCIATED WITH INVESTMENTS IN THE CORRESPONDING
ACQUIRING FUND?
Although the principal risks associated with investments in each Target Fund
are similar to the principal risks associated with investments in the
corresponding Acquiring Fund, there are certain material differences that you
should consider in connection with the Reorganizations. For a detailed
comparison of each Fund's principal investment risks, see the applicable
"Comparison of Principal Risks" section below.
DO THE PROCEDURES FOR PURCHASING AND REDEEMING FUND SHARES DIFFER BETWEEN THE
TARGET FUNDS AND THE ACQUIRING FUNDS?
The procedures for purchasing and redeeming shares of the Target Funds and
the Acquiring Funds are substantially similar to each other. For a detailed
discussion of the procedures for purchasing and redeeming shares of an
Acquiring Fund, see the respective Acquiring Fund's Prospectus, which is
enclosed herewith.
Please note that purchase orders into the Target Funds may be restricted in
advance of the Closing Date. Shareholders of the Target Funds may redeem
shares of the Target Fund in which they own shares through the Closing Date
of the Reorganizations.
DO THE EXCHANGE PRIVILEGES DIFFER BETWEEN THE TARGET FUNDS AND THE ACQUIRING
FUNDS?
Although the exchange privileges of the Target Funds and the Acquiring Funds
are similar, there are certain differences that you should consider in
connection with the Reorganizations. In particular, as a shareholder of a
Franklin Fund, you will have exchange rights into other Franklin Templeton
Funds, as opposed to HSBC Investor Funds.
For a detailed discussion of the exchange privileges of an Acquiring Fund,
see the "Your Account-Exchanging Shares" section of the respective Acquiring
Fund's Prospectus.
CAN SHAREHOLDERS OF A TARGET FUND WHO RECEIVE CLASS A SHARES OF AN ACQUIRING
FUND EXCHANGE THOSE SHARES FOR ADVISOR CLASS SHARES OF AN ACQUIRING FUND?
Class A shareholders of the HSBC Investor Core Plus Fixed Income Fund who
receive Class A shares of the Franklin Total Return Fund in connection with
the Reorganization will be eligible to exchange those shares for Advisor
Class shares of the Franklin Total Return Fund following the Reorganization.
In order to qualify for this exchange privilege, HSBC Investor Core Plus
Fixed Income Fund Class A shareholders must be otherwise eligible to purchase
Advisor Class shares of the Franklin Total Return Fund. The eligibility
criteria for investing in Advisor Class shares of the Franklin Total Return
Fund is described in the "Choosing a Share Class - Qualified Investors -
Advisor Class" section of the Franklin Total Return Fund prospectus, which
has been mailed with this Prospectus/Proxy Statement. For additional details
about this exchange privilege, see the "Proposals 1(A) and 1(B) - Exchange
privilege for holders of Class A shares of the HSBC Investor Core Plus Fixed
Income Fund" section of this Prospectus/Proxy Statement.
DO THE PROCEDURES FOR PRICING FUND SHARES DIFFER BETWEEN THE TARGET FUNDS AND
THE ACQUIRING FUNDS?
The procedures for valuing shares of the Target Funds are similar to the
procedures for valuing shares of their corresponding Acquiring Funds. If a
Reorganization is approved, on the Closing Date, the value of the assets of
each Target Fund will be determined using the valuation procedures set forth
in the corresponding Acquiring Fund's then-current prospectus and statement
of additional information. Currently, the valuation procedures of the
Acquiring Funds differ from those of the Target Funds in that the Acquiring
Funds value fixed income securities at the mean of the bid and asked price,
whereas the Target Funds price fixed income securities at the bid price, in
each case as determined by a pricing agent. The HSBC Investor New York
Tax-Free Bond Fund and the Franklin New York Intermediate-Term Tax-Free
Income Fund also use different pricing agents to price portfolio holdings.
The Target Funds may begin to value fixed income securities according to the
Acquiring Funds' policies sometime prior to the closing.
DO THE DIVIDEND AND DISTRIBUTION POLICIES DIFFER BETWEEN THE TARGET FUNDS AND
THE ACQUIRING FUNDS?
The Target Funds declare and pay dividends monthly to shareholders and pay
capital gain distributions to shareholders at least annually. The Acquiring
Funds typically declare dividends each day that NAV is calculated and pay
such dividends monthly. Capital gains, if any, are distributed annually.
Please note that on or before the Closing Date, each Target Fund is expected
to declare additional dividends or other distributions in order to distribute
substantially all of its investment company taxable income and net realized
capital gain, including gain realized as a result of portfolio repositioning
prior to the Reorganizations, if any. See the section entitled "Is a
Reorganization considered a taxable event for federal income tax purposes? --
Orderly Reorganization of the Target Funds" for more information on the
capital gain distributions, if any, prior to the Closing Date. Furthermore,
each Acquiring Fund declares dividends and other distributions in accordance
with its dividend and distribution policies as discussed above, and, based on
those policies, distributions may be declared soon after the Closing Date.
Those distributions may include amounts attributable to income or gain
realized by an Acquiring Fund prior to the Reorganizations. Accordingly, as
a shareholder of a Target Fund prior to the Reorganizations and a shareholder
of an Acquiring Fund after the Reorganizations, you may receive distributions
of investment company taxable income and net realized capital gain from both
Funds within the same calendar year.
DO THE POLICIES AND PROCEDURES DESIGNED TO DISCOURAGE EXCESSIVE AND
SHORT-TERM TRADING OF FUND SHARES DIFFER BETWEEN THE TARGET FUNDS AND THE
ACQUIRING FUNDS?
The Target Funds and the Acquiring Funds have adopted excessive trading
policies and procedures. Although the excessive trading policies and
procedures adopted by each Fund are similar to each other, there are certain
differences that you should consider.
To deter market timing, the Target Funds impose redemption fees on shares
sold or exchanged within thirty days of purchase. The redemption fees are in
addition to any applicable contingent deferred sales charges. The Target
Funds and AMUS reserve the right to reject or restrict purchase or exchange
requests from any investor and also reserve the right to close any account in
which a pattern of excessive trading has been identified. No redemption fee
will be imposed on the cancellation of Target Fund shares in connection with
the Reorganization.
The policies and procedures adopted by the Acquiring Funds provide that the
Acquiring Funds discourage and do not intend to accommodate short-term or
frequent purchases and redemptions of their fund shares. The Acquiring Funds
do not impose a redemption fee on shares sold within a certain number of days
of purchase, however, the Acquiring Funds perform ongoing monitoring of
trading in fund shares in order to try and identify shareholder trading
patterns that suggest an ongoing short-term trading strategy. If and when a
pattern of short-term trading is identified, the Acquiring Funds' transfer
agent, Franklin Templeton Investor Services, LLC ("FTIS"), will seek to
restrict or reject further short-term trading and/or take other action, if in
the judgment of Franklin Advisers, Inc. or FTIS, such trading may be
detrimental to the fund. For more information regarding the policies adopted
by the Acquiring Funds to deter short-term trading of fund shares, please see
the "Frequent Trading Policy" sections of the Acquiring Funds' prospectuses,
which have been mailed with this Prospectus/Proxy Statement.
IN SUMMARY, WHAT ARE SOME FACTORS I SHOULD CONSIDER WHEN COMPARING THE TARGET
FUNDS AND THE CORRESPONDING ACQUIRING FUNDS?
PROPOSALS 1(A) AND (B) - REORGANIZATION OF HSBC INVESTOR CORE PLUS FIXED
INCOME FUND AND HSBC INVESTOR CORE PLUS FIXED INCOME FUND (ADVISOR) INTO
FRANKLIN TOTAL RETURN FUND
In considering whether to approve the Reorganizations, you should note that:
o As of December 31, 2008, the and 1, 5, and 10-year performance of the
Franklin Total Return Fund was comparable to that of the HSBC Investor
Core Plus Fixed Income Fund and HSBC Investor Core Plus Fixed Income
Fund (Advisor);
o As a shareholder in the Franklin Total Return Fund, you could expect
to experience a lower contractual investment management fee and lower
total fund operating expenses (with the exception of holders of
Advisor Class shares, which would experience higher total fund
operating expenses), as a percentage of average daily net assets. You
could also expect to experience (with the exception of current holders
of Class B and Class C shares of the HSBC Investor Core Plus Fixed
Income Fund) higher net operating expenses as a percentage of average
daily net assets as a result of the Target Funds' expense limitation
agreement with AMUS that terminates on March 1, 2010;
o The maximum sales load imposed on purchases of Class A shares of the
Franklin Total Return Fund is lower than that of HSBC Investor Core
Plus Fixed Income Fund (4.25% versus 4.75%);
o Class B shares of the HSBC Investor Core Plus Fixed Income Fund, which
have a maximum contingent deferred sales charge of 4.00%, will be
reorganized into Class A shares of the Franklin Total Return Fund
which, under most circumstances, carry no contingent deferred sales
charge. Any subsequent purchases of Class A shares of the Franklin
Total Return Fund would be subject to a front end sales charge of up
to 4.25%, and purchases of $1 million or more would not be subject to
any sales charge except a 0.75% continent deferred sales charge on
Class A shares sold within 18 months of the purchase of those shares;
o The Franklin Total Return Fund is currently advised by Franklin
Advisers, Inc., which would be responsible for the day-to-day
management of the resulting combined Fund after the Reorganization.
Franklin Advisers, Inc. is part of a group of affiliated companies
that together managed over $421 billion in assets as of April 30,
2009;
o The Franklin Total Return Fund is the significantly larger portfolio
(net assets of $1.744 billion for the Franklin Total Return Fund
versus $8.960 million and $47.262 million for the HSBC Investor Core
Plus Fixed Income Fund, and HSBC Core Plus Fixed Income Fund
(Advisor), respectively, as of May 29, 2009);
o As a shareholder of the Franklin Total Return Fund, you will be able
to exchange your shares into other Franklin Templeton funds with a
wide variety of investment goals and strategies;
o The investment strategy of the Franklin Total Return Fund permits
investment of up to 20% of the fund's assets in high yield securities
and up to 5% of the fund's assets in securities rated "B" or below
while the HSBC Investor Core Plus Fixed Income Fund and HSBC Investor
Core Plus Fixed Income Fund (Advisor) may invest a higher percentage
(up to 25%) of their assets in high yield securities;
o The Reorganization is intended to qualify for federal income tax
purposes as a tax-free reorganization. Accordingly, pursuant to this
treatment, neither the HSBC Investor Core Plus Fixed Income Fund, HSBC
Investor Core Plus Fixed Income Fund (Advisor) nor their shareholders,
nor the Franklin Total Return Fund nor its shareholders, are expected
to recognize any gain or loss for federal income tax purposes from the
Reorganization (except with respect to the potential capital gain
distribution noted in the following bullet point);
o In order to transition the portfolio, it is currently expected that a
portion of the portfolio assets of the HSBC Investor Core Plus Fixed
Income Fund and the HSBC Investor Core Plus Fixed Income Fund
(Advisor) will be repositioned or sold prior to the Closing Date. Any
such repositioning could cause the applicable Fund to distribute
capital gains to its shareholders prior to the Closing Date and those
distributions (if any) would be taxable to shareholders who hold
shares in taxable accounts; and
o Each Reorganization is a separate transaction and is not dependent on
the shareholder approval of the other Reorganization.
PROPOSAL 2 - REORGANIZATION OF HSBC INVESTOR INTERMEDIATE DURATION FIXED
INCOME FUND INTO FRANKLIN TOTAL RETURN FUND
In considering whether to approve the Reorganization, you should note that:
o As of December 31, 2008, the 1 and 5 year performance of the HSBC
Investor Intermediate Duration Fixed Income Fund is comparable to that
of the Franklin Total Return Fund;
o As a shareholder in the Franklin Total Return Fund, you could expect
to experience a lower contractual investment management fee and lower
total fund operating expenses, as a percentage of average daily net
assets. You could also expect to experience (with the exception of
current holders of Class B and Class C shares of the Target Fund)
higher net operating expenses as a percentage of average daily net
assets as a result of the Target Funds' expense limitation agreement
with AMUS that terminates on March 1, 2010;
o The maximum sales load imposed on purchases of Class A shares of the
Franklin Total Return Fund is lower than that of the HSBC Investor
Intermediate Duration Fixed Income Fund (4.25% versus 4.75%);
o Class B shares of the HSBC Investor Intermediate Duration Fixed Income
Fund, which have a maximum contingent deferred sales charge of 4.00%,
will be reorganized into Class A shares of the Franklin Total Return
Fund which, under most circumstances, carry no contingent deferred
sales charge. Any subsequent purchases of Class A shares of the
Franklin Total Return Fund would be subject to a front end sales
charge of up to 4.25%, and purchases of $1 million or more would not
be subject to any sales charge except a 0.75% continent deferred sales
charge on Class A shares sold within 18 months of the purchase of
those shares;
o The Franklin Total Return Fund is currently managed by Franklin
Advisers, Inc., which will be responsible for the day-to-day
management of the resulting combined Fund after the Reorganization.
Franklin Advisers, Inc. is part of a group of affiliated companies
that together managed over $421 billion in assets as of April 30,
2009;
o The Franklin Total Return Fund is the significantly larger portfolio
(net assets of $1.744 billion for the Franklin Total Return Fund
versus $12.289 million for the HSBC Investor Intermediate Duration
Fixed Income Fund, as of May 29, 2009);
o As a shareholder of the Franklin Total Return Fund, you will be able
to exchange your shares into other Franklin Templeton funds with a
wide variety of investment goals and strategies;
o The investment strategy of the Franklin Total Return Fund permits
investment of up to 20% of the fund's assets in high yield securities
and up to 5% of the fund's assets in securities rated "B" or below
while the HSBC Investor Core Plus Fixed Income Fund may invest a
higher percentage (up to 25%) of its assets in high yield securities;
o The Reorganization is intended to qualify for federal income tax
purposes as a tax-free reorganization. Accordingly, pursuant to this
treatment, neither the HSBC Investor Intermediate Duration Fixed
Income Fund nor its shareholders, nor the Franklin Total Return Fund
nor its shareholders, are expected to recognize any gain or loss for
federal income tax purposes from the Reorganization (except with
respect to the potential capital gain distribution noted in the
following bullet point); and
o In order to transition the portfolio, it is currently expected that a
portion of the portfolio assets of the HSBC Investor Intermediate
Duration Fixed Income Fund will be repositioned or sold prior to the
Closing Date. Any repositioning of the Fund's portfolio could cause
the Fund to distribute capital gains to its shareholders prior to the
Closing Date and those distributions (if any) would be taxable to
shareholders who hold shares in taxable accounts.
PROPOSAL 3 - REORGANIZATION OF HSBC INVESTOR NEW YORK TAX-FREE BOND FUND INTO
FRANKLIN NEW YORK INTERMEDIATE-TERM TAX-FREE INCOME FUND
In considering whether to approve the Reorganization, you should note that:
o As of December 31, 2008, the 1, 5, and (as applicable) 10-year
performance of the Franklin New York Intermediate-Term Tax-Free Income
Fund is comparable to that of the HSBC Investor New York Tax-Free Bond
Fund;
o As a shareholder in the Franklin New York Intermediate-Term Tax-Free
Fixed Income Fund, you could expect to experience a higher contractual
investment management fee, but lower total fund operating expenses
(with the exception of holders of Advisor Class shares, which would
experience higher total fund operating expenses), as a percentage of
average daily net assets. For the respective fiscal years ended
September 30, 2008 and October 31, 2008, absent waivers, the total
fund operating expenses of Class A shares of the Franklin New York
Intermediate-Term Tax-Free Income Fund are lower than the total fund
operating expenses of Class A shares of the HSBC Investor New York
Tax-Free Bond Fund (0.73% versus 0.84%);
o The maximum sales load imposed on purchases of Class A shares of the
Franklin New York Intermediate-Term Tax-Free Income Fund is lower than
that of the HSBC Investor New York Tax-Free Bond Fund (2.25% versus
4.75%);
o Class B shares of the HSBC Investor New York Tax-Free Bond Fund, which
have a maximum contingent deferred sales charge of 4.00%, will be
reorganized into Class A shares of the Franklin New York
Intermediate-Term Tax-Free Income Fund which, under most
circumstances, carry no contingent deferred sales charge. Any
subsequent purchases of Class A shares of the Franklin New York
Intermediate-Term Tax-Free Income Fund would be subject to a front end
sales charge of up to 2.25%, and purchases of $1 million or more would
not be subject to any sales charge except a 0.75% continent deferred
sales charge on Class A shares sold within 18 months of the purchase
of those shares;
o The Franklin New York Intermediate-Term Tax-Free Income Fund is
currently managed by Franklin Advisers, Inc., which will be
responsible for the day-to-day management of the resulting combined
Fund after the Reorganization. Franklin Advisers, Inc. is part of a
group of affiliated companies that together managed over $421 billion
in assets as of April 30, 2009;
o The Franklin New York Intermediate-Term Tax-Free Income Fund is a
significantly larger portfolio (net assets of $388.8 million for the
Franklin New York Intermediate-Term Tax-Free Income Fund versus $42.6
million for the HSBC Investor New York Tax-Free Bond Fund, as of May
29, 2009);
o As a shareholder of the Franklin New York Intermediate-Term Tax-Free
Income Fund, you would be able to exchange your shares into other
Franklin Templeton funds with a wide variety of investment goals and
strategies;
o The Franklin New York Intermediate-Term Tax-Free Income Fund has, in
the past, maintained a shorter average effective maturity than the
HSBC Investor New York Tax-Free Bond Fund (8.9 years for the Franklin
New York Intermediate-Term Tax-Free Income Fund as of March 31, 2009
as compared to 11.3 years for the HSBC Investor New York Tax-Free Bond
Fund as of January 31, 2009) and a larger allocation to AAA-rated
securities (34.5% for the Franklin New York Intermediate-Term Tax-Free
Income Fund as of March 31, 2009 as compared to 4% for the HSBC
Investor New York Tax-Free Bond Fund as of January 31, 2009);
o The Franklin New York Intermediate-Term Tax-Free Income Fund only
invests in securities rated BBB or better while the HSBC Investor New
York Tax-Free Bond Fund has no such limitation;
o The Reorganization is intended to qualify for federal income tax
purposes as a tax-free reorganization; accordingly, pursuant to this
treatment, neither the HSBC Investor New York Tax-Free Bond Fund nor
its shareholders, nor the Franklin New York Intermediate-Term Tax-Free
Income Fund nor its shareholders, are expected to recognize any gain
or loss for federal income tax purposes from the Reorganization
(except with respect to the potential capital gain distribution noted
below in the next bullet point); and
o In order to transition the portfolio, it is currently expected that a
portion of the portfolio assets of the HSBC Investor New York Tax-Free
Bond Fund will be repositioned or sold prior to the Closing Date. Any
repositioning of the Fund's portfolio could cause the Fund to
distribute capital gains to its shareholders prior to the Closing Date
and those distributions (if any) would be taxable to shareholders who
hold shares in taxable accounts.
HOW MANY VOTES AM I ENTITLED TO CAST?
As a shareholder of a Target Fund, you are entitled to one vote for each
whole share, and a proportionate fractional vote for each fractional share,
you own of a Target Fund on the record date. The record date is July 10,
2009.
HOW DO I VOTE MY SHARES?
You can vote your shares in person at the Meeting or by completing and
signing the enclosed proxy card(s) and mailing it (them) in the enclosed
postage-paid envelope. You may also vote by touch-tone telephone by calling
the toll-free number printed on your proxy card(s) and following the recorded
instructions. If you need any assistance, or have any questions regarding
the proposals or how to vote your shares, please call 1-800-782-8183.
WHAT ARE THE QUORUM AND APPROVAL REQUIREMENTS FOR THE REORGANIZATIONS?
Each Target Fund has a quorum, in substance, requirement of a majority of the
outstanding shares present in person or represented by proxy at the Meeting.
Approval of each Reorganization requires the affirmative vote of 67% or more
of the voting securities present at the Meeting, if the holders of more than
50% of the outstanding voting securities of the Target Fund are present or
represented by proxy, or of more than 50% of the outstanding voting
securities of the Target Fund, whichever is less ("1940 Act Majority").
WHAT IF THERE ARE NOT ENOUGH VOTES TO REACH QUORUM OR TO APPROVE A
REORGANIZATION BY THE SCHEDULED MEETING DATE?
To facilitate receiving a sufficient number of votes, we may need to take
additional action. Computershare Limited ("Computershare"), a proxy
solicitation firm, may contact you by mail or telephone. Therefore, we
encourage shareholders to vote as soon as they review the enclosed proxy
materials to avoid additional mailings or telephone calls. If there are not
sufficient votes to approve your Target Fund's proposal or to achieve a
quorum by the time of the Meeting (August 27, 2009), the Meeting may be
adjourned from time to time to permit further solicitation of proxy votes.
WHO IS THE PROXY SOLICITATION FIRM?
Computershare is a third party proxy vendor hired to call shareholders and
record proxy votes. In order to hold a shareholder meeting, quorum must be
reached - which in the case of a Reorganization is a majority of the Target
Fund shares present in person or by proxy at the Meeting. If quorum is not
attained, a Meeting must adjourn to a future date. Computershare may attempt
to reach shareholders via multiple mailings to remind shareholders to cast
their vote. As the Meeting approaches, phone calls may be made to clients
who have not yet voted their shares so that the Meeting do not have to be
postponed.
Voting your shares immediately will help minimize additional solicitation
expenses and prevent the need to make a call to you to solicit your vote.
WHAT HAPPENS IF ANY OF THE REORGANIZATIONS ARE NOT APPROVED BY A TARGET
FUND'S SHAREHOLDERS?
Each Reorganization is a separate transaction and is not dependent on the
shareholder approval of any other Reorganization. If shareholders of either
the HSBC Investor Core Plus Fixed Income Fund or HSBC Investor Core Plus
Fixed Income Fund (Advisor) approve a Reorganization and shareholders of the
other Fund do not, the Underlying Portfolio for those Funds will conduct its
in-kind liquidating distribution to both of those Funds, as appropriate, and
the Fund for which the Reorganization was approved will complete its
Reorganization.
If the shareholders of a particular Target Fund do not approve a
Reorganization, AMUS and the Board of Trustees will determine what, if any,
additional action should be taken with respect to that particular Target
Fund. Such action may include liquidation of that Target Fund.
PROPOSALS 1(A) AND 1(B)
REORGANIZATIONS OF
HSBC INVESTOR CORE PLUS FIXED INCOME FUND AND
HSBC INVESTOR CORE PLUS FIXED INCOME FUND (ADVISOR)
INTO
FRANKLIN TOTAL RETURN FUND
SUMMARY OF THE PROPOSAL
Shareholders of each of the HSBC Investor Core Plus Fixed Income Fund and
HSBC Investor Core Plus Fixed Income Fund (Advisor) are being asked to
approve the Plan as it relates to the Reorganization of each of the Funds.
While the Reorganization and related shareholder approval of the Plan for
each of these Funds is independent of the Reorganization and shareholder
approval of the other, the Funds are so similar that the proposals are
addressed together as PROPOSALS 1(A) AND 1(B).
As a result of its Reorganization (if approved by shareholders), shareholders
of the HSBC Investor Core Plus Fixed Income Fund or HSBC Investor Core Plus
Fixed Income Fund (Advisor), as appropriate, would receive shares in the
Franklin Total Return Fund in an amount equal to the net asset value of their
holdings in their Fund as of the Closing Date, as determined pursuant to the
Plan.
You should consult the Prospectus dated March 1, 2009 (as supplemented), for
more information about the Franklin Total Return Fund, a series of Franklin
Investors Securities Trust, which has been mailed with and is incorporated by
reference into this Prospectus/Proxy Statement. For more information
regarding shareholder approval of the Reorganizations, please refer to the
"What happens if any of the Reorganizations are not approved by a Target
Fund's shareholders?" section above. A form of the Plan is attached hereto as
Attachment II to this Prospectus/Proxy Statement. For more information
regarding the calculation of the number of Acquiring Fund shares to be
issued, please refer to the "How will the number of shares of an Acquiring
Fund that I will receive be determined?" section above.
COMPARISON OF INVESTMENT OBJECTIVES/GOALS AND STRATEGIES
The following summarizes the investment objective/goals, strategies and
management differences, if any, between HSBC Investor Core Plus Fixed Income
Fund and HSBC Investor Core Plus Fixed Income Fund (Advisor) and the Franklin
Total Return Fund:
HSBC Investor Core Plus
Fixed Income Fund
HSBC Investor Core Plus
Fixed Income Fund (Advisor) Franklin Total Return Fund
- ------------------------------------------------------------------------------
Investment The investment objective The Fund's principal
Goal(s)/Objective(s) of the Fund is to maximize investment goal is to
total return, consistent provide high current
with reasonable risk. The income, consistent with
"total return" sought by preservation of capital.
the Fund consists of Its secondary goal is
income earned on capital appreciation over
investments, plus capital the long term.
appreciation, if any,
which generally arises
from decreases in interest
rates or improving credit
fundamentals for a
particular sector or
security.
Investment The Fund seeks to achieve Under normal market
Strategies its investment objective conditions, the Fund
by investing all of its invests at least 80% of
assets in the HSBC its assets in investment
Investor Core Plus Fixed grade debt securities and
Income Portfolio (the investments, including
"Portfolio"), which has government and corporate
the same investment debt securities, mortgage-
objective as the Fund. and asset-backed securities,
investment grade corporate
loans and futures with
Under normal market reference securities that
conditions, the Portfolio are investment grade. The
invests at least 80% of Fund focuses on government
its net assets in fixed and corporate debt
income securities, such as securities and mortgage-
U.S. government securities, and asset-backed securities.
corporate debt securities,
commercial paper, mortgage- Additionally, the Fund may
backed and asset-backed invest up to 20% of its
securities, and similar total assets in non-
securities issued by investment grade debt
foreign securities, including up to 5% in
governments and securities rated lower
corporations. The Portfolio than B by S&P or Moody's,
invests primarily in which may include defaulted
investment grade debt securities.
securities, but may invest
up to 25% of its total
assets in high yield
securities ("junk In order to effectively
bonds") without any manage cash flows in or
minimum rating or credit out of the Fund, the Fund
quality. The Portfolio may buy and sell financial
may invest up to 30% of futures contracts or
its total assets in options on such
securities denominated in contracts. The Fund may
foreign currencies, also, from time to time,
including, to a limited enter into forward
extent, those in emerging currency contracts
markets, and may invest (including cross currency
beyond this limit in U.S. forwards) and currency
dollar denominated futures contracts to try
securities of foreign to hedge (protect) against
issuers. currency exchange rate
fluctuations or to generate
Additionally, the Portfolio income or returns for the
may invest more than 50% Fund.
of its assets in
mortgage-backed securities The Fund may invest up to
including mortgage pass- 25% of its total assets in
through securities, foreign securities,
mortgage-backed bonds and including up to 20% of its
collateralized mortgage total assets in non-U.S.
obligations (CMOs) that dollar denominated
carry a guarantee of securities and up to 10%
timely payment. of its total assets in
emerging market securities.
The Portfolio may invest
in derivative instruments,
including, but not limited
to, financial and foreign
currency futures contracts
as well as options on
securities, foreign
currencies, and foreign
currency futures. The
Portfolio intends to do so
primarily for hedging
purposes or for cash
management purposes, as a
substitute for investing
directly in fixed income
securities, but may also
do so to enhance return
when the subadviser
believes the investment
will assist the Portfolio
in achieving its
investment objectives.
Investment Adviser HSBC Global Management Asset Franklin Advisers, Inc.
(USA) Inc.
Subadviser Halbis Capital Management Franklin Templeton
(USA) Inc. Institutional, LLC
Portfolio Kim Golden Roger Bayston, Kent Burns,
Manager(s) Christopher J.Molumphy,
David Yuen, Michael J.
Materasso
As you can see from the chart above, the investment objective/goals and
strategies of the HSBC Investor Core Plus Fixed Income Fund and HSBC Investor
Core Plus Fixed Income Fund (Advisor) are similar to those of the Franklin
Total Return Fund. The Target and Acquiring Funds primarily invest in
investment grade securities, such as U.S. government securities, corporate
debt securities and mortgage- and asset-backed securities. There are,
however, differences that you should consider. The Target Funds may invest
up to 25% of their assets in non-investment grade securities, while the
Franklin Total Return Fund may invest only 20% of its assets in such
securities. In addition, the Target Funds may invest up to 30% of their
total assets in securities denominated in foreign currencies while the
Franklin Total Return Fund may invest only 20% of its assets in such
securities. While these percentages are similar, a higher exposure to
non-investment grade securities and securities denominated in foreign
currencies may increase risk.
In addition, the Franklin Total Return Fund, as part of its principal
investment strategies, may invest in both domestic and foreign issuers.
While the Target Funds also may invest in foreign issuers, as of January 31,
2009, 4.1% of the Franklin Total Return Fund portfolio was comprised of
foreign securities, while 0.5% of the Target Funds' portfolio was comprised
of foreign securities. For more information about Franklin Total Return
Fund's investment goals, principal investment strategies and risks, see the
"Goals and Strategies" and "Main Risks" sections of the Franklin Total Return
Fund prospectus, which has been mailed with this Prospectus/Proxy Statement.
For a discussion of the differences in each Fund's fundamental and
non-fundamental investment policies, see Attachment I to this
Prospectus/Proxy Statement.
COMPARISON OF PRINCIPAL RISKS
The principal risks associated with the HSBC Investor Core Plus Fixed Income
Fund, HSBC Investor Core Plus Fixed Income Fund (Advisor) and the Franklin
Total Return Fund are similar because they have similar investment goals and
principal investment strategies. The actual risks of investing in each Fund
depend on the securities held in each Fund's portfolio and on market
conditions, both of which change over time. Many factors affect a Fund's
performance. A Fund's share price changes daily based on changes in market
conditions and interest rates and in response to other economic, political,
or financial developments. A Fund's reaction to these developments will be
affected by the types of securities in which the Fund invests, the financial
condition, industry and economic sector, and geographic location of an
issuer, and the Fund's level of investment in the securities of that issuer.
When you sell your shares they may be worth more or less than what you paid
for them, which means that you could lose money.
Each Fund is subject to the following principal risks:
CURRENT CREDIT AND GENERAL MARKET CONDITIONS. A Fund's performance will
change daily based on many factors, including the quality of the instruments
in a Fund's investment portfolio, national and international economic
conditions and general market conditions. The fixed-income and credit
markets are experiencing a period of extreme volatility which has negatively
and substantially impacted market liquidity conditions. Initially, the
concerns on the part of market participants were focused on the subprime
segment of the mortgage-backed securities market. However, these concerns
have since expanded to include a broad range of mortgage- and asset-backed
and other debt securities, including those rated investment grade, the U.S.
and international credit and interbank money markets generally, and a wide
range of financial institutions and markets, asset classes and sectors. As a
result, debt instruments are experiencing greater illiquidity, increased
price volatility, credit downgrades, and increased likelihood of default.
Securities that are less liquid are more difficult to value and may be hard
to dispose of. Domestic and international equity markets have also been
experiencing heightened volatility and turmoil, with issuers that have
exposure to the real estate, mortgage and credit markets particularly
affected. During times of market turmoil, investors tend to look to the
safety of securities issued or backed by the U.S. Treasury, causing the
prices of these securities to rise, and the yield to decline. These events
and the continuing market upheavals may continue to have an adverse effect on
price of the securities held by a Fund.
INTEREST RATE RISK. When interest rates rise, debt security prices fall.
The opposite is also true: debt security prices rise when interest rates
fall. In general, securities with longer durations are more sensitive to
these price changes. Increases in interest rates may also have a negative
effect on the types of companies in which the Funds invest because these
companies may find it more difficult to obtain credit to expand, or may have
more difficulty meeting interest payments.
CREDIT RISK. An issuer of debt securities may be unable to make interest
payments and repay principal when due. Changes in an issuer's financial
strength or in a security's credit rating may affect a security's value and,
thus, impact Fund performance.
HIGH YIELD ("JUNK BONDS") RISK. Securities rated below investment grade,
sometimes called "junk bonds," generally have more credit risk than
higher-rated securities. Companies issuing high yield, fixed-income
securities are not as strong financially as those issuing securities with
higher credit ratings. These companies are more likely to encounter
financial difficulties and are more vulnerable to changes in the economy,
such as a recession or a sustained period of rising interest rates, that
could affect their ability to make interest and principal payments. If an
issuer stops making interest and/or principal payments, payments on the
securities may never resume. These securities may be worthless and the Fund
could lose its entire investment.
The prices of high yield, fixed-income securities fluctuate more than
higher-quality securities. Prices are especially sensitive to developments
affecting the company's business and to changes in the ratings assigned by
rating agencies. Prices often are closely linked with the company's stock
prices and typically rise and fall in response to factors that affect stock
prices. In addition, the entire high yield securities market can experience
sudden and sharp price swings due to changes in economic conditions, stock
market activity, large sustained sales by major investors, a high-profile
default, or other factors.
High yield securities generally are less liquid than higher-quality
securities. Many of these securities do not trade frequently, and when they
do their prices may be significantly higher or lower than expected. At
times, it may be difficult to sell these securities promptly at an acceptable
price, which may limit the Fund's ability to sell securities in response to
specific economic events or to meet redemption requests.
DERIVATIVES/LEVERAGE RISK. Futures, options and swap contracts are
considered derivative investments because their performance and value depend
on the performance or value of the underlying asset. Derivative investments
involve costs, may be volatile, and may involve a small investment relative
to the risk assumed. Their successful use may depend on the manager's
ability to predict market movements. If derivatives are used for leverage,
their use would involve leveraging risk as well. Leverage, including
borrowing, may cause a Fund's price and performance to be more volatile than
if the Fund had not been leveraged. This is because leverage tends to
exaggerate the effect of any increase or decrease in the value of the Fund's
portfolio securities. Derivative risks include delivery failure, default by
the other party or the inability to close out a position because the trading
market becomes illiquid. Some derivatives are particularly sensitive to
changes in interest rates.
SWAP RISK. A swap is an agreement to exchange the return generated by one
instrument for the return generated by another instrument (or index). Credit
default swaps are instruments which allow for the full or partial transfer of
third-party credit risk, each in respect to a reference entity or entities,
from one counterparty to the other. The buyer of the credit default swap
receives credit protection or sheds credit risk, whereas the seller of the
swap is selling credit protection or taking on credit risk. The use of swaps
is a highly specialized activity that involves investment techniques and
risks different from those associated with ordinary portfolio securities
transactions. If the other party to the swap defaults, a Fund may, in some
cases, lose periodic payments that it is contractually entitled to receive
and, in other cases, lose the entire principal value of the investment
security. The risk of loss to the Fund for a swap transaction on a net basis
depends on which party is obligated to pay the net amount to the other
party. If the counterparty is obligated to pay the net amount to the Fund,
the risk of loss to the Fund is loss of the entire amount that the Fund is
entitled to receive; if the Fund is obligated to pay the net amount, the
Fund's risk of loss is limited to the net amount due.
MORTGAGE-BACKED SECURITIES AND ASSET-BACKED SECURITIES. Mortgage-backed
securities differ from conventional debt securities because principal is paid
back over the life of the security rather than at maturity. The Fund may
receive unscheduled prepayments of principal before the security's maturity
date due to voluntary prepayments, refinancing or foreclosure on the
underlying mortgage loans. To the Fund this means a loss of anticipated
interest, and a portion of its principal investment represented by any
premium the Fund may have paid. Mortgage prepayments generally increase when
interest rates fall.
Mortgage-backed securities also are subject to extension risk. An unexpected
rise in interest rates could reduce the rate of prepayments on
mortgage-backed securities and extend their life. This could cause the price
of the mortgage-backed securities and the Fund's share price to fall and
would make the mortgage-backed securities more sensitive to interest rate
changes.
In September 2008, the Federal Housing Finance Agency (FHFA), an agency of
the U.S. government, placed Fannie Mae and Freddie Mac into conservatorship,
a statutory process with the objective of returning the entities to normal
business operations. FHFA will act as the conservator to operate Fannie Mae
and Freddie Mac until they are stabilized. It is unclear what effect this
conservatorship will have on the securities issued or guaranteed by Fannie
Mae or Freddie Mac.
Issuers of asset-backed securities may have limited ability to enforce the
security interest in the underlying assets, and credit enhancements provided
to support the securities, if any, may be inadequate to protect investors in
the event of default. Like mortgage-backed securities, asset-backed
securities are subject to prepayment and extension risks. Extension risk is
the risk that an issuer will exercise its right to pay principal on an
obligation held by the Fund (such as an asset-based security) later than
expected. This may happen during a period of rising interest rates.
FOREIGN SECURITIES RISk. Investing in foreign securities, including
securities of foreign governments, typically involves more risks than
investing in U.S. securities. Certain of these risks also may apply to
securities of U.S. companies with significant foreign operations. These
risks can increase the potential for losses in a Fund and affect its share
price.
The political, economic and social structures of some foreign countries may
be less stable and more volatile than those in the U.S. Investments in these
countries may be subject to the risks of internal and external conflicts,
currency devaluations, foreign ownership limitations and tax increases. It
is possible that a government may take over the assets or operations of a
company or impose restrictions on the exchange or export of currency or other
assets. Some countries also may have different legal systems that may make
it difficult for the Fund to vote proxies, exercise shareholder rights, and
pursue legal remedies with respect to its foreign investments. Diplomatic
and political developments, including rapid and adverse political changes,
social instability, regional conflicts, terrorism and war, could affect the
economies, industries and securities and currency markets, and the value of
the Fund's investments, in non-U.S. countries. These factors are extremely
difficult, if not impossible, to predict and take into account with respect
to a Fund's investments.
The risks of foreign investments typically are greater in less developed
countries, sometimes referred to as emerging markets. For example, political
and economic structures in these countries may be less established and may
change rapidly. These countries also are more likely to experience high
levels of inflation, deflation or currency devaluation, which can harm their
economies and securities markets and increase volatility. In fact,
short-term volatility in these markets and declines of 50% or more are not
uncommon. Restrictions on currency trading that may be imposed by emerging
market countries will have an adverse effect on the value of the securities
of companies that trade or operate in such countries.
Foreign companies may not be subject to the same disclosure, accounting,
auditing and financial reporting standards and practices as U.S. companies.
Thus, there may be less information publicly available about foreign
companies than about most U.S. companies.
CURRENCY EXCHANGE RATES RISK. Foreign securities may be issued and traded in
foreign currencies. As a result, their values may be affected by changes in
exchange rates between foreign currencies and the U.S. dollar, as well as
between currencies of countries other than the U.S. For example, if the
value of the U.S. dollar goes up compared to a foreign currency, an
investment traded in that foreign currency will go down in value because it
will be worth fewer U.S. dollars.
INCOME RISK. Since the Fund can only distribute what it earns, the Fund's
distributions to shareholders may decline when interest rates fall.
PORTFOLIO TURNOVER. The manager will sell a security when it believes it is
appropriate to do so, regardless of how long the Fund has held the security.
Because of the anticipated use of certain investment strategies, the Fund's
turnover rate may exceed 100% per year. The rate of portfolio turnover will
not be a limiting factor for the manager in making decisions on when to buy
or sell securities, including entering into mortgage dollar rolls. High
turnover will increase the Fund's transaction costs and may increase your tax
liability if the transactions result in capital gains.
The HSBC Investor Core Plus Fixed Income Fund and HSBC Investor Core Plus
Fixed Income Fund (Advisor) are subject to the following additional principal
risk:
WHEN-ISSUED SECURITIES. The price and yield of securities purchased on a
"when-issued" basis is fixed on the date of the commitment but payment and
delivery are scheduled for a future date. Consequently, these securities
present a risk of loss if the other party to a "when-issued" transaction
fails to deliver or pay for the security. In addition, purchasing securities
on a "when-issued" basis can involve a risk that the yields available in the
market on the settlement date may actually be higher (or lower) than those
obtained in the transaction itself and, as a result, the "when-issued"
security may have a lesser (or greater) value at the time of settlement than
the Fund's payment obligation with respect to that security.
The Franklin Total Return Fund is subject to the following additional
principal risks:
CALL/PREPAYMENT RISK. A debt security may be prepaid (called) before
maturity. An issuer is more likely to call its securities when interest rates
are falling, because the issuer can issue new securities with lower interest
payments. If a security is called, the Fund may have to replace it with a
lower-yielding security. At any time, the Fund may have a large amount of
its assets invested in debt securities subject to call risk. A call of some
or all of these securities may lower the Fund's income and yield and its
distributions to shareholders.
MORTGAGE DOLLAR ROLLS. In a mortgage dollar roll, the Fund takes the risk
that the market price of the mortgage-backed securities will drop below their
future purchase price. The Fund also takes the risk that the mortgage-backed
securities that it repurchases at a later date will have less favorable
market characteristics than the securities originally sold (e.g., greater
prepayment risk). When the Fund uses a mortgage dollar roll, it is also
subject to the risk that the other party to the agreement will not be able to
perform. Mortgage dollar rolls add leverage to the Fund's portfolio and
increase the Fund's sensitivity to interest rate changes.
FLOATING RATE CORPORATE LOANS. The Fund is subject to the risk that the
scheduled interest or principal payments on its floating rate investments
will not be paid. In the event that a nonpayment occurs, the value of that
obligation likely will decline. In turn, the net asset value of the Fund's
shares also will decline. Floating rate investments may be issued in
connection with highly leveraged transactions. Such transactions include
leveraged buyout loans, leveraged recapitalization loans, and other types of
acquisition financing. These obligations are subject to greater credit risks
than other investments including a greater possibility that the borrower may
default or go into bankruptcy.
COMPARATIVE FEE TABLES
The tables below allow a shareholder to compare the sales charges, management
fees and expense ratios of the Target Fund with its corresponding Acquiring
Fund and to analyze the estimated expenses that the Acquiring Fund expects to
bear following the Reorganization. The shareholder fees presented below for
the Acquiring Fund apply both before and after giving effect to the
Reorganization. However, you will not have to pay any front-end sales charge
on any shares of the Acquiring Fund received as part of the Reorganization.
Annual Fund Operating Expenses are paid by each Fund. They include
management fees, administrative costs and distribution and shareholder
servicing fees, including pricing and custody services. In addition,
following the presentation of that information, Annual Fund Operating
Expenses (and related Example Expenses) are presented on a PRO FORMA combined
basis.
The Annual Fund Operating Expenses shown in the table below represent
expenses for the 12 months ended October 31, 2008 for the HSBC Investor Core
Plus Fixed Income Fund/HSBC Investor Core Plus Fixed Income Fund (Advisor)
and Franklin Total Return Fund and those projected for the Franklin Total
Return Fund on a PRO FORMA basis after giving effect to the proposed
Reorganization, and are based on PRO FORMA combined net assets as if the
transaction had occurred on March 31, 2009.
SHAREHOLDER TRANSACTION EXPENSES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS I SHARES/
CLASS A CLASS B CLASS C ADVISOR
SHARES SHARES* SHARES CLASS SHARES**
HSBC INVESTOR CORE PLUS FIXED INCOME FUND
HSBC INVESTOR CORE PLUS FIXED INCOME FUND (ADVISOR)
Maximum sales
charge (load) on
purchases (as a
percentage of
offering 4.75% None None None
price)(1)
Maximum deferred
sales charge
(load) on
redemptions (as None 4.00% 1.00% None
a percentage of
sales price)
Redemption/Exchang
Fee (as a
percentage of 2.00% 2.00% 2.00% 2.00%
amount redeemed
or exchanged)(2)
FRANKLIN TOTAL RETURN FUND
Maximum sales
charge (load) on
purchases (as a
percentage of 4.25%(3) n/a None None
offering price)
Maximum deferred
sales charge
(load) on
redemptions (as None(4) n/a 1.00% None
a percentage of
sales price)
Redemption/Exchang
Fee (as a
percentage of None n/a None None
amount redeemed
or exchanged)
* The Franklin Total Return Fund has Class B shares outstanding, but these
shares are generally no longer offered for sale, except that existing
shareholders of Class B shares may continue as Class B shareholders,
continue to reinvest dividends into Class B shares and exchange their Class
B shares for Class B shares of other Franklin Templeton funds as permitted
by the current exchange privileges.
** Class I Shares of the HSBC Investor Core Plus Fixed Income Fund
(Advisor) are a part of the HSBC Advisor Funds Trust. The Franklin Total
Return Fund offers Advisor Class Shares.
(1) Lower sales charges are available depending on the amounts invested.
(2) A redemption/exchange fee of 2.00% will be charged for any shares
redeemed or exchanged after holding them for less than 30 days. This fee
does not apply to shares purchased through reinvested dividends or capital
gains or shares held in certain omnibus accounts or retirement plans that
cannot implement the fee. No redemption fee will be imposed on the
cancellation of Target Fund shares in connection with the Reorganization.
(3) The dollar amount of the sales charge is the difference between the
offering price of the shares purchased (which factors in the applicable
sales charge in this table) and the net asset value of those shares. Since
the offering price is calculated to two decimal places using standard
rounding criteria, the number of shares purchased and the dollar amount of
the sales charge as a percentage of the offering price and of your net
investment may be higher or lower depending on whether there was a downward
or upward rounding.
(4) There is a 0.75% contingent deferred sales charge that applies to
investments of $1 million or more, which will not apply to shares received
as part of the Reorganizations. See "Sales Charges - Class A" under
"Choosing a Share Class" in the Franklin Total Return Fund prospectus.
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND
ASSETS)
CLASS I SHARES/
CLASS A CLASS B CLASS C ADVISOR
SHARES SHARES* SHARES CLASS SHARES**
HSBC INVESTOR CORE PLUS FIXED INCOME FUND/
HSBC INVESTOR CORE PLUS FIXED INCOME FUND (ADVISOR) (1)
Management Fee 0.48% 0.48% 0.48% 0.48%
Distribution 0.00%(2) 0.75% 0.75% None
(12b-1 Fee)
Shareholder 0.25% 0.25% 0.25% None
servicing Fee
Other operating 0.73% 0.73% 0.73% 0.24%
expenses
Total Fund
Operating
Expenses 1.46% 2.21% 2.21% 0.72%
Fee Waiver
and/or expense 0.76% 0.76% 0.76% 0.27%
reimbursement(3)
Net operating 0.70% 1.45% 1.45% 0.45%
expenses
FRANKLIN TOTAL RETURN FUND
Management 0.35% n/a 0.35% 0.35%
Fee(4)
Distribution 0.25% n/a 0.65% None
(12b-1 Fee)
Other operating 0.44% n/a 0.44% 0.44%
expenses
Acquired fund
fees and 0.03% n/a 0.03% 0.03%
expenses(5)
Total annual
Fund operating 1.07% n/a 1.47% 0.82%
expenses(4)
Management fee -0.19% n/a -0.19% -0.19%
reduction(4)
Net annual Fund
operating 0.88% n/a 1.28% 0.63%
expenses(4, 5)
FRANKLIN TOTAL
RETURN FUND (PRO
FORMA COMBINED)
Management Fee(4) 0.35% n/a 0.35% 0.35%
Distribution 0.25% n/a 0.65% None
(12b-1 Fee)
Shareholder None None None None
servicing Fee
Other operating 0.44% n/a 0.44% 0.44%
expenses
Acquired fund
fees and 0.03% n/a 0.03% 0.03%
expenses(5)
Total Annual
Fund Operating 1.07% n/a 1.47% 0.82%
Expenses(4)
Fee Waiver
and/or expense -0.19% n/a -0.19% -0.19%
reimbursement(4)
Net operating 0.88% n/a 1.28% 0.63%
expenses(4)
* The Franklin Total Return Fund has Class B shares outstanding,
but these shares are generally no longer offered for sale, except
that existing shareholders of Class B shares may continue as
Class B shareholders, continue to reinvest dividends into Class B
shares and exchange their Class B shares for Class B shares of
other Franklin Templeton funds as permitted by the current
exchange privileges.
** Class I shares are issued by HSBC Investor Core Plus Fixed Income
Fund (Advisor). The Franklin Total Return Fund offers Advisor
Class shares. (1) The table reflects the combined fees and
expenses of both the HSBC Investor Core Plus Fixed Income
Fund/HSBC Investor Core Plus Fixed Income Fund (Advisor) and the
HSBC Investor Core Plus Fixed Income Portfolio. See the "How do
the Reorganizations affect certain Target Funds' master-feeder
structures?" section of this Prospectus/Proxy Statement for more
information regarding the master-feeder structure of the Target
Funds.
(2) There is a non-compensatory 12b-1 plan for Class A shares, which
authorizes payments of up to 0.25% of the Target Fund's average
daily net assets attributable to Class A shares. No payments have
been made and there is no current intention to charge the fee.
(3) AMUS, the Target Funds' adviser, has entered into a written
expense limitation agreement with the Target Funds under which it
will limit total expenses of the Funds (excluding interest,
taxes, brokerage commissions, acquired fund fees and expenses and
extraordinary expenses) to an annual rate of 0.70% for Class A
shares, 1.45% for Class B shares, 1.45% for Class C shares and
0.45% for Class I shares. The expense limitation is contractual
and shall be in effect until March 1, 2010.
(4) The investment manager and administrator have contractually
agreed to waive or limit their respective fees and to assume as
their own expense certain expenses otherwise payable by the
Acquiring Fund so that common expenses (i.e., a combination of
investment management fees, fund administration fees, and other
expenses, but excluding the Rule 12b-1 fees and acquired fund
fees and expenses) for each class of the Acquiring Fund do not
exceed 0.60% (other than certain non-routine expenses or costs,
including those relating to litigation, indemnification,
reorganizations, and liquidations) until February 28, 2010. The
manager also had agreed in advance to reduce its fee to reflect
reduced services resulting from the Acquiring Fund's investment
in a Franklin Templeton money fund. The manager is required by
the Acquiring Fund's board of trustees and an exemptive order by
the SEC to reduce its fee if the Acquiring Fund invests in a
Franklin Templeton money fund.
(5) Net Annual Fund Operating Expenses differ from the ratio of
expenses to average net assets shown in the Financial Highlights,
which reflect the operating expenses of the Fund and do not
include acquired fund fees and expenses.
EXPENSE EXAMPLE
The Example is intended to help you compare the cost of investing in shares
of the HSBC Investor Core Plus Fixed Income Fund or HSBC Investor Core Plus
Fixed Income Fund (Advisor) with the cost of investing in the Franklin Total
Return Fund currently and on a PRO FORMA basis, and allows you to compare
these costs with the cost of investing in other mutual funds. It illustrates
the amount of fees and expenses you would pay at the end of the time periods
indicated, assuming the following:
o $10,000 investment
o 5% annual return
o no changes in the Fund's operating expenses
The costs reflect the effects of expense limitations and/or fee waivers on
the part of the investment adviser for the period of the contractual
limitation and/or waiver. Absent such arrangements, the costs would be
higher.
Because this Example is hypothetical and for comparison only, your actual
costs may be higher or lower.
HSBC Investor Core
Plus Fixed Income Franklin Total Franklin Total Return Fund
Fund* Return Fund (estimated PRO FORMA)**
-----------------------------------------------------------------------------------------
1 3 5 10 1 3 5 10 1 3 5 10
Year Years Years Years Year Years Years Years Year Years Years Years
Class A $543 $844 $1,166 $2,076 $511(1) $727 $960 $1,62 $511 $727 $960 $1,628
Shares
Class B
Shares
Assuming $548 $818 $1,115 $2,119 n/a n/a n/a n/a n/a n/a n/a n/a
redemption
Assuming no $148 $618 $1,115 $2,119 n/a n/a n/a n/a n/a n/a n/a n/a
redemption
Class C
Shares
Assuming $248 $618 $1,115 $2,485 $230 $440 $772 $1,710 $230 $440 $772 $1,710
redemption
Assuming no $148 $618 $1,115 $2,485 $130 $440 $772 $1,710 $130 $440 $772 $1,710
redemption
Class I
Shares/Advisor $46 $203 $374 $869 $64 $236 $423 $963 $64 $236 $423 $963
Class Shares
* The Example reflects the combined fees and expenses of both the HSBC
Investor Core Plus Fixed Income Fund/HSBC Investor Core Plus Fixed Income
Fund (Advisor) and the HSBC Investor Core Plus Fixed Income Portfolio. For
Class B and C shares, the amount of expenses varies depending upon whether
you redeem at the end of such periods, because the contingent deferred
sales charge ("CDSC") is taken into account as well as other expenses.
** The estimated pro forma expenses for the Franklin Total Return Fund will
not change if calculated based on the combination of the HSBC Investor Core
Plus Fixed Income Fund, HSBC Investor Core Plus Fixed Income Fund and HSBC
Investor Intermediate Duration Fixed Income Fund into the Franklin Total
Return Fund.
(1) Assumes a CDSC will not apply.
The projected post-Reorganization PRO FORMA combined Annual Fund Operating
Expenses and Example Expenses presented above are based on numerous material
assumptions, including that the current contractual agreements will remain in
place for one year. Although these projections represent good faith
estimates, there can be no assurance that any particular level of expenses or
expense savings will be achieved because expenses depend on a variety of
factors, including the future level of the Acquiring Fund's assets, many of
which are beyond the control of each Acquiring Fund or Franklin Advisers, Inc.
If a Reorganization is approved, the resulting combined Fund will retain the
Acquiring Fund's expense structure.
COMPARISON OF FUND PERFORMANCE
The following table shows, for the periods shown, the (unaudited) average
annual total return for Class I shares of the Target Fund and Advisor Class
shares of the Acquiring Fund, along with each Fund's primary benchmark
index. An index has an inherent performance advantage over the Funds since
the index has no cash in its portfolio and incurs no operating expenses. An
investor cannot invest directly in an index. The table assumes reinvestment
of dividends and distributions, but does not reflect sales charges. If sales
charges were reflected, returns would be less than those shown. The returns
for other share classes will differ from the returns shown because of
differences in expenses of each class. Performance is based on net expenses
during the periods and takes into account fee waivers and/or expense
reimbursements, if any, that may have been in place. If such waivers and/or
reimbursements had not been in effect, performance would have been lower.
Performance shown for the Target Fund also reflects the impact of payments
received during the years ended December 31, 2006 and December 31, 2008, in
connection with certain class action settlements. Absent such payments, the
Target Fund returns would have been lower. EACH FUND'S PAST PERFORMANCE IS
NOT A GUARANTEE OF FUTURE RESULTS.
Lipper
CLASS I Intermediate
HSBC Investor ADVISOR CLASS Barclay's Investment
Core Plus Fixed Franklin Capital U.S. Grade Debt
Income Fund Total Aggregate Bond Funds
(Advisor) Return Fund Index (1)(2) Average (3)
------------------------------------------------------------
1999 -1.08% -.72% -.82% -1.28%
2000 11.22% 10.80% 11.63% 10.08%
2001 9.12% 7.10% 8.44% 7.68%
2002 8.56% 8.47% 10.26% 8.27%
2003 4.53% 8.16% 4.10% 4.77%
2004 4.26% 5.53% 4.34% 3.93%
2005 2.40% 2.06% 2.43% 1.82%
2006 6.99% 5.12% 4.33% 4.06%
2007 5.18% 5.12% 6.97% 4.70%
2008 -7.07% -5.23% 5.24% -4.43%
YTD (as of 2.18% 1.43%
March 31,
2009)
(1) The unmanaged Barclay's Capital U.S. Aggregate Bond Index is the benchmark
index for the HSBC Investor Core Plus Fixed Income Fund, HSBC Investor Core
Plus Fixed Income Fund (Advisor) and the Franklin Total Return Fund. The
index represents securities that are SEC-registered, taxable and dollar
denominated. The index covers the U.S. investment grade fixed-rate bond
market, with index components for government and corporate securities,
mortgage pass-through securities and asset-backed securities. All issues
included must have at least one year to final maturity and must be rated
investment grade (Baa3 or better) by Moody's Investors Service. They must
also be dollar denominated and nonconvertible. Total return includes price
appreciation/depreciation and income as a percentage of the original
investment. The Index is rebalanced monthly by market capitalization. One
cannot invest directly in an index, nor is an index representative of the
Fund's portfolio.
(2) On November 1, 2008, the Lehman Brothers U.S. Aggregate Bond Index was
rebranded as the Barclays Capital U.S. Aggregate Bond Index.
(3) The Lipper Intermediate Investment Grade Debt Funds Average is an
additional benchmark index used by the HSBC Investor Core Plus Fixed Income
Fund and the HSBC Investor Core Plus Fixed Income Fund (Advisor). The
Lipper mutual fund average is an equally weighted average composed of
mutual funds with similar investment objectives.
ACQUIRING FUND PERFORMANCE
For additional information regarding the performance of the Acquiring Fund,
including the annual total returns for the past ten years and the 1-, 5- and
10- year average annual total returns, see the "Performance" and "Financial
Highlights" sections of the Franklin Total Return Fund prospectus, which has
been mailed with this Prospectus/Proxy Statement.
KEY DIFFERENCES IN RIGHTS OF TARGET FUND AND ACQUIRING FUND SHAREHOLDERS
HSBC Investor Core Plus Fixed Income Fund and HSBC Investor Core Plus Fixed
Income Fund (Advisor) are separate series of HSBC Investor Funds and HSBC
Advisor Funds Trust, respectively, each of which is a Massachusetts business
trust. Class A, Class B, and Class C shares of HSBC Core Plus Fixed Income
Fund are governed by the Declaration of Trust and Bylaws of HSBC Investor
Funds. Class I shares of HSBC Core Plus Fixed Income Fund (Advisor) are
governed by the Declaration of Trust and Bylaws of HSBC Advisor Funds Trust.
Franklin Total Return Fund is organized as a separate series of Franklin
Investors Securities Trust, a Delaware statutory trust, and is governed by an
Agreement and Declaration of Trust and Bylaws. Key differences affecting the
rights of shareholders under the HSBC Investor Core Plus Fixed Income Fund's
Declarations of Trust/Bylaws and the Franklin Total Return Fund's Declaration
of Trust/Bylaws are presented below.
HSBC INVESTOR CORE PLUS FIXED INCOME
FUND FRANKLIN TOTAL RETURN FUND
- -----------------------------------------------------------------------------
Quorum for a shareholder's meeting Quorum for a shareholders' meeting
is generally a majority of the is generally forty per cent of the
outstanding shares present in person shares entitled to vote, which are
or by proxy. present in person or by proxy.
Generally, the vote of 67 percent or Generally, a majority of the votes
more of the voting securities cast at a meeting at which a quorum
present at a meeting, if the holders is present shall decide any
of more than 50 percent of the questions, unless the Agreement and
outstanding voting securities are Declaration of Trust or Bylaws
present or represented by proxy, or otherwise require.
of more than 50 percent of the
outstanding voting securities,
whichever is less, unless the
Declaration of Trust or Bylaws
otherwise require.
Maximum number of days prior to a Maximum number of days prior to a
shareholders' meeting during which a shareholders' meeting during which
record date may be set by that a record date may be set by that
Fund's Board is 60. Fund's Board is 120.
Shareholders must be given at least Shareholders must be given at least
10 and not more than 60 days notice 10 and not more than 120 days
of a shareholder meeting. notice of shareholder meeting.
Shareholders of the Investor Trust Shareholders can't request
(A, B, C shares) can request a shareholder meeting for the purpose
shareholder meeting under certain of removing a Trustee, but can
circumstances for the purpose of request a meeting to elect
removing a Trustee; Otherwise, additional trustees, provided
shareholders may vote to remove a certain conditions are met.
Trustee either by declaration in Shareholders may vote to remove a
writing or at a shareholder meeting Trustee at a shareholder meeting
called for that purpose. called for that purpose.
HSBC INVESTOR CORE PLUS FIXED INCOME
FUND (ADVISOR) FRANKLIN TOTAL RETURN FUND
- ----------------------------------------------------------------------------
Quorum for a shareholder's meeting Quorum for a shareholders' meeting
is generally a majority of the is generally forty per cent of the
outstanding shares entitled to vote, shares entitled to vote, which are
which are present in person or by present in person or by proxy.
proxy.
Generally, the vote of 67 percent or Generally, a majority of the votes
more of the voting securities cast at a meeting at which a quorum
present at a meeting, if the holders is present generally shall decide
of more than 50 percent of the any questions, unless the Agreement
outstanding voting securities are and Declaration of Trust or Bylaws
present or represented by proxy, or otherwise require.
of more than 50 percent of the
outstanding voting securities,
whichever is less, unless the
Declaration of Trust or Bylaws
otherwise require.
Maximum number of days prior to a Maximum number of days prior to a
shareholders' meeting during which a shareholders' meeting during which
record date may be set by that a record date may be set by that
Fund's Board is 60. Fund's Board is 120.
Shareholders must be given at least Shareholders must be given 120 days
10 and not more than 60 days notice notice of a shareholder meeting.
of a shareholder meeting.
Shareholders of the Advisor Trust (I Shareholders can't request
shares) can request a shareholder shareholder meeting for the purpose
meeting under certain circumstances of removing a Trustee, but can
for the purpose of removing a request a meeting to elect
Trustee; Otherwise, a Trustee may be additional trustees, provided
removed at any meeting of certain conditions are met.
Shareholders by a vote of 67% of the Shareholders may vote to remove a
outstanding Shares of each series. Trustee at a shareholder meeting
called for that purpose.
EXCHANGE PRIVILEGE FOR HOLDERS OF CLASS A SHARES OF THE HSBC INVESTOR CORE
PLUS FIXED INCOME FUND
Class A shareholders of the HSBC Investor Core Plus Fixed Income Fund who
receive Class A shares of the Franklin Total Return Fund in connection with
the Reorganization will be eligible to exchange those shares for Advisor
Class shares of the Franklin Total Return Fund following the Reorganization.
Following the closing of the Reorganization, each HSBC Investor Core Plus
Fixed Income Fund Class A shareholder that received Class A shares of the
Franklin Total Return Fund may exchange those shares for Advisor Class shares
of the Franklin Total Return Fund, provided that, the HSBC Investor Core Plus
Fixed Income Fund Class A shareholder meets the eligibility requirements for
investment in Advisor Class shares of the Franklin Total Return Fund.
Advisor Class shares of the Franklin Total Return Fund have different
class-specific expenses and a lower expense ratio than Class A shares. The
two share classes, however, generally have the same or similar liquidation
and other rights. The eligibility criteria and other information regarding
Advisor Class shares of the Franklin Total Return Fund can be found in the
Franklin Total Return Fund prospectus, which has been mailed with this
Prospectus/Proxy Statement.
PROPOSAL (1)(A): APPROVAL OF THE AGREEMENT AND PLAN OF REORGANIZATION BY
SHAREHOLDERS OF CLASS A, CLASS B AND CLASS C SHARES OF THE HSBC INVESTOR CORE
PLUS FIXED INCOME FUND AS IT RELATES TO THE CLASS A, CLASS B, AND CLASS C
SHARES OF THE FUND
Shareholders of Class A, Class B, and Class C shares of the HSBC Investor
Core Plus Fixed Income Fund are being asked to approve the Plan as it relates
to the Class A, Class B, and Class C shares of the Fund.
Class A, Class B, and Class C shares of the HSBC Investor Core Plus Fixed
Income Fund are governed by the Declaration of Trust and Bylaws of HSBC
Investor Funds. Under these governing documents, approval of the
Reorganization relating to the Class A, Class B, and Class C shares of the
Fund requires the affirmative vote of a 1940 Act Majority (as previously
defined). As stated above the approval of the Reorganization relating to the
Class A, Class B and Class C shares is not dependent upon the approval of the
Reorganization of the Class I shares of the HSBC Investor Core Plus Fixed
Income Fund (Advisor). In the event shareholders of Class A, Class B and
Class C shares do not approve the Reorganization, AMUS and the Board of
Trustees will determine what, if any, additional action should be taken with
respect to the Class A, Class B and Class C shares of the Fund.
PROPOSAL (1)(B): APPROVAL OF THE AGREEMENT AND PLAN OF REORGANIZATION BY
SHAREHOLDERS OF CLASS I SHARES OF THE HSBC INVESTOR CORE PLUS FIXED INCOME
FUND (ADVISOR) AS IT RELATES TO THE CLASS I SHARES OF THE FUND
Shareholders of Class I shares of the HSBC Core Plus Fixed Income Fund
(Advisor) are being asked to approve the Plan as it relates to the Class I
shares of the Fund.
Class I shares of the HSBC Investor Core Plus Fixed Income Fund (Advisor) are
governed by the Declaration of Trust and Bylaws of HSBC Advisor Funds Trust.
Under these governing documents, approval of the Reorganization relating to
the Class I shares of the Fund requires the affirmative vote of a 1940 Act
Majority (as previously defined). As stated above the approval of the
Reorganization relating to the Class I shares is not dependent upon the
approval of the Reorganization of the Class A, Class B and Class C shares of
the HSBC Investor Core Plus Fixed Income Fund. In the event shareholders of
Class I shares do not approve the Reorganization, AMUS and the Board of
Trustees will determine what, if any, additional action should be taken with
respect to the Class I shares of the HSBC Core Plus Fixed Income Fund.
THE BOARD OF TRUSTEES RECOMMENDS THAT YOU VOTE FOR PROPOSALS 1(A) AND 1(B),
AS APPROPRIATE.
PROPOSAL 2
REORGANIZATION OF
HSBC INVESTOR INTERMEDIATE DURATION FIXED INCOME FUND
INTO
FRANKLIN TOTAL RETURN FUND
SUMMARY OF PROPOSAL
Shareholders of the HSBC Investor Intermediate Duration Fixed Income Fund are
being asked to approve the Plan as it relates to the HSBC Investor
Intermediate Duration Fixed Income Fund's Reorganization. As a result of the
Reorganization, shareholders of the HSBC Investor Intermediate Duration Fixed
Income Fund would receive shares in the Franklin Total Return Fund in an
amount equal to the net asset value of their holdings in the HSBC Investor
Intermediate Duration Fixed Income Fund as of the Closing Date, as determined
pursuant to the Plan.
You should consult the Prospectus dated March 1, 2009 (as supplemented), for
more information about the Franklin Total Return Fund, a series of Franklin
Investors Securities Trust, which has been mailed with this Prospectus/Proxy
Statement and is incorporated herein by reference. A form of the Plan is
attached hereto as Attachment II to this Prospectus/Proxy Statement. For
more information regarding the calculation of the number of Acquiring Fund
shares to be issued in connection with the Reorganization, please refer to
the "How will the number of shares of an Acquiring Fund that I will receive
be determined?" section above.
COMPARISON OF INVESTMENT OBJECTIVES/GOALS AND STRATEGIES
The following summarizes the investment objective/goals, strategies and
management differences, if any, between HSBC Investor Intermediate Duration
Fixed Income Fund and the Franklin Total Return Fund:
HSBC Investor
Intermediate Duration Franklin Total Return
Fixed Income Fund Fund
- ----------------------------------------------------------------------------
Investment The investment objective The Fund's principal
Goal(s)/Objective(s) of the HSBC Investor investment goal is to
Intermediate Duration provide high current
Fixed Income Fund is to income, consistent with
maximize total return, preservation of capital.
consistent with Its secondary goal is
reasonable risk. The capital appreciation
"total return" sought by over the long term.
the Fund consists of
income earned on
investments, plus capital
appreciation, if any,
which generally arises
from decreases in
interest rates or
improving credit
fundamentals for a
particular sector or
security.
Investment The Fund seeks to achieve Under normal market
Strategies its investment objective conditions, the Fund
by investing all of its invests at least 80% of
assets in the HSBC its assets in investment
Investor Intermediate grade debt securities
Duration Fixed Income and investments,
Portfolio (the including government and
"Portfolio"), which has corporate debt
the same investment securities, mortgage-
objective as the Fund. and asset-backed
securities, investment
grade corporate loans
Under normal market and futures with
conditions, the Portfolio reference securities
invests at least 80% of that are investment
its net assets in fixed grade. The Fund focuses
income securities. These on government and
securities may include corporate debt
U.S. government securities and mortgage-
securities and corporate and asset-backed
debt securities, securities.
commercial paper,
mortgage-backed Additionally, the Fund
securities and may invest up to 20% of
asset-backed securities, its total assets in
and similar securities non-investment grade
issued by foreign debt securities,
governments and including up to 5% in
corporations. The securities rated lower
Portfolio invests than B by S&P or
primarily in investment Moody's, which may
grade debt securities, include defaulted
but may invest up to 25% securities.
of its total assets in
high yield securities In order to effectively
("junk bonds"). The manage cash flows in or
Portfolio may invest up out of the Fund, the
to 30% of its total Fund may buy and sell
assets in securities financial futures
denominated in foreign contracts or options on
currencies, including, to such contracts. The Fund
a limited extent, those may also, from time to
in emerging markets and time, enter into forward
may invest beyond this currency contracts
limit in U.S. (including cross
dollar-denominated currency forwards) and
securities of foreign currency futures
issuers. contracts to try to
hedge (protect) against
Additionally, the currency exchange rate
Portfolio may invest more fluctuations or to
than 50% of its assets in generate income or
mortgage-backed returns for the Fund.
securities including
mortgage pass-through The Fund may invest up
securities, to 25% of its total
mortgage-backed bonds and assets in foreign
collateralized mortgage securities, including up
obligations (CMOs) that to 20% of its total
carry a guarantee of assets in non-U.S.
timely payment. dollar denominated
securities and up to 10%
The Portfolio may invest of its total assets
in derivative in emerging market
instruments, including, securities.
but not limited to,
financial and foreign
currency futures
contracts as well as
options on securities,
foreign currencies, and
foreign currency futures.
The Portfolio intends to
do so primarily for
hedging purposes or for
cash management purposes,
as a substitute for
investing directly in
fixed income securities,
but may also do so to
enhance return when the
subadviser believes the
investment will assist
the Portfolio in
achieving its investment
objectives.
Investment Adviser HSBC Global Asset Franklin Advisers, Inc.
Management (USA) Inc.
Subadviser Halbis Capital Management Franklin Templeton
(USA) Inc. Institutional, LLC
Portfolio Manager(s) Kim Golden Roger Bayston, Kent
Burns, Christopher J.
Molumphy, David Yuen,
Michael J. Materasso
As you can see from the chart above, the investment objective/goals and
strategies of the HSBC Investor Intermediate Duration Fixed Income Fund are
similar to those of the Franklin Total Return Fund. Both primarily invest in
investment grade securities, such as U.S. government securities, corporate
debt securities and mortgage- and asset-backed securities. There are,
however, differences that you should consider. The HSBC Investor
Intermediate Duration Fixed Income Fund may invest up to 25% of its assets in
non-investment grade securities, while the Franklin Total Return Fund may
invest only 20% of its assets in such securities. In addition, the HSBC
Investor Intermediate Duration Fixed Income Fund may invest up to 30% of its
total assets in securities denominated in foreign currencies while the
Franklin Total Return Fund may invest only 20% of its assets in such
securities. While these percentages are similar, a higher exposure to
non-investment grade securities and securities denominated in foreign
currencies may increase a Fund's risk.
As noted above, the Franklin Total Return Fund, as part of its principal
investment strategies, may invest in both domestic and foreign issuers.
While the HSBC Investor Intermediate Duration Fixed Income Fund also may
invest in foreign issuers, as of January 31, 2009, 4.1% of the Franklin Total
Return Fund portfolio was comprised of foreign securities, while 0.5% of the
HSBC Investor Intermediate Duration Fixed Income Fund's portfolio was
comprised of foreign securities. For more information about Franklin Total
Return Fund's investment goals, principal investment strategies and risks,
see the "Goals and Strategies" and "Main Risks" sections of the Franklin
Total Return Fund prospectus, which has been mailed with this
Prospectus/Proxy Statement. For a discussion of the differences in each
Fund's fundamental and non-fundamental investment policies, see Attachment I
to this Prospectus/Proxy Statement.
COMPARISON OF PRINCIPAL RISKS
The principal risks associated with the HSBC Investor Intermediate Duration
Fixed Income Fund and the Franklin Total Return Fund are similar because they
have similar investment goals and principal investment strategies. The
actual risks of investing in each Fund depend on the securities held in each
Fund's portfolio and on market conditions, both of which change over time.
Many factors affect a Fund's performance. A Fund's share price changes daily
based on changes in market conditions and interest rates and in response to
other economic, political, or financial developments. A Fund's reaction to
these developments will be affected by the types of securities in which the
Fund invests, the financial condition, industry and economic sector, and
geographic location of an issuer, and the Fund's level of investment in the
securities of that issuer. When you sell your shares they may be worth more
or less than what you paid for them, which means that you could lose money.
Both Funds are subject to the following principal risks:
CURRENT CREDIT AND GENERAL MARKET CONDITIONS. A Fund's performance will
change daily based on many factors, including the quality of the instruments
in a Fund's investment portfolio, national and international economic
conditions and general market conditions. The fixed-income and credit
markets are experiencing a period of extreme volatility which has negatively
and substantially impacted market liquidity conditions. Initially, the
concerns on the part of market participants were focused on the subprime
segment of the mortgage-backed securities market. However, these concerns
have since expanded to include a broad range of mortgage- and asset-backed
and other debt securities, including those rated investment grade, the U.S.
and international credit and interbank money markets generally, and a wide
range of financial institutions and markets, asset classes and sectors. As a
result, debt instruments are experiencing greater illiquidity, increased
price volatility, credit downgrades, and increased likelihood of default.
Securities that are less liquid are more difficult to value and may be hard
to dispose of. Domestic and international equity markets have also been
experiencing heightened volatility and turmoil, with issuers that have
exposure to the real estate, mortgage and credit markets particularly
affected. During times of market turmoil, investors tend to look to the
safety of securities issued or backed by the U.S. Treasury, causing the
prices of these securities to rise, and the yield to decline. These events
and the continuing market upheavals may continue to have an adverse effect on
price of the securities held by the Fund.
INTEREST RATE RISK. When interest rates rise, debt security prices fall.
The opposite is also true: debt security prices rise when interest rates
fall. In general, securities with longer durations are more sensitive to
these price changes. Increases in interest rates may also have a negative
effect on the types of companies in which the Funds invest because these
companies may find it more difficult to obtain credit to expand, or may have
more difficulty meeting interest payments.
CREDIT RISK. An issuer of debt securities may be unable to make interest
payments and repay principal when due. Changes in an issuer's financial
strength or in a security's credit rating may affect a security's value and,
thus, impact Fund performance.
CALL/PREPAYMENT RISK. A debt security may be prepaid (called) before
maturity. An issuer is more likely to call its securities when interest rates
are falling, because the issuer can issue new securities with lower interest
payments. If a security is called, the Fund may have to replace it with a
lower-yielding security. At any time, the Fund may have a large amount of
its assets invested in debt securities subject to call risk. A call of some
or all of these securities may lower the Fund's income and yield and its
distributions to shareholders.
HIGH YIELD ("JUNK BONDS") RISK. Securities rated below investment grade,
sometimes called "junk bonds," generally have more credit risk than
higher-rated securities. Companies issuing high yield, fixed-income
securities are not as strong financially as those issuing securities with
higher credit ratings. These companies are more likely to encounter
financial difficulties and are more vulnerable to changes in the economy,
such as a recession or a sustained period of rising interest rates, that
could affect their ability to make interest and principal payments. If an
issuer stops making interest and/or principal payments, payments on the
securities may never resume. These securities may be worthless and the Fund
could lose its entire investment.
The prices of high yield, fixed-income securities fluctuate more than
higher-quality securities. Prices are especially sensitive to developments
affecting the company's business and to changes in the ratings assigned by
rating agencies. Prices often are closely linked with the company's stock
prices and typically rise and fall in response to factors that affect stock
prices. In addition, the entire high yield securities market can experience
sudden and sharp price swings due to changes in economic conditions, stock
market activity, large sustained sales by major investors, a high-profile
default, or other factors.
High yield securities generally are less liquid than higher-quality
securities. Many of these securities do not trade frequently, and when they
do their prices may be significantly higher or lower than expected. At
times, it may be difficult to sell these securities promptly at an acceptable
price, which may limit the Fund's ability to sell securities in response to
specific economic events or to meet redemption requests.
Derivatives/Leverage Risk. Futures, options and swap contracts are
considered derivative investments because their performance and value depend
on the performance or value of the underlying asset. Derivative investments
involve costs, may be volatile, and may involve a small investment relative
to the risk assumed. Their successful use may depend on the manager's
ability to predict market movements. If derivatives are used for leverage,
their use would involve leveraging risk as well. Leverage, including
borrowing, may cause a Fund's price and performance to be more volatile than
if the Fund had not been leveraged. This is because leverage tends to
exaggerate the effect of any increase or decrease in the value of the
Portfolio's portfolio securities. Derivative risks include delivery failure,
default by the other party or the inability to close out a position because
the trading market becomes illiquid. Some derivatives are particularly
sensitive to changes in interest rates. The risk of loss to the Fund for a
swap transaction on a net basis depends on which party is obligated to pay
the net amount to the other party. If the counterparty is obligated to pay
the net amount to the Fund, the risk of loss to the Fund is loss of the
entire amount that the Fund is entitled to receive; if the Fund is obligated
to pay the net amount, the Fund's risk of loss is limited to the net amount
due.
MORTGAGE-BACKED SECURITIES AND ASSET-BACKED SECURITIES. Mortgage-backed
securities differ from conventional debt securities because principal is paid
back over the life of the security rather than at maturity. The Fund may
receive unscheduled prepayments of principal before the security's maturity
date due to voluntary prepayments, refinancing or foreclosure on the
underlying mortgage loans. To the Fund this means a loss of anticipated
interest, and a portion of its principal investment represented by any
premium the Fund may have paid. Mortgage prepayments generally increase when
interest rates fall.
Mortgage-backed securities also are subject to extension risk. An unexpected
rise in interest rates could reduce the rate of prepayments on
mortgage-backed securities and extend their life. This could cause the price
of the mortgage-backed securities and the Fund's share price to fall and
would make the mortgage-backed securities more sensitive to interest rate
changes.
In September 2008, the Federal Housing Finance Agency (FHFA), an agency of
the U.S. government, placed Fannie Mae and Freddie Mac into conservatorship,
a statutory process with the objective of returning the entities to normal
business operations. FHFA will act as the conservator to operate Fannie Mae
and Freddie Mac until they are stabilized. It is unclear what effect this
conservatorship will have on the securities issued or guaranteed by Fannie
Mae or Freddie Mac.
Issuers of asset-backed securities may have limited ability to enforce the
security interest in the underlying assets, and credit enhancements provided
to support the securities, if any, may be inadequate to protect investors in
the event of default. Like mortgage-backed securities, asset-backed
securities are subject to prepayment and extension risks. Extension risk is
the risk that an issuer will exercise its right to pay principal on an
obligation held by the Fund (such as an asset-based security) later than
expected. This may happen during a period of rising interest rates.
FOREIGN SECURITIES RISK. Investing in foreign securities, including
securities of foreign governments, typically involves more risks than
investing in U.S. securities. Certain of these risks also may apply to
securities of U.S. companies with significant foreign operations. These
risks can increase the potential for losses in a Fund and affect its share
price.
The political, economic and social structures of some foreign countries may
be less stable and more volatile than those in the U.S. Investments in these
countries may be subject to the risks of internal and external conflicts,
currency devaluations, foreign ownership limitations and tax increases. It
is possible that a government may take over the assets or operations of a
company or impose restrictions on the exchange or export of currency or other
assets. Some countries also may have different legal systems that may make
it difficult for the Fund to vote proxies, exercise shareholder rights, and
pursue legal remedies with respect to its foreign investments. Diplomatic
and political developments, including rapid and adverse political changes,
social instability, regional conflicts, terrorism and war, could affect the
economies, industries and securities and currency markets, and the value of
the Fund's investments, in non-U.S. countries. These factors are extremely
difficult, if not impossible, to predict and take into account with respect
to a Fund's investments.
The risks of foreign investments typically are greater in less developed
countries, sometimes referred to as emerging markets. For example, political
and economic structures in these countries may be less established and may
change rapidly. These countries also are more likely to experience high
levels of inflation, deflation or currency devaluation, which can harm their
economies and securities markets and increase volatility. In fact,
short-term volatility in these markets and declines of 50% or more are not
uncommon. Restrictions on currency trading that may be imposed by emerging
market countries will have an adverse effect on the value of the securities
of companies that trade or operate in such countries.
Foreign companies may not be subject to the same disclosure, accounting,
auditing and financial reporting standards and practices as U.S. companies.
Thus, there may be less information publicly available about foreign
companies than about most U.S. companies.
CURRENCY EXCHANGE RATES RISK. Foreign securities may be issued and traded in
foreign currencies. As a result, their values may be affected by changes in
exchange rates between foreign currencies and the U.S. dollar, as well as
between currencies of countries other than the U.S. For example, if the
value of the U.S. dollar goes up compared to a foreign currency, an
investment traded in that foreign currency will go down in value because it
will be worth fewer U.S. dollars.
INCOME RISK. Since the Fund can only distribute what it earns, the Fund's
distributions to shareholders may decline when interest rates fall.
PORTFOLIO TURNOVER. The manager will sell a security when it believes it is
appropriate to do so, regardless of how long the Fund has held the security.
Because of the anticipated use of certain investment strategies, the Fund's
turnover rate may exceed 100% per year. The rate of portfolio turnover will
not be a limiting factor for the manager in making decisions on when to buy
or sell securities, including entering into mortgage dollar rolls. High
turnover will increase the Fund's transaction costs and may increase your tax
liability if the transactions result in capital gains.
The HSBC Investor Intermediate Duration Fixed Income Fund is subject to the
following additional principal risks:
WHEN-ISSUED SECURITIES. The price and yield of securities purchased on a
"when-issued" basis is fixed on the date of the commitment but payment and
delivery are scheduled for a future date. Consequently, these securities
present a risk of loss if the other party to a "when-issued" transaction
fails to deliver or pay for the security. In addition, purchasing securities
on a "when-issued" basis can involve a risk that the yields available in the
market on the settlement date may actually be higher (or lower) than those
obtained in the transaction itself and, as a result, the "when-issued"
security may have a lesser (or greater) value at the time of settlement than
the Fund's or Portfolio's payment obligation with respect to that security.
The Franklin Total Return Fund is subject to the following additional
principal risks:
MORTGAGE DOLLAR ROLLS. In a mortgage dollar roll, the Fund takes the risk
that the market price of the mortgage-backed securities will drop below their
future purchase price. The Fund also takes the risk that the mortgage-backed
securities that it repurchases at a later date will have less favorable
market characteristics than the securities originally sold (e.g., greater
prepayment risk). When the Fund uses a mortgage dollar roll, it is also
subject to the risk that the other party to the agreement will not be able to
perform. Mortgage dollar rolls add leverage to the Fund's portfolio and
increase the Fund's sensitivity to interest rate changes.
FLOATING RATE CORPORATE LOANS. The Fund is subject to the risk that the
scheduled interest or principal payments on its floating rate investments
will not be paid. In the event that a nonpayment occurs, the value of that
obligation likely will decline. In turn, the net asset value of the Fund's
shares also will decline. Floating rate investments may be issued in
connection with highly leveraged transactions. Such transactions include
leveraged buyout loans, leveraged recapitalization loans, and other types of
acquisition financing. These obligations are subject to greater credit risks
than other investments including a greater possibility that the borrower may
default or go into bankruptcy.
COMPARATIVE FEE TABLES
The tables below allow a shareholder to compare the sales charges, management
fees and expense ratios of the Target Fund with its corresponding Acquiring
Fund and to analyze the estimated expenses that the Acquiring Fund expects to
bear following the Reorganization. The shareholder fees presented below for
the Acquiring Fund apply both before and after giving effect to the
Reorganization. However, you will not have to pay any front-end sales charge
on any shares of the Acquiring Fund received as part of the Reorganization.
Annual Fund Operating Expenses are paid by each Fund. They include
management fees, distribution and shareholder servicing fees and
administrative costs, including pricing and custody services. In addition,
following the presentation of that information, Annual Fund Operating
Expenses (and related Example Expenses) are presented on a PRO FORMA combined
basis.
The Annual Fund Operating Expenses shown in the table below represent
expenses for the 12 months ended October 31, 2008 for the HSBC Investor
Intermediate Duration Fixed Income Fund and Franklin Total Return Fund and
those projected for the Franklin Total Return Fund on a PRO FORMA basis after
giving effect to the proposed Reorganization, and are based on PRO FORMA
combined net assets as if the transaction had occurred on March 31, 2009.
SHAREHOLDER TRANSACTION EXPENSES (FEES PAID DIRECTLY FROM YOUR
INVESTMENT)
CLASS I
SHARES/
ADVISOR
CLASS A CLASS B CLASS C CLASS
SHARES SHARES* SHARES SHARES**
HSBC INVESTOR
INTERMEDIATE
DURATION FIXED
INCOME FUND
Maximum sales
charge (load) on
purchases (as a
percentage of
offering 4.75% None None None
price)(1)
Maximum deferred
sales charge
(load) on
redemptions (as None 4.00% 1.00% None
a percentage of
sales price)
Redemption/Exchang
Fee (as a
percentage of 2.00% 2.00% 2.00% 2.00%
amount redeemed
or exchanged)(2)
FRANKLIN TOTAL
RETURN FUND
Maximum sales
charge (load) on
purchases (as a
percentage of 4.25%(3) n/a None None
offering price)
Maximum deferred
sales charge
(load) on
redemptions (as None(4) n/a 1.00% None
a percentage of
sales price)
Redemption/Exchang
Fee (as a
percentage of None n/a None None
amount redeemed
or exchanged)
* The Franklin Total Return Fund has Class B shares outstanding, but these
shares are generally no longer offered for sale, except that existing
shareholders of Class B shares may continue as Class B shareholders,
continue to reinvest dividends into Class B shares and exchange their Class
B shares for Class B shares of other Franklin Templeton funds as permitted
by the current exchange privileges.
** The HSBC Investor Intermediate Duration Fixed Income Fund offers Class I
shares. The Franklin Total Return Fund offers Advisor Class shares.
(1) Lower sales charges are available depending on the amounts invested.
(2) A redemption/exchange fee of 2.00% will be charged for any shares redeemed
or exchanged after holding them for less than 30 days. This fee does not
apply to shares purchased through reinvested dividends or capital gains or
shares held in certain omnibus accounts or retirement plans that cannot
implement the fee. No redemption fee will be imposed on the cancellation of
Target Fund shares in connection with the Reorganization.
(3) The dollar amount of the sales charge is the difference between the
offering price of the shares purchased (which factors in the applicable
sales charge in this table) and the net asset value of those shares. Since
the offering price is calculated to two decimal places using standard
rounding criteria, the number of shares purchased and the dollar amount of
the sales charge as a percentage of the offering price and of your net
investment may be higher or lower depending on whether there was a downward
or upward rounding.
(4) There is a 0.75% contingent deferred sales charge that applies to
investments of $1 million or more, which will not apply to shares received
as part of the Reorganizations. See "Sales Charges - Class A" under
"Choosing a Share Class" in the Franklin Total Return Fund prospectus.
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND
ASSETS)
CLASS I
SHARES/
ADVISOR
CLASS A CLASS B CLASS C CLASS
SHARES SHARES* SHARES SHARES**
HSBC INVESTOR
INTERMEDIATE
DURATION FIXED
INCOME FUND(1)
Management Fee 0.40% 0.40% 0.40% 0.40%
Distribution 0.00%(2) 0.75% 0.75% None
(12b-1 Fee)
Shareholder 0.25% 0.25% 0.25% None
servicing Fee
Other operating 1.11% 1.11% 1.11% 1.11%
expenses
Total Fund
Operating
Expenses 1.76% 2.51% 2.51% 1.51%
Fee Waiver
and/or expense 1.11% 1.11% 1.11% 1.11%
reimbursement(3)
Net operating 0.65% 1.40% 1.40% 0.40%
expenses
FRANKLIN TOTAL
RETURN FUND
Management 0.35% n/a 0.35% 0.35%
Fee(4)
Distribution 0.25% n/a 0.65% None
(12b-1 Fee)
Other operating 0.44% n/a 0.44% 0.44%
expenses
Acquired fund
fees and 0.03% n/a 0.03% 0.03%
expenses(5)
Total annual
Fund operating 1.07% n/a 1.47% 0.82%
expenses(4)
Management fee -0.19% n/a -0.19% -0.19%
reduction(4)
Net annual Fund
operating 0.88% n/a 1.28% 0.63%
expenses(4, 5)
FRANKLIN TOTAL
RETURN FUND (PRO
FORMA COMBINED)
Management Fee(4) 0.35% n/a 0.35% 0.35%
Distribution 0.25% n/a 0.65% None
(12b-1 Fee)
Shareholder None None None None
servicing Fee
Other operating 0.44% n/a 0.44% 0.44%
expenses
Acquired fund
fees and 0.03% n/a 0.03% 0.03%
expenses(5)
Total Annual
Fund Operating 1.07% n/a 1.47% 0.82%
Expenses(4)
Fee Waiver
and/or expense -0.19% n/a -0.19% -0.19%
reimbursement(4)
Net operating 0.88% n/a 1.28% 0.63%
expenses(4)
* The Franklin Total Return Fund has Class B shares outstanding, but these
shares are generally no longer offered for sale, except that existing
shareholders of Class B shares may continue as Class B shareholders,
continue to reinvest dividends into Class B shares and exchange their Class
B shares for Class B shares of other Franklin Templeton funds as permitted
by the current exchange privileges.
** The HSBC Investor Intermediate Duration Fixed Income Fund offers Class I
shares. The Franklin Total Return Fund offers Advisor Class shares.
(1) The table reflects the combined fees and expenses of both the HSBC Investor
Intermediate Duration Fixed Income Fund and the HSBC Intermediate Duration
Fixed Income Portfolio. See the "How do the Reorganizations affect certain
Target Funds' master-feeder structures?" section of this Prospectus/Proxy
Statement for more information regarding the master-feeder structure of the
Target Funds.
(2) There is a non-compensatory 12b-1 plan for Class A shares, which authorizes
payments of up to 0.25% of the Target Fund's average daily net assets
attributable to Class A shares. No payments have been made and there is no
current intention to charge the fee.
(3) AMUS, the Target Fund's adviser, has entered into a written expense
limitation agreement with the Target Fund under which it will limit total
expenses of the Target Fund (excluding interest, taxes, brokerage
commissions, acquired fund fees and expenses and extraordinary expenses) to
an annual rate of 0.70% for Class A shares, 1.45% for Class B shares, 1.45%
for Class C shares and 0.45% for Class I shares. The expense limitation is
contractual and shall be in effect until March 1, 2010.
(4) The investment manager and administrator have contractually agreed to waive
or limit their respective fees and to assume as their own expense certain
expenses otherwise payable by the Acquiring Fund so that common expenses
(i.e., a combination of investment management fees, fund administration
fees, and other expenses, but excluding the Rule 12b-1 fees and acquired
fund fees and expenses) for each class of the Acquiring Fund do not exceed
0.60% (other than certain non-routine expenses or costs, including those
relating to litigation, indemnification, reorganizations, and liquidations)
until February 28, 2010. The manager also had agreed in advance to reduce
its fee to reflect reduced services resulting from the Acquiring Fund's
investment in a Franklin Templeton money fund. The manager is required by
the Acquiring Fund's board of trustees and an exemptive order by the SEC to
reduce its fee if the Acquiring Fund invests in a Franklin Templeton money
fund.
(5) Net Annual Fund Operating Expenses differ from the ratio of expenses to
average net assets shown in the Financial Highlights, which reflect the
operating expenses of the Acquiring Fund and do not include acquired fund
fees and expenses.
EXPENSE EXAMPLE
The Example is intended to help you compare the cost of investing in shares
of the HSBC Investor Intermediate Duration Fixed Income Fund with the cost of
investing in the Franklin Total Return Fund currently and on a PRO FORMA
basis, and allows you to compare these costs with the cost of investing in
other mutual funds. It illustrates the amount of fees and expenses you would
pay at the end of the time periods indicated, assuming the following:
o $10,000 investment
o 5% annual return
o no changes in the Fund's operating expenses
The costs reflect the effects of expense limitations and/or fee waivers on
the part of the investment adviser for the period of the contractual
limitation and/or waiver. Absent such arrangements, the costs would be
higher.
Because this Example is hypothetical and for comparison only, your actual
costs may be higher or lower.
HSBC Investor Intermediate Franklin Total Return Fund
Duration Fixed Franklin Total (estimated PRO
Income Fund* Return Fund forma)**
- -----------------------------------------------------------------------------------------------------
1 3 5 10 1 3 5 10 1 3 5 10
Year Years Years Years Year Years Years Years Year Years Years Years
Class A $538 $900 $1,285 $2,362 $511(1) $727 $960 $1,628 $511 $727 $960 $1,628
Shares
Class B
Shares
Assuming $543 $876 $1,236 $2,406 n/a n/a n/a n/a n/a n/a n/a n/a
redemption
Assuming
no
redemption $143 $676 $1,236 $2,406 n/a n/a n/a n/a n/a n/a n/a n/a
Class C
Shares
Assuming $243 $676 $1,236 $2,762 $230 $440 $772 $1,710 $230 $440 $772 $1,710
redemption
Assuming
no $143 $676 $1,236 $2,762 $130 $440 $772 $1,710 $130 $440 $772 $1,710
redemption
Class I
Shares/Advisor $41 $368 $718 $1,706 $64 $236 $423 $963 $64 $236 $423 $963
Class Shares
* The Example reflects the combined fees and expenses of both the HSBC
Investor Intermediate Duration Fixed Income Fund and the HSBC Investor
Intermediate Duration Fixed Income Portfolio. For Class B and Class C
shares, the amount of expenses varies depending upon whether you redeem at
the end of such periods, because the CDSC is taken into account as well as
other expenses.
** The estimated pro forma expenses for the Franklin Total Return Fund will
not change if calculated based on the combination of the HSBC Investor Core
Plus Fixed Income Fund, HSBC Investor Core Plus Fixed Income Fund (Advisor)
and HSBC Investor Intermediate Duration Fixed Income Fund into the Franklin
Total Return Fund.
(1) Assumes a CDSC will not apply.
The projected post-Reorganization PRO FORMA combined Annual Fund Operating
Expenses and Example Expenses presented above are based on numerous material
assumptions, including that the current contractual agreements will remain in
place for one year. Although these projections represent good faith
estimates, there can be no assurance that any particular level of expenses or
expense savings will be achieved because expenses depend on a variety of
factors, including the future level of the Acquiring Fund's assets, many of
which are beyond the control of the Acquiring Fund or Franklin Advisers, Inc.
If the Reorganization is approved, the resulting combined Fund will retain
the Acquiring Fund's expense structure.
COMPARISON OF FUND PERFORMANCE
The following table shows, for the periods shown, the (unaudited) average
annual total return for Class I shares of the Target Fund and the Advisor
Class shares of the Acquiring Fund, along with each Fund's primary benchmark
index. An index has an inherent performance advantage over the Funds since
the index has no cash in its portfolio and incurs no operating expenses. An
investor cannot invest directly in an index. The table assumes reinvestment
of dividends and distributions, but does not reflect sales charges. If sales
charges were reflected, returns would be less than those shown. The returns
for other share classes will differ from the returns shown because of
differences in expenses of each class. Performance is based on net expenses
during the periods and takes into account fee waivers and/or expense
reimbursements, if any, that may have been in place. If such waivers and/or
reimbursements had not been in effect, performance would have been lower.
Performance shown for the Target Fund also reflects the impact of payments
received during the years ended December 31, 2006 and December 31, 2008, in
connection with certain class action settlements. Absent such payments, the
Target Fund returns would have been lower. Each Fund's past performance is
not a guarantee of future results.
Barclay's Lipper
Class I Capital U.S. Intermediate
HSBC Investor Aggregate Investment
Intermediate Advisor Class Bond Grade Debt
Duration Fixed Franklin Total Index(1) Funds
Income Fund* Return Fund (2) Average (3)
--------------------------------------------------------------------
2002 7.55% 8.47% 10.26% 8.27%
2003 3.35% 8.16% 4.10% 4.77%
2004 3.23% 5.53% 4.34% 3.93%
2005 1.29% 2.06% 2.43% 1.82%
2006 9.15% 5.12% 4.33% 4.06%
2007 4.78% 5.12% 6.97% 4.70%
2008 -5.31% -5.23% 5.24% -4.43%
YTD (as of 2.41% 1.43%
March 31,
2009)
(1) The unmanaged Barclay's Capital U.S. Aggregate Bond Index is the benchmark
index for both the HSBC Investor Intermediate Duration Fixed Income Fund
and the Total Return Fund. The index represents securities that are
SEC-registered, taxable and dollar denominated. The index covers the U.S.
investment grade fixed-rate bond market, with index components for
government and corporate securities, mortgage pass-through securities and
asset-backed securities. All issues included must have at least one year to
final maturity and must be rated investment grade (Baa3 or better) by
Moody's Investors Service. They must also be dollar denominated and
nonconvertible. Total return includes price appreciation/depreciation and
income as a percentage of the original investment. The Index is rebalanced
monthly by market capitalization. One cannot invest directly in an index,
nor is an index representative of the Fund's portfolio.
(2) On November 1, 2008, the Lehman Brothers U.S. Aggregate Bond Index was
rebranded as the Barclays Capital U.S. Aggregate Bond Index.
(3) The Lipper Intermediate Investment Grade Debt Funds Average is an
additional benchmark index used by the HSBC Investor Intermediate Duration
Fixed Income Fund. The Lipper mutual fund average is an equally weighted
average composed of mutual funds with similar investment objectives.
ACQUIRING FUND PERFORMANCE
For additional information regarding the performance of the Acquiring Fund,
including the annual total returns for the past ten years and the 1-, 5- and
10- year average annual total returns, see the "Performance" and "Financial
Highlights" sections of the Franklin Total Return Fund prospectus which has
been mailed with this Prospectus/Proxy Statement.
KEY DIFFERENCES IN RIGHTS OF TARGET FUND AND ACQUIRING FUND SHAREHOLDERS
HSBC Investor Intermediate Duration Fixed Income Fund is organized as a
separate series of HSBC Investor Funds, a Massachusetts business trust, and
is governed by a Declaration of Trust and Bylaws. Franklin Total Return Fund
is organized as a separate series of Franklin Investors Securities Trust, a
Delaware statutory trust, and is governed by an Agreement and Declaration of
Trust and Bylaws. Key differences affecting the rights of shareholders under
the HSBC Investor Intermediate Duration Fixed Income Fund's Declaration of
Trust/Bylaws and Franklin Total Return Fund's Agreement and Declaration of
Trust/Bylaws are presented below.
HSBC Investor Intermediate
Duration Fixed Income Fund Franklin Total Return Fund
Quorum for a shareholder's Quorum for a shareholders'
meeting is generally a majority meeting is generally forty per
of the outstanding shares present cent of the shares entitled to
in person or by proxy. vote, which are present in
person or by proxy.
Generally, the vote of 67 percent Generally, a majority of the
or more of the voting securities votes cast at a meeting at which
present at a meeting, if the a quorum is present generally
holders of more than 50 percent shall decide any questions,
of the outstanding voting unless the Agreement and
securities are present or Declaration of Trust or Bylaws
represented by proxy, or of more otherwise require.
than 50 percent of the
outstanding voting securities,
whichever is less, unless the
Declaration of Trust or Bylaws
otherwise require.
Maximum number of days prior to a Maximum number of days prior to
shareholders' meeting during a shareholders' meeting during
which a record date may be set by which a record date may be set
that Fund's Board is 60. by that Fund's Board is 120.
Shareholders must be given at Shareholders must be given at
least 10 and not more than 60 least 10 and not more than 120
days notice of a shareholder days notice of shareholder
meeting. meeting.
Shareholders can request a Shareholders can't request
shareholder meeting under certain shareholder meeting for the
circumstances for the purpose of purpose of removing a Trustee,
removing a Trustee; Otherwise, but can request a meeting to
shareholders may vote to remove a elect additional trustees,
Trustee either by declaration in provided certain conditions are
writing or at a shareholder met. Shareholders may vote to
meeting called for that purpose. remove a Trustee at a
shareholder meeting called for
that purpose.
PROPOSAL 2: APPROVAL OF THE AGREEMENT AND PLAN OF REORGANIZATION BY
SHAREHOLDERS OF THE HSBC INVESTOR INTERMEDIATE DURATION FIXED INCOME FUND
Shareholders of Class A, Class B, Class C and Class I shares of the HSBC
Investor Intermediate Duration Fixed Income Fund are being asked to approve
the Reorganization by approving the Plan. Under the Declaration of Trust and
Bylaws of the Fund, approval of the Reorganization requires the affirmative
vote of a 1940 Act Majority (as previously defined). In the event
shareholders of the Fund do not approve the Reorganization, AMUS and the
Board of Trustees will determine what, if any, additional action should be
taken with respect to the Fund.
THE BOARD OF TRUSTEES RECOMMENDS THAT YOU VOTE FOR PROPOSAL 2.
PROPOSAL 3
Reorganization of
HSBC Investor New York Tax-Free Bond Fund
Into
Franklin New York Intermediate-Term Tax-Free Income Fund
Summary of the Proposal
Shareholders of the HSBC Investor New York Tax-Free Bond Fund are being asked
to approve the Plan as it relates to the HSBC Investor New York Tax-Free Bond
Fund's Reorganization. As a result of the Reorganization, shareholders of
the HSBC Investor New York Tax-Free Bond Fund will receive shares in the
Franklin New York Intermediate-Term Tax-Free Income Fund in an amount equal
to the net asset value of their holdings in the HSBC Investor New York
Tax-Free Bond Fund as of the Closing Date, as determined pursuant to the Plan.
You should consult the Prospectus dated February 1, 2009 (as supplemented),
for more information about the Franklin New York Intermediate-Term Tax-Free
Income Fund, a series of Franklin New-York Tax-Free Trust, which has been
mailed with this Prospectus/Proxy Statement and is incorporated herein by
reference. A form of the Plan is attached hereto as Attachment II to this
Prospectus/Proxy Statement. For more information regarding the calculation
of the number of Acquiring Fund shares to be issued, please refer to the "How
will the number of shares of an Acquiring Fund that I will receive be
determined?" section above.
COMPARISON OF INVESTMENT OBJECTIVES/GOALS AND STRATEGIES
The following summarizes the investment objective/goals, strategies and
management differences, if any, between the HSBC Investor New York Tax-Free
Bond Fund and the Franklin New York Intermediate-Term Tax-Free Income Fund:
Franklin New York
HSBC Investor New York Intermediate-Term
Tax-Free Bond Fund Tax-Free Income Fund
------------------------------------------------------
Investment To provide shareholders To provide investors
Goal(s)/ of the Fund with income with as high a level of
objective(s) exempt from federal, income exempt from
New York State and federal income taxes and
New York City personal New York State and New
income taxes. York City personal
income taxes as is
consistent with prudent
investment management
and the preservation of
shareholders' capital.
Investment As a fundamental policy, Under normal market
Strategies under normal market conditions, the Fund
conditions, the Fund invests at least 80% of
invests at least 80% of its total assets in
its net assets in securities that pay
obligations of the State interest free from
of New York and its federal income taxes,
authorities, agencies, including the federal
instrumentalities and alternative minimum tax,
political subdivisions, and from New York State
and of Puerto Rico, or personal income taxes.
the U.S. territories and As a non-fundamental
their authorities, policy, the Fund also
agencies, normally invests at
instrumentalities and least 80% of its total
political subdivisions, assets in securities
the interest on which is that pay interest free
exempt from regular from the personal income
federal income tax, and taxes of New York City.
New York State and New
York City personal income Additionally, although
taxes. Under normal the Fund tries to invest
circumstances, at least all of its assets in
80% of the Fund's net tax-free securities, it
assets will be invested is possible, although
in obligations the not anticipated, that up
interest on which is to 20% of its total
exempt from both regular assets may be in
federal income tax and securities that pay
the federal alternative taxable interest,
minimum tax. including interest that
may be subject to the
federal alternative
Additionally, the Fund minimum tax.
may invest up to 20% of
its net assets in The Fund may also invest
obligations the interest up to 35% of its assets
income on which is in municipal securities
subject to federal, New issued by U.S.
York State and New York territories.
City personal income
taxes. In addition,
dividends attributable to
interest on certain
municipal obligations may
be subject to the federal
alternative minimum tax.
The Fund may invest in
taxable securities (such
as U.S. Government
obligations or
certificates of deposit
of domestic banks) only
if such securities are of
comparable quality and
credit risk with the
municipal obligations
described above.
Investment HSBC Global Asset Franklin Advisers, Inc.
Adviser Management (USA)
Investment Halbis Capital Management n/a
Subadviser (USA) Inc.
Portfolio Brian M. Lockwood James P. Conn, CFA
Manager(s) Brian F. Colalucci John Pomeroy
As you can see from the chart above, the investment objective/goals and
strategies of the HSBC Investor New York Tax-Free Bond Fund are similar to
those of the Franklin New York Intermediate-Term Tax-Free Income Fund. Each
seeks to provide income that is exempt from federal, New York State and New
York City personal income taxes and invests at least 80% of its total assets
in securities that provide such income. There are, however, differences that
you should consider. For example, while both the HSBC Investor New York
Tax-Free Bond Fund and the Franklin New York Intermediate-Term Tax-Free
Income Fund seek to provide income that is exempt from New York City personal
income taxes, only the HSBC Investor New York Tax-Free Bond Fund had made the
pursuit of such income a fundamental policy. Policies that are fundamental
may only be changed upon approval by shareholders.
The Franklin New York Intermediate-Term Tax-Free Income Fund has, in the
past, maintained a shorter average effective maturity than the HSBC Investor
New York Tax-Free Bond Fund (8.9 years for the Franklin New York
Intermediate-Term Tax-Free Income Fund as of March 31, 2009 as compared to
11.3 years for the HSBC Investor New York Tax-Free Bond Fund as of January
31, 2009) and a larger allocation to AAA-rated securities (34.5% for the
Franklin New York Intermediate-Term Tax-Free Income Fund as of March 31, 2009
as compared to 4% for the HSBC Investor New York Tax-Free Bond Fund as of
January 31, 2009). The Franklin New York Intermediate-Term Tax-Free Income
Fund only invests in securities rated BBB or better while the HSBC Investor
New York Tax-Free Bond Fund has no such limitation. The Franklin New York
Intermediate-Term Tax-Free Income Fund maintains a dollar-weighted average
portfolio maturity of three to 10 years.
The HSBC Investor New York Tax-Free Bond Fund is considered to be
"non-diversified" under the 1940 Act, which means that the Fund can invest a
greater percentage of its assets in fewer securities than the Franklin New
York Intermediate-Term Tax-Free Income Fund, a "diversified" fund. For more
information about Franklin New York Intermediate-Term Tax-Free Income Fund's
investment objectives/goals, principal investment strategies and risks, see
the "Goals and Strategies" and "Main Risk" sections of the Franklin New York
Intermediate-Term Tax-Free Income Fund's prospectus, which has been mailed
with this Prospectus/Proxy Statement. For a discussion of the differences in
each Fund's fundamental and non-fundamental investment policies, see
Attachment I to this Prospectus/Proxy Statement.
COMPARISON OF PRINCIPAL RISKS
The principal risks associated with the HSBC Investor New York Tax-Free Bond
Fund and the Franklin New York Intermediate-Term Tax-Free Income Fund are
similar because they have similar investment goals and principal investment
strategies. The actual risks of investing in each Fund depend on the
securities held in each Fund's portfolio and on market conditions, both of
which change over time. Many factors affect a Fund's performance. A Fund's
share price changes daily based on changes in market conditions and interest
rates and in response to other economic, political, or financial
developments. A Fund's reaction to these developments will be affected by the
types of securities in which the Fund invests, the financial condition,
industry and economic sector, and geographic location of an issuer, and the
Fund's level of investment in the securities of that issuer. When you sell
your shares they may be worth more or less than what you paid for them, which
means that you could lose money.
Both Funds are subject to the following principal risks:
MARKET RISK: A security's value may be reduced by market activity or the
results of supply and demand. This is a basic risk associated with all
securities. When there are more sellers than buyers, prices tend to fall.
Likewise, when there are more buyers than sellers, prices tend to rise.
CREDIT RISK: An issuer of debt securities may be unable to make interest
payments and repay principal when due. Changes in an issuer's financial
strength or in a security's credit rating may affect a security's value and,
thus, impact Fund performance.
INTEREST RATE RISK: When interest rates rise, debt security prices fall.
The opposite is also true: debt security prices rise when interest rates
fall. In general, securities with longer maturities are more sensitive to
these price changes.
CONCENTRATION RISK: Because each Fund concentrates its investments in New
York municipal obligations and may invest a significant portion of its assets
in the securities of a single issuer or sector, the value of the Fund's
assets could lose significant value due to the poor performance of a single
issuer or sector.
STATE-SPECIFIC RISK (NEW YORK): A fund investing primarily within a single
state, such as New York, is by definition, less diversified geographically
then one investing across many states and therefore has greater exposure to
adverse economic and political changes within the state, as well as risks
associated with any natural disasters or acts of terrorism that might impact
the State of New York. Historically, New York State and other issuers of New
York municipal obligations have experienced periods of severe recession and
financial difficulty. Because a significant share of New York State's
economy depends on financial and business services, any change in market
conditions that adversely affect these industries could affect the ability of
New York and its localities to meet its financial obligations. If such
difficulties arise, you could lose money on your investment.
TAX-EXEMPT SECURITIES RISK: While each Fund endeavors to purchase only bona
fide tax-exempt securities, there are risks that: (a) a security issued as
tax-exempt may be reclassified as taxable by the Internal Revenue Service, or
a state tax authority, and/or (b) future legislative, administrative or court
actions could adversely impact the qualification of income from a tax-exempt
security as tax-free. Such reclassifications or actions could cause interest
from a security to become taxable, possibly retroactively, subjecting you to
increased tax liability. In addition, such reclassifications or actions
could cause the value of a security, and therefore the value of the Fund's
shares, to decline.
WHEN-ISSUED SECURITIES. The price and yield of securities purchased on a
"when-issued" basis is fixed on the date of the commitment but payment and
delivery are scheduled for a future date. Consequently, these securities
present a risk of loss if the other party to a "when-issued" transaction
fails to deliver or pay for the security. In addition, purchasing securities
on a "when-issued" basis can involve a risk that the yields available in the
market on the settlement date may actually be higher (or lower) than those
obtained in the transaction itself and, as a result, the "when-issued"
security may have a lesser (or greater) value at the time of settlement than
the Fund's payment obligation with respect to that security.
INCOME RISK. Since the Fund can only distribute what it earns, the Fund's
distributions to shareholders may decline when interest rates fall.
The HSBC Investor New York Tax-Free Bond Fund is subject to the following
additional principal risks:
NON-DIVERSIFIED RISK: A fund that is classified as non-diversified has the
ability to concentrate a relatively high percentage of its investments in the
securities of a small number of issuers. This makes that fund's performance
more susceptible to a single economic, political or regulatory event than a
diversified fund might be.
DERIVATIVES RISK: Gains and losses from speculative positions in a
derivative may be much greater than the derivative's original cost. The
Fund's use of derivative instruments involves risks different from, or
possibly greater than, the risks associated with investing directly in
securities and other traditional investments. The Fund's investment in a
derivative instrument could lose more than the principal amount invested.
These investments could increase the Fund's price volatility or reduce the
return on your investment.
The Franklin New York Intermediate-Term Tax-Free Income Fund is subject to
the following additional principal risks:
CALL/PREPAYMENT RISK. A debt security may be prepaid (called) before
maturity. An issuer is more likely to call its securities when interest rates
are falling, because the issuer can issue new securities with lower interest
payments. If a security is called, the Fund may have to replace it with a
lower-yielding security. At any time, the Fund may have a large amount of
its assets invested in debt securities subject to call risk. A call of some
or all of these securities may lower the Fund's income and yield and its
distributions to shareholders.
CANCELLATION RISK: Municipal lease obligations differ from other municipal
securities because the relevant legislative body must appropriate the money
each year to make the lease payments. If the money is not appropriated, the
lease can be cancelled without penalty and investors who own the lease
obligations may not be paid.
COMPARATIVE FEE TABLES
The tables below allow a shareholder to compare the sales charges, management
fees and expense ratios of the HSBC Investor New York Tax-Free Bond Fund with
the Franklin New York Intermediate-Term Tax-Free Income Fund and to analyze
the estimated expenses that the Franklin New York Intermediate-Term Tax-Free
Income Fund expects to bear following the Reorganization. The shareholder
fees presented below for the Franklin New York Intermediate-Term Tax-Free
Income Fund apply both before and after giving effect to the Reorganization.
However, you will not have to pay any front-end sales charge on any shares of
the Franklin New York Intermediate-Term Tax-Free Income Fund received as part
of the Reorganization. Annual Fund Operating Expenses are paid by each
Fund. They include management fees, distribution and shareholder servicing
fees and administrative costs, including pricing and custody services. In
addition, following the presentation of that information, Annual Fund
Operating Expenses (and related Example Expenses) are presented on a PRO
forma combined basis.
The Annual Fund Operating Expenses shown in the table below represent
expenses for the 12 months ended October 31, 2008 and September 30, 2008 for
the HSBC Investor New York Tax-Free Bond Fund and Franklin New York
Intermediate-Term Tax-Free Income Fund, respectively, and those projected for
the Franklin New York Intermediate-Term Tax-Free Income Fund on a PRO FORMA
basis after giving effect to the proposed Reorganization, and are based on
PRO FORMA combined net assets as if the transaction had occurred on March 31,
2009. The expense table information provided for the period prior to the
transaction is based on the most recent prospectuses of the HSBC Investor New
York Tax-Free Bond and Franklin New York Intermediate-Term Tax-Free Income
Funds, while the pro forma information is based on the 12 month period ended
September 30, 2008.
SHAREHOLDER TRANSACTION EXPENSES (FEES PAID DIRECTLY FROM YOUR
INVESTMENT)
CLASS I
SHARES/
ADVISOR
CLASS A CLASS B CLASS C CLASS
SHARES SHARES* SHARES SHARES**
HSBC INVESTOR
NEW YORK
TAX-FREE BOND
FUND
Maximum sales
charge (load) on
purchases (as a
percentage of
offering 4.75% None None None
price)(1)
Maximum deferred
sales charge
(load) on
redemptions (as None 4.00% 1.00% None
a percentage of
sales price)
Redemption/Exchang
Fee (as a
percentage of 2.00% 2.00% 2.00% 2.00%
amount redeemed
or exchanged)(2)
FRANKLIN NEW
YORK
INTERMEDIATE-TERM
TAX-FREE INCOME
FUND
Maximum sales
charge (load) on
purchases (as a 2.25%(3) n/a None None
percentage of
offering price)
Maximum deferred
sales charge
(load) on
redemptions (as None(4) n/a 1.00% None
a percentage of
sales price)
Redemption/Exchang
Fee (as a
percentage of None n/a None None
amount redeemed
or exchanged)
* The Franklin New York Intermediate-Term Tax-Free Income Fund has Class B
shares outstanding, but these shares are generally no longer offered for
sale, except that existing shareholders of Class B shares may continue as
Class B shareholders, continue to reinvest dividends into Class B shares
and exchange their Class B shares for Class B shares of other Franklin
Templeton funds as permitted by the current exchange privileges.
** The HSBC Investor New York Tax-Free Bond Fund offers Class I shares. The
Franklin New York Intermediate-Term Tax-Free Income Fund offers Advisor
Class shares. The Franklin New York Intermediate-Term Tax-Free Income Fund
began offering Advisor Class shares on December 1, 2008.
(1) Lower sales charges are available depending on the amounts invested.
(2) A redemption/exchange fee of 2.00% will be charged for any shares redeemed
or exchanged after holding them for less than 30 days. This fee does not
apply to shares purchased through reinvested dividends or capital gains or
shares held in certain omnibus accounts or retirement plans that cannot
implement the fee. No redemption fee will be imposed in connection with the
Reorganization and cancellation of Target Fund shares.
(3) The dollar amount of the sales charge is the difference between the
offering price of the shares purchased (which factors in the applicable
sales charge in this table) and the net asset value of those shares. Since
the offering price is calculated to two decimal places using standard
rounding criteria, the number of shares purchased and the dollar amount of
the sales charge as a percentage of the offering price and of your net
investment may be higher or lower depending on whether there was a downward
or upward rounding.
(4) There is a 0.75% contingent deferred sales charge that applies to
investments of $1 million or more, which will not apply to shares received
as part of the Reorganizations. See "Sales Charges - Class A" under
"Choosing a Share Class" in the Franklin New York Intermediate-Term
Tax-Free Income Fund prospectus.
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND
ASSETS)
CLASS I
SHARES/
ADVISOR
CLASS A CLASS B CLASS C CLASS
SHARES SHARES* SHARES SHARES**
HSBC INVESTOR
NEW YORK
TAX-FREE BOND
FUND
Management Fee 0.25% 0.25% 0.25% 0.25%
Distribution 0.00%(1) 0.75% 0.75% None
(12b-1 Fee)
Shareholder 0.25% 0.25% 0.25% None
servicing Fee
Other operating 0.34% 0.34% 0.34% 0.34%
expenses
Total Fund
Operating 0.84% 1.59% 1.59% 0.59%
Expenses
FRANKLIN NEW
YORK
INTERMEDIATE-TERM
TAX-FREE INCOME
FUND
Management Fee 0.53% n/a 0.53% 0.53%
Distribution 0.10% n/a 0.65% None
(12b-1 Fee)
Shareholder n/a n/a n/a n/a
servicing Fee
Other operating 0.10% n/a 0.10% 0.10%
expenses
Total Fund
Operating 0.73% n/a 1.28% 0.63%(2)
Expenses
FRANKLIN NEW
YORK
INTERMEDIATE-TERM
TAX-FREE INCOME
FUND (PRO FORMA
COMBINED)
Management Fee 0.52% n/a 0.52% 0.52%
Distribution 0.10% n/a 0.65% None
(12b-1 Fee)
Shareholder n/a n/a n/a n/a
servicing Fee
Other operating 0.09% n/a 0.09% 0.09%
expenses
Total Annual
Fund Operating 0.71% n/a 1.26% 0.61%(2)
Expenses
Fee Waiver
and/or expense n/a n/a n/a n/a
reimbursement
Net operating n/a n/a n/a n/a
expenses
* The Franklin New York Intermediate-Term Tax-Free Income Fund has Class B
shares outstanding, but these shares are generally no longer offered for
sale, except that existing shareholders of Class B shares may continue as
Class B shareholders, continue to reinvest dividends into Class B shares
and exchange their Class B shares for Class B shares of other Franklin
Templeton funds as permitted by the current exchange privileges
** The HSBC Investor New York Tax-Free Bond Fund offers Class I shares. The
Franklin New York Intermediate-Term Tax-Free Income Fund offers Advisor
Class shares.
(1) There is a non-compensatory 12b-1 plan for Class A shares, which authorizes
payments of up to 0.25% of the Target Fund's average daily net assets
attributable to Class A shares. No payments have been made and there is no
current intention to charge the fee.
(2) The Franklin New York Intermediate-Term Tax-Free Income Fund began offering
Advisor Class shares on December 1, 2008. Total Annual Fund Expenses are
based on the expenses of the Fund's Class A shares for the fiscal year
ended September 30, 2008.
EXPENSE EXAMPLE
The Example is intended to help you compare the cost of investing in shares
of the HSBC Investor New York Tax-Free Bond Fund with the cost of investing
in the Franklin New York Intermediate-Term Tax-Free Income Fund currently and
on a PRO FORMA basis, and allows you to compare these costs with the cost of
investing in other mutual funds. It illustrates the amount of fees and
expenses you would pay at the end of the time periods indicated, assuming the
following:
o $10,000 investment
o 5% annual return
o no changes in the Fund's operating expenses
Because this Example is hypothetical and for comparison only, your actual
costs may be higher or lower.
Franklin New York
Intermediate-Term
HSBC Investor New Franklin New York Tax-Free Income
York Tax-Free Bond Intermediate-Term Fund (estimated PRO
Fund* Tax-Free Income Fund FORMA)
------------------------------------------------------------------------------------
1 3 5 10 1 3 5 10 1 3 5 10
Year Years Years Years Year Years Years Years Year Years Years Years
Class A $557 $730 $919 $1,463 $298(1) $453 $622 $1,111 $296(1) $447 $611 $1,088
Shares
Class B n/a n/a n/a n/a n/a n/a n/a n/a
Shares
Assuming $562 $702 $866 $1,503 n/a n/a n/a n/a n/a n/a n/a n/a
redemption
Assuming no $162 $502 $866 $1,503 n/a n/a n/a n/a n/a n/a n/a n/a
redemption
Class C
Shares
Assuming $262 $502 $866 $1,889 $230 $406 $702 $1,545 $228 $400 $692 $1,523
redemption
Assuming no $162 $502 $866 $1,889 $130 $406 $702 $1,545 $128 $400 $692 $1,523
redemption
Class I
Shares/Advisor $ 60 $189 $329 $ 738 $ 64 $202 $351 $786 $62 $195 $340 $762
Class Shares
* For Class B and C shares, the amount of expenses varies depending upon
whether you redeem at the end of such periods, because the CDSC is taken into
account as well as other expenses.
(1) Assumes a CDSC will not apply.
The projected post-Reorganization PRO FORMA combined Annual Fund Operating
Expenses and Example Expenses presented above are based on numerous material
assumptions, including that the current contractual agreements will remain in
place for one year. Although these projections represent good faith
estimates, there can be no assurance that any particular level of expenses or
expense savings will be achieved because expenses depend on a variety of
factors, including the future level of the Acquiring Fund's assets, many of
which are beyond the control of each Acquiring Fund or Franklin Advisers, Inc.
If a Reorganization is approved, the resulting combined Fund will retain the
Acquiring Fund's expense structure.
COMPARISON OF FUND PERFORMANCE
The following table shows, for the periods shown, the (unaudited) average
annual total return for Class A shares of the HSBC Investor New York Tax-Free
Bond Fund and Class A of the Franklin New York Intermediate-Term Tax-Free
Income Fund, along with each Fund's primary benchmark index. An index has an
inherent performance advantage over the Funds since the index has no cash in
its portfolio and incurs no operating expenses. An investor cannot invest
directly in an index. The table assumes reinvestment of dividends and
distributions, but does not reflect sales charges. If sales charges were
reflected, returns would be less than those shown. The returns for other
share classes will differ from the returns shown because of differences in
expenses of each class. Performance is based on net expenses during the
periods and takes into account fee waivers and/or expense reimbursements, if
any, that may have been in place. If such waivers and/or reimbursements had
not been in effect, performance would have been lower. EACH FUND'S PAST
PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.
Franklin New Barclays
HSBC Investor York Capital Lipper NY
New York Intermediate- Municipal Bond Municipal Debt
Tax-Free Bond Term Tax-Free Index: 10 Year Funds
Fund Income Fund Component (1) Average(2)
-------------------------------------------------------------
1999 -3.34% -1.69% -1.25% -4.78%
2000 10.55% 10.36% 10.76% 11.90%
2001 3.80% 4.40% 4.62% 3.81%
2002 8.96% 9.46% 10.17% 8.83%
2003 4.44% 4.85% 5.70% 4.78%
2004 3.03% 3.17% 4.15% 3.49%
2005 2.04% 1.53% 2.74% 3.07%
2006 3.52% 3.61% 4.71% 4.65%
2007 3.04% 3.21% 4.29% 1.50%
2008 -1.75% -0.75% 1.52% -8.64%
YTD (as of
March 31, 3.39% 3.42%
2009)
(1) Source: (C) 2008 Morningstar. The unmanaged Barclay's Capital
Municipal Bond Index: 10-Year Component is the 10-year (8-12)
component of the Municipal Bond Index, which is a market
value-weighted index engineered for the long-term tax-exempt bond
market. All bonds included have a minimum credit rating of at least
Baa3/BBB-. They must have an outstanding par value of at least $7
million and be issued as part of a transaction of at least $75
million. The bonds must be dated after 12/31/90, and must be at least
one year from their maturity date. Remarketed issues, taxable
municipal bonds, bonds with floating rates and derivatives are
excluded from the index. The index has four main bond sectors: general
obligation, revenue, insured and pre-refunded. It includes reinvested
income or distributions. One cannot invest directly in an index, nor
is an index representative of the Fund's portfolio.
(2) The Lipper NY Municipal Debt Funds Average is an additional benchmark
index used by the HSBC Investor New York Tax-Free Bond Fund. The
Lipper mutual fund average is an equally weighted average composed on
mutual funds with similar investment objectives.
ACQUIRING FUND PERFORMANCE
For additional information regarding the performance of the Acquiring Fund,
including the annual total returns for the past ten years and the 1-, 5- and
10- year average total returns, see the "Performance" and "Financial
Highlights" sections of the Franklin New York Intermediate-Term Tax-Free
Income Fund prospectus, which has been mailed with this Prospectus/Proxy
Statement.
KEY DIFFERENCES IN RIGHTS OF TARGET FUND AND ACQUIRING FUND SHAREHOLDERS
HSBC Investor New York Tax-Free Bond Fund is organized as a separate series
of HSBC Investor Funds, a Massachusetts business trust, and is governed by a
Declaration of Trust and Bylaws. Franklin New York Intermediate-Term
Tax-Free Income Fund is organized as a separate series of Franklin New York
Tax-Free Trust, a Delaware statutory trust, and is also governed by an
Agreement and Declaration of Trust and Bylaws. Key differences affecting the
rights of shareholders under the HSBC Investor New York Tax-Free Bond Fund's
Declaration of Trust/Bylaws and Franklin New York Intermediate-Term Tax-Free
Income Fund's Agreement and Declaration of Trust/Bylaws are presented below.
HSBC Investor New York Tax-Free Bond Franklin New York Intermediate-Term
Fund Tax-Free Income Fund
- ----------------------------------------------------------------------------
Quorum for a shareholder's meeting Quorum for a shareholders' meeting
is generally a majority of the is generally forty per cent of the
outstanding shares present in person shares entitled to vote, which are
or by proxy. present in person or by proxy.
Generally, the vote of 67 percent or Generally, a majority of the votes
more of the voting securities cast at a meeting at which a quorum
present at a meeting, if the holders is present generally shall decide
of more than 50 percent of the any questions, unless the Agreement
outstanding voting securities are and Declaration of Trust or Bylaws
present or represented by proxy, or otherwise require.
of more than 50 percent of the
outstanding voting securities,
whichever is less, unless the
Declaration of Trust or Bylaws
otherwise require.
Maximum number of days prior to a Maximum number of days prior to a
shareholders' meeting during which a shareholders' meeting during which
record date may be set by that a record date may be set by that
Fund's Board is 60. Fund's Board is 120.
Shareholders must be given at least Shareholders must be given at least
10 and not more than 60 days notice 10 and not more than 120 days
of a shareholder meeting. notice of shareholder meeting.
Shareholders can request a Shareholders can't request
shareholder meeting under certain shareholder meeting for the purpose
circumstances for the purpose of of removing a Trustee, but can
removing a Trustee; Otherwise, request a meeting to elect
shareholders may vote to remove a additional trustees, provided
Trustee either by declaration in certain conditions are met.
writing or at a shareholder meeting Shareholders may vote to remove a
called for that purpose. Trustee at a shareholder meeting
called for that purpose.
PROPOSAL 3: APPROVAL OF THE AGREEMENT AND PLAN OF REORGANIZATION BY
SHAREHOLDERS OF THE HSBC INVESTOR NEW YORK TAX-FREE BOND FUND
Shareholders of Class A, Class B, Class C and Class I shares of the HSBC
Investor New York Tax-Free Bond Fund are being asked to approve the
Reorganization by approving the Plan. Under the Declaration of Trust and
Bylaws of the Fund, approval of the Reorganization requires the affirmative
vote of a 1940 Act Majority (as previously defined). In the event
shareholders of the Fund do not approve the Reorganization, AMUS and the
Board of Trustees will determine what, if any, additional action should be
taken with respect to the Fund.
THE BOARD OF TRUSTEES RECOMMENDS THAT YOU VOTE FOR PROPOSAL 3.
THE PROPOSED REORGANIZATIONS
AGREEMENT AND PLAN OF REORGANIZATION
If approved by shareholders of a Target Fund, the Reorganization for that
Fund is expected to occur on August 28, 2009 or such other date as the
parties may agree.
The terms and conditions under which each Reorganization may be consummated
are set forth in the Plan. Significant provisions of the Plan are summarized
below; however, this summary is qualified in its entirety by reference to the
Plan. A copy of the form of Plan is attached as Attachment II to this
Prospectus/Proxy Statement.
The Plan provides that, with respect to the Reorganizations of HSBC Investor
Core Plus Fixed Income Fund , HSBC Investor Core Plus Fixed Income Fund
(Advisor) and HSBC Investor Intermediate Duration Fixed Income Fund, prior to
or as of the close of each Target Fund's business on the Closing Date, the
appropriate Underlying Portfolio will conduct an in-kind liquidating
distribution. Each Underlying Portfolio will deliver to HSBC Investor Core
Plus Fixed Income Fund, HSBC Investor Core Plus Fixed Income Fund (Advisor)
and HSBC Investor Intermediate Duration Fixed Income Fund, as appropriate,
all of its assets or such pro rata share of its assets as is appropriate
given such Target Funds' relative ownership of beneficial interests in the
Underlying Portfolio.
Thereafter, each Target Fund will convey to the corresponding Acquiring Fund
all of its assets, except for assets in an amount deemed necessary to (i)
discharge the Target Fund's unpaid liabilities, and (ii) pay contingent
liabilities deemed to exist against the Target Fund as of the Closing Date.
In consideration, the corresponding Acquiring Fund will deliver to the Target
Fund full and fractional shares of Class A, Class C and Advisor Class shares
(as applicable) having an aggregate net asset value equal to the aggregate
value of the net assets of the Target Fund, as determined pursuant to the
terms of the Plan.
Immediately after the transfer of assets, the Target Fund will distribute to
its shareholders of record, with respect to each class of shares, the shares
of the Acquiring Fund of the corresponding class received by the Target Fund,
determined as of immediately after the close of business on the Closing Date,
on a pro rata basis within that class. Subsequently, each Target Fund will
completely liquidate, except as to the contingent liability reserve, as
described more fully in the Plan.
Each Target Fund will use commercially reasonable efforts to discharge all of
its known liabilities and obligations prior to the Closing Date, and neither
the corresponding Acquiring Fund nor the trust of which it is a series will
assume any such liabilities existing at the Closing Date. Each Acquiring
Fund and the trust of which it is a series specifically disclaims the
assumption of any such liabilities.
Until the Closing Date, shareholders of the Target Funds will continue to be
able to redeem their shares. Redemption requests received after the Closing
Date will be treated as requests received by a corresponding Acquiring Fund
for the redemption of its shares.
The obligations of the Funds under the Plan are subject to various
conditions, including approval of the shareholders of each Target Fund. The
Plan also requires that each Acquiring Fund and Target Fund take, or cause to
be taken, all action, and do or cause to be done all things, reasonably
necessary, proper or advisable to consummate and make effective the
transactions contemplated by the Plan. The Plan may be terminated by mutual
agreement of the parties or on certain other grounds. Please refer to
Attachment II to this Prospectus/Proxy Statement to review the terms and
conditions of the Plan.
REASONS FOR THE REORGANIZATIONS AND TRUSTEES' CONSIDERATIONS
As indicated above, during 2008, AMUS, the investment adviser to the Target
Funds, informed the Board of Trustees that it intends to exit the business of
advising fixed income investment companies in the United States (other than
money market funds) in light of a number of factors, including the Target
Funds' small size and limited sales projections.
As also indicated, AMUS and the Board of Trustees engaged in discussions
regarding alternatives for the Target Funds, including the Reorganizations,
that would allow AMUS and Halbis Capital Management (USA) Inc., the
investment sub-adviser for the Target Funds, to exit this business while
simultaneously providing potential benefits to shareholders of the Target
Funds, such as tax-free exchanges of shares with other mutual funds. The
Trustees convened several times to consider the future of the Target Funds.
During discussions the Trustees raised various questions and received
responsive information from AMUS regarding the alternatives, including the
Reorganizations. At meetings held on March 30-31, 2009 and June 1-2, 2009,
the Trustees were presented with information to assist them in evaluating the
Reorganizations, such as:
o The terms and conditions of the Plan;
o The relative compatibility of investment objectives/goals and
restrictions and principal investment policies of the Acquiring Funds
with those of the Target Funds;
o The relative past performance of the Acquiring Funds and the Target
Funds;
o The anticipated effect of the Reorganizations on the fees and expense
ratios borne by Target Fund shareholders if they become shareholders
of the Acquiring Funds;
o The capabilities, practices and resources of the management of Franklin
Advisers, Inc. and its affiliates;
o The anticipated federal income tax treatment of the Reorganizations and
tax consequences to the Target Funds and their shareholders;
o Anticipated dispositions of portfolio securities in connection with the
Reorganizations;
o The costs incurred in connection with the Reorganizations, and the
payment of certain of the expenses of the Reorganizations by Franklin
Advisers, Inc., AMUS or entities under common ownership with Franklin
Advisers, Inc. or AMUS;
o Alternatives to the proposed Reorganizations, including liquidation of
the Target Funds and the viability of the Target Funds absent approval
of the proposed Reorganizations;
o Whether shareholders of the Target Funds are expected to experience any
dilution as a result of the Reorganizations; and Benefits to and
recommendation of AMUS.
At the conclusion of this process, AMUS proposed that the Board of Trustees
approve the Reorganizations. The Board of Trustees considered the above
information, as well as other information, in considering this proposal. The
Independent Trustees were advised by independent legal counsel during this
process.
On June 2, 2009, the Board of Trustees determined each Reorganization to be
in the best interests of the applicable Target Fund and its shareholders and
unanimously approved each Reorganization.
Some of the factors set forth above, which served as the basis for the
Trustees' determination to approve the Reorganizations, are discussed in
greater detail below.
COMPARISON OF INVESTMENT OBJECTIVES/GOALS AND POLICIES AND PAST PERFORMANCE
AND EXPENSES. The Trustees considered that:
o each Acquiring Fund and corresponding Target Fund have similar investment
objectives/goals and policies;
o past performance of the Acquiring Funds has generally been comparable to
the past performance of the Target Funds over 1, 5, and 10-year periods,
as appropriate; in this regard, the Trustees were aware that past
performance does not necessarily indicate future results; and
o expense comparisons between each Target Fund and its corresponding
Acquiring Fund are in many cases favorable for Target Fund shareholders;
in cases where expense comparisons are not directly favorable, the
Trustees also considered other factors, such as (i) the fact that AMUS
is contractually obligated to provide expense reimbursements and/or fee
waivers only through March 1, 2010 with respect to the HSBC Investor
Core Plus Fixed Income Fund, the HSBC Investor Core Plus Fixed Income
Fund (Advisor) and HSBC Investor Intermediate Duration Fixed Income
Fund; (ii) the other benefits to shareholders of the Reorganizations
described herein; and (iii) the potential disadvantages of other
potential alternatives to the Reorganizations.
FRANKLIN ADVISERS, INC.'S CAPABILITIES. The Trustees considered that
Franklin Advisers, Inc. is a wholly owned subsidiary of Franklin Resources,
Inc., a publicly owned global investment organization operating as Franklin
Templeton Investments, and that Franklin Resources, Inc. and its affiliates
have more than $421 billion in assets under management as of April 30, 2009.
In this regard, the Trustees considered, among other things, the size of the
Franklin Templeton Funds fund complex, the investment options and strategies
that would be available to Target Fund shareholders through exchanges of
shares, and the shareholder services offered.
TAX CONSEQUENCES. The Trustees considered that they were advised (i) that
the Reorganizations, unlike certain alternatives, would be treated as
"tax-free" for federal income tax purposes; (ii) of other tax matters that
affect the relative desirability of the Reorganizations to Target Fund
shareholders, such as capital loss carryforwards; and (iii) that it is likely
that a portion of the portfolio securities in each of the Target Funds will
be disposed of prior to the Closing Date. In this regard, the Trustees
considered that dispositions of portfolio securities may result in the
realization of capital gains that, to the extent not offset by capital
losses, will be distributed to Target Fund shareholders prior to consummation
of the Reorganizations.
EXPENSES OF THE REORGANIZATIONS. The Trustees considered that Franklin
Advisers, Inc., AMUS or entities under common ownership with Franklin
Advisers, Inc. or AMUS will bear the costs of the Reorganizations, including
legal, accounting, printing, proxy solicitation and similar expenses,
although the Target Funds and Acquiring Funds are expected to bear
transaction costs associated with the purchase or disposition of portfolio
securities made in connection with the Reorganizations.
ALTERNATIVES TO THE PROPOSED REORGANIZATIONS. The Trustees considered
alternatives to the Reorganizations, including (i) reorganizing the Target
Funds with one or more other affiliated funds, (ii) reorganizing the Target
Funds into funds in other fund complexes, and (iii) liquidating the Target
Funds, and the fact that only certain other alternatives were viable and all
alternatives had undesirable aspects for Target Fund shareholders.
BENEFITS TO AMUS. The Trustees considered that (i) they had been advised
that AMUS would receive no compensation from Franklin Advisers, Inc. related
to the Reorganizations, except that Franklin Advisers, Inc. has agreed to pay
or arrange for an entity under common ownership to pay a portion of the costs
of the Reorganizations and (ii) AMUS has entered into written expense
limitation agreements with the HSBC Investor Core Plus Fixed Income Fund, the
HSBC Investor Core Plus Fixed Income Fund (Advisor) and the HSBC Investor
Intermediate Duration Fixed Income Fund under which it has agreed to limit
total expenses of each Fund through March 1, 2010, but that these expense
limitation agreements would no longer be in effect following a Reorganization
RECOMMENDATION OF AMUS. The Trustees considered that (i) AMUS recommended to
the Trustees that the Reorganizations be approved and that AMUS and (ii) its
affiliates serve separately as fiduciaries for significant numbers of
shareholders invested in the Target Funds and otherwise maintain customer
relationships with substantially all other Target Fund shareholders.
Based on the foregoing, together with other factors and information
considered to be relevant, the Trustees unanimously determined that each
Reorganization is in the best interests of the respective Target Fund and its
shareholders. Consequently, the Trustees approved the Reorganizations and
directed that the Plan be submitted to the shareholders of the Target Funds
for approval.
DESCRIPTION OF THE SECURITIES TO BE ISSUED
Holders of HSBC Investor Core Plus Fixed Income Fund Class A shares and Class
B shares will receive Class A shares of Franklin Total Return Fund. Holders
of HSBC Investor Core Plus Fixed Income Fund Class C shares will receive
Class C shares of Franklin Total Return Fund. Holders of HSBC Investor Core
Plus Fixed Income Fund (Advisor) Class I shares will receive Advisor Class
shares of Franklin Total Return Fund. Franklin Total Return Fund is a series
of Franklin Investors Securities Trust.
Holders of HSBC Investor Intermediate Duration Fixed Income Fund Class A
shares and Class B shares will receive Class A shares of Franklin Total
Return Fund. Holders of HSBC Investor Intermediate Duration Fixed Income
Fund Class C shares will receive Class C shares of Franklin Total Return
Fund. Holders of HSBC Investor Intermediate Duration Fixed Income Fund Class
I shares will receive Advisor Class shares of Franklin Total Return Fund.
Franklin Total Return Fund is a series of Franklin Investors Securities Trust.
Holders of HSBC Investor New York Tax-Free Bond Fund Class A shares and Class
B shares will receive Class A shares of Franklin New York Intermediate-Term
Tax-Free Income Fund. Holders of HSBC Investor New York Tax-Free Bond Fund
Class C shares will receive Class C shares of Franklin New York
Intermediate-Term Tax-Free Income Fund. Holders of HSBC Investor New York
Tax-Free Bond Fund Class I shares will receive Advisor Class shares of
Franklin New York Intermediate-Term Tax-Free Income Fund. Franklin New York
Intermediate-Term Tax-Free Income Fund is a series of Franklin New York
Tax-Free Trust.
Franklin Investors Securities Trust and Franklin New York Tax-Free Trust are
collectively referred to as the Franklin Trusts. The Trustees of the
Franklin Trusts are authorized to issue an unlimited number of shares of
beneficial interest of separate series. Each share of an Acquiring Fund
represents an equal proportionate interest with each other share of the Fund,
and each such share of an Acquiring Fund is entitled to equal liquidation and
redemption rights. The Franklin Trusts do not hold annual meetings of
shareholders. There will normally be no meetings of shareholders for the
purpose of electing Trustees unless less than a majority of the Trustees
holding office have been elected by shareholders, at which time the Trustees
then in office will call a shareholder meeting for the election of Trustees.
For more information about redemption rights and exchange privileges, please
refer to the "Buying and Selling Shares" and the "Exchanging Shares"
sections, respectively, in the enclosed Franklin prospectuses.
FORMS OF ORGANIZATION
The HSBC Investor Intermediate Duration Fixed Income Fund is a diversified
series of HSBC Investor Funds. The HSBC Investor New York Tax-Free Bond Fund
is a non-diversified series of HSBC Investor Funds. The HSBC Investor Core
Plus Fixed Income Fund is a series of HSBC Investor Funds and the HSBC
Investor Core Plus Fixed Income Fund (Advisor) is a series of HSBC Advisor
Funds Trust. The HSBC Investor Funds and HSBC Advisor Funds Trust are each
open-end management investment companies organized as Massachusetts business
trusts. The HSBC Investor Funds and HSBC Advisor Funds Trust are authorized
to issue an unlimited number of shares of beneficial interest. The Acquiring
Funds are diversified funds of the Franklin Trusts, each an open-end
management investment company organized as Delaware statutory trusts. Each
of the Franklin Trusts is authorized to issue an unlimited number of shares
of beneficial interest.
OPERATION OF THE ACQUIRING FUNDS FOLLOWING THE REORGANIZATIONS
Franklin Advisers, Inc. does not expect any Acquiring Fund to revise its
investment objectives/goals or strategies as a result of a Reorganization.
In addition, Franklin Advisers, Inc. does not anticipate significant changes
to an Acquiring Fund's management or to entities that provide the Fund with
services. Specifically, the Trustees and officers, the investment manager,
distributor, and other entities will continue to serve the Acquiring Funds in
their current capacities. The portfolio managers of the Acquiring Funds are
expected to continue to manage their respective funds.
CAPITALIZATION
The following tables show the capitalization of the each Target Fund and the
corresponding Acquiring Fund as of October 31, 2008 (as of March 31, 2009 for
the Franklin New York Intermediate-Term Tax-Free Income Fund) and on a PRO
FORMA combined basis (unaudited) as of October 31, 2008 giving effect to the
Reorganizations.
Net
Asset
Net Value Shares
Assets Per Share Outstanding Adjustments
-----------------------------------------------
HSBC Investor Core Plus
Fixed Income Fund
Class A $8,370,962 $9.09 921,234
Class B $1,721,673 $9.10 189,256
Class C $94,895 $9.07 10,463
HSBC Investor Core Plus
Fixed Income Fund (Advisor)
Class I $54,917,516 $8.89 6,180,099
Franklin Total Return Fund
Class A $780,550,753 $8.60 90,736,130
Class C $103,564,303 $8.60 12,045,197
Advisor Class $345,256,080 $8.61 40,078,667
Franklin Total Return Fund
PRO FORMA Combined Fund
Class A $790,643,388 $8.60 91,909,692
Class C $103,659,198 $8.60 12,056,231
Advisor Class $400,173,596 $8.61 46,457,008
Net
Asset
Net Value Shares
Assets Per Share Outstanding Adjustments
-----------------------------------------------
HSBC Investor Intermediate
Duration Fixed Income Fund
Class A $1,645,561 $8.91 184,626
Class B $1,365,279 $8.93 152,864
Class C $221,571 $8.93 24,819
Class I $9,641,333 $8.93 1,080,077
Franklin Total Return Fund
Class A $780,550,753 $8.60 90,736,130
Class C $103,564,303 $8.60 12,045,197
Advisor Class $345,256,080 $8.61 40,078,667
Franklin Total Return Fund
PRO FORMA Combined Fund
Class A $783,561,593 $8.60 91,086,228
Class C $103,785,874 $8.60 12,070,961
Advisor Class $354,897,413 $8.61 41,198,450
Net
Asset
Net Value Shares
Assets Per Share Outstanding Adjustments
-----------------------------------------------
Franklin Total Return Fund
PRO FORMA Combined Fund(1)
Class A $793,654,228 $8.60 92,259,790
Class C $103,880,769 $8.60 12,081,995
Advisor Class $409,814,929 $8.61 47,576,791
Net
Asset
Net Value Shares
Assets Per Share Outstanding Adjustments
-----------------------------------------------
HSBC Investor New York
Tax-Free Bond Fund
Class A $23,258,382 $10.70 2,174,452
Class B $3,916,092 $10.69 366,455
Class C $477,309 $10.73 44,482
Class I $14,436,284 $10.70 1,349,506
Franklin New York
Intermediate-Term Tax-Free
Income Fund
Class A $321,384,897 $10.64 30,215,834
Class C $29,093,667 $10.66 2,729,706
Advisor Class $296,967 $10.64 27,916
Franklin New York
Intermediate-Term Tax-Free
Income Fund
PRO FORMA Combined Fund
Class A $348,559,371 $10.64 32,769,826
Class C $29,570,976 $10.66 2,774,482
Advisor Class $14,733,251 $10.64 1,384,710
(1)Pro forma information reflects the combination of HSBC Investor Core Plus
Fixed Income Fund, HSBC Investor Core Plus Fixed Income Fund (Advisor) and
HSBC Investor Intermediate Duration Fixed Income Fund into the Franklin
Total Return Fund.
The table above assumes that the Reorganizations of the HSBC Investor Core
Plus Fixed Income Fund, HSBC Investor Core Plus Fixed Income Fund (Advisor),
and HSBC Investor Intermediate Duration Fixed Income Fund into the Franklin
Total Return Fund occurred on October 31, 2008, and that the Reorganization
of the HSBC Investor New York Tax-Free Bond Fund into the Franklin New York
Intermediate-Term Tax-Free Income Fund occurred on March 31, 2009. The table
is for informational purposes only. No assurance can be given as to how many
Acquiring Fund shares will be received by shareholders of a Target Fund on
the date that the Reorganization takes place, and the foregoing should not be
relied upon to reflect the number of shares of an Acquiring Fund that
actually will be received on or after that date.
ADDITIONAL INFORMATION ABOUT THE FUNDS
MANAGEMENT OF THE TARGET FUNDS
AMUS is the investment adviser for each of the Target Funds. The principal
business address of AMUS is 452 Fifth Avenue, New York, New York 10018. As
the investment adviser, AMUS has overall responsibility for directing the
Target Funds' investments. As of April 30, 2009, AMUS managed approximately
$32 billion in the HSBC Investor Family of Funds.
Halbis Capital Management (USA) Inc. ("Halbis"), 452 Fifth Avenue, New York,
New York 10018, is the subadviser for the Target Funds pursuant to investment
sub-advisory contracts with AMUS. Halbis is a wholly owned subsidiary of
Halbis Capital Management (UK) Limited and is an affiliate of AMUS. Halbis
makes the day-to-day investment decisions and continuously reviews,
supervises and administers the investment programs of the Target Funds.
INVESTMENT ADVISORY CONTRACT
The HSBC Investor Core Plus Fixed Income Fund, HSBC Investor Core Plus Fixed
Income Fund (Advisor) and the HSBC Investor Intermediate Duration Fixed
Income Fund pursue their investment objectives by investing all of their
assets in the Underlying Portfolios, and do not have their own investment
management agreements with AMUS. In such cases, all investment management
fees are paid by the Underlying Portfolio, but are borne indirectly by the
holders of interests in the HSBC Investor Core Plus Fixed Income Fund, HSBC
Investor Core Plus Fixed Income Fund (Advisor) and the HSBC Investor
Intermediate Duration Fixed Income Fund. Shareholders of the HSBC Investor
Core Plus Fixed Income Fund, HSBC Investor Core Plus Fixed Income Fund
(Advisor) and the HSBC Investor Intermediate Duration Fixed Income Fund bear
their own expenses and the expenses of the Underlying Portfolios, which may
be greater than other structures.
For its services as investment adviser, AMUS is entitled to a fee, which is
accrued daily and paid monthly, based on daily net assets, at an annual rate
as set forth below. These amounts are inclusive of any sub-advisory fees
that AMUS pays to Halbis.
FUND OR PORTFOLIO ASSET RANGE FEE
- ---------------------------------------------------------
Core Plus Fixed Income $0-50 million 0.575%
Portfolio $50-95 million 0.450%
$95-150 million 0.200%
$150-250 million 0.400%
$250+ million 0.350%
Intermediate Duration Fixed on all Assets 0.40%
Income Portfolio
New York Tax-Free Bond Fund on all Assets 0.25%
For these advisory and management services (including any sub-advisory
services), during the fiscal year ended October 31, 2008, management fees
were paid as follows:
- -------------------------------------------------------------------------------
Percentage
of Average
net Assets
------------
Core Plus Fixed Income 0.48%
Portfolio
Intermediate Duration Fixed 0.40%
Income Portfolio
New York Tax-Free Bond Fund 0.25%
For more information about each of the Target Funds' management, please refer
to the "Fund Management" section of the Target Funds' Prospectus, which is
incorporated herein by reference and to the "Investment Adviser" section of
the Target Funds' statement of additional information, which is incorporated
by reference into the SAI related to this Prospectus/Proxy Statement. A
discussion regarding the basis for the Board of Trustees' approval of the
investment advisory and subadvisory agreements for the Target Funds is
available in the April 30, 2009 semi-annual report to shareholders.
- -------------------------------------------------------------------------------
TARGET FUNDS' PORTFOLIO MANAGERS
Kim Golden, CFA is the portfolio manager of the HSBC Investor Core Plus Fixed
Income Fund and the HSBC Investor Intermediate Duration Fixed Income Fund.
He is primarily responsible for day-to-day management. Brian M. Lockwood
and Brian F. Colalucci are co-managers of the New York Tax-Free Bond Fund
and are jointly and primarily responsible for day-to-day management.
Kim Golden, CFA, is a Managing Director of Halbis and Head of Distressed
Investing. Mr. Golden joined AMUS in February 2004. Previously he was
Managing Director of the T. Rowe Price Recovery Funds and Vice President of
T. Rowe Price Associates. At T. Rowe Price, he invested in financially
distressed and bankrupt companies on behalf of the Recovery Fund and other
investment funds at the firm, and traded a broad array of financial
instruments including bonds, bank loans, trade claims, equities and
derivatives. Prior to joining T. Rowe Price, Mr. Golden worked for
Chemical Bank (now J.P. Morgan Chase) in investment banking and corporate
finance, where he was involved in merger and acquisition advisory, structured
leveraged buyouts, and was one of the bank's principal valuation experts.
Earlier at Chemical, Mr. Golden spent several years advising Fortune 100
companies on international finance issues, including foreign exchange
exposure, forecasting, risk management, cross border flows, hedging, and the
use of derivatives. Before joining Chemical Bank, he was an officer at the
U.S. Treasury in the Office of International Monetary Affairs. Mr. Golden
holds an MPA from the Woodrow Wilson School at Princeton University and B.A.
and a B.Mus. (performance) from Oberlin College.
Brian M. Lockwood is a senior portfolio manager and the team leader of the
fixed income division in the Private Bank Investment Management Group of
HSBC. Additionally, Mr. Lockwood chairs the fixed income strategy committee
for the US Curve for both local and global investment groups. He manages
co-mingled and segregated taxable and tax-exempt assets, including HSBC
collective and common funds and tactical mandates. Prior to joining HSBC,
Brian worked as a fixed income manager for Ramius Capital Group and
DLJ/Credit Suisse Asset Management. His duties have included the management
of various active fixed mandates, as well as the overall trading of $13
billion in assets. Mr. Lockwood has also traded fixed income securities for
Spear, Leads, & Kellogg and began his career in the institutional
trading/sales division of National Westminster Bank, NA. He has specialized
in yield curve analysis, fixed income relative value, and an active
management discipline.
Brian F. Colalucci joined the fixed income division in HSBC's Private Bank
Investment Management Group in 2008. Prior to joining HSBC, he was a Senior
Vice President and Portfolio Manager at Robeco Investment Management, where
he was part of the firm's tax-exempt, high net worth portfolio team with
assets under management of $2 billion. Prior to Robeco, Mr. Colalucci worked
for Western Asset Management, where he was responsible for implementing
investment strategies and trading tax-exempt securities for the firm's
institutional portfolios, mutual funds, and high net worth accounts. He
began his investment career at Citigroup Asset Management in 1996, where he
was a Vice President and portfolio manager for Citi's institutional and
retail clients. At Citi, Mr. Colalucci co-managed Citi's top state-specific
tax-exempt money market funds with assets under management of over $3
Billion. Mr. Colalucci holds a B.S.B.A degree from Villanova University and
has 13 years of investment experience.
Information about the portfolio managers' compensation, other accounts
managed by these individuals, and their ownership of securities in the Target
Funds or other funds that they manage is available in the Target Funds' SAI,
which can be obtained by contacting the Funds at 1-800-782-8183.
MANAGEMENT OF THE ACQUIRING FUNDS
Franklin Advisers, Inc., One Franklin Parkway, San Mateo, CA 94403-1906, is
the Acquiring Funds' investment manager. Together, Franklin Advisers, Inc.
and its affiliates manage more than $421 billion in assets as of April 30,
2009. Under an agreement with Franklin Advisers, Inc., Franklin Templeton
Institutional, LLC ("FT Institutional"), 600 Fifth Avenue, New York, New York
10020, is the Franklin Total Return Fund's sub-advisor. FT Institutional
provides Franklin Advisers, Inc. with investment management advice and
assistance. FT Institutional recommends the optimal equity allocation and
provides advice regarding the Franklin Total Return Fund's investments. FT
Institutional also determines which securities will be purchased, retained or
sold and executes these transactions. FT Institutional's activities are
subject to the board's review and control, as well as Franklin Advisers,
Inc.'s instruction and supervision.
INVESTMENT MANAGEMENT CONTRACT
For its services as investment manager, Franklin Advisers, Inc. is entitled
to a fee, which is calculated daily and paid monthly, based on daily net
assets, at an annual rate as set forth below. Each class of the Fund's
shares pays its proportionate share of the fee. These amounts are inclusive
of any sub-advisory fees that Franklin Advisers, Inc. pays to FT
Institutional.
FUND ASSET RANGE FEE
- -----------------------------------------------------------------
up to and including $500
Franklin Total Return Fund million 0.425%
over $500 million up to and
including $1 billion 0.325%
over $1 billion up to and
including $1.5 billion 0.280%
over $1.5 billion up to and
including $6.5 billion 0.235%
over $6.5 billion up to and
including $11.5 billion 0.215%
over $11.5 billion up to
and including $16.5 billion 0.200%
over $16.5 billion up to
and including $19 billion 0.190%
over $19 billion up to and
including $21.5 billion 0.180%
over $21.5 billion 0.170%
Franklin New York
Intermediate-Term up to and including $100
Tax-Free Income Fund million 0.625%
over $100 million and not
over $250 million 0.500%
over $250 million and not
over $7.5 billion 0.450%
over $7.5 billion and not
over $10 billion 0.440%
over $10 billion and not
over $12.5 billion 0.430%
over $12.5 billion and not
over $15 billion 0.420%
over $15 billion and not
over $17.5 billion 0.400%
over $17.5 billion and not
over $20 billion 0.380%
in excess of $20 billion 0.360%
For these management services (including any sub-advisory services), during
the fiscal year indicated, management fees were paid as follows:
PERCENTAGE
FISCAL YEAR OF AVERAGE
FUND ENDED NET ASSETS
- --------------------------------------------------------------------
Franklin Total Return Fund October 31, 2008 0.32%*
Franklin New York Intermediate-Term September 30, 2008 0.53%
Tax-Free Income Fund
* For the fiscal year ended October 31, 2008, management fees, before
any advance waiver, were 0.35% of the Franklin Total Return Fund's
average net assets. Under an agreement by Franklin Advisers, Inc. to
limit its fees and to reduce its fees to reflect reduced services
resulting from the Franklin Total Return Fund's investment in a
Franklin Templeton money fund, the Franklin Total Return Fund paid
0.32% of its average net assets to the adviser for its services.
Franklin Advisers, Inc., is required by the Franklin Total Return
Fund's board of trustees and an exemptive order by the SEC to reduce
its fee if the Franklin Total Return Fund invests in a Franklin
Templeton money fund.
If the Reorganizations are approved, the resulting combined Funds will retain
the Acquiring Funds' management fee structure.
For more information about each of the Acquiring Funds' management, please
refer to the "Management" section of the Acquiring Funds' Prospectus, which
is incorporated herein by reference, and included herein and to the
"Management and Other Services" section of the Acquiring Funds' statement of
additional information, which are incorporated by reference into the SAI to
this Prospectus/Proxy Statement. A discussion regarding the basis for the
board of trustees approving the investment management contract of each
respective Acquiring Fund is available in the Franklin Total Return Fund's
semiannual report to shareholders for the six-month period ended April 30,
2009 or the Franklin New York Intermediate-Term Tax-Free Income Fund's
semiannual report to shareholders for the six-month period ended March 31,
2009, as applicable.
ADDITIONAL MANAGEMENT INFORMATION
In 2003 and 2004, multiple lawsuits were filed against Franklin Resources,
Inc., and certain of its investment advisor subsidiaries, among other
defendants, alleging violations of federal securities and state laws and
seeking, among other relief, monetary damages, restitution, removal of fund
trustees, directors, investment managers, administrators and distributors,
rescission of management contracts and 12b-1 plans, and/or attorneys' fees
and costs. Specifically, the lawsuits claim breach of duty with respect to
alleged arrangements to permit market timing and/or late trading activity, or
breach of duty with respect to the valuation of the portfolio securities of
certain Templeton funds managed by Franklin Resources, Inc. subsidiaries,
allegedly resulting in market timing activity. The lawsuits are styled as
class actions, or derivative actions on behalf of either the named funds or
Franklin Resources, Inc., and have been consolidated for pretrial purposes,
along with hundreds of other similar lawsuits against other mutual fund
companies. All of the Franklin Templeton Investments mutual funds that were
named in the litigation as defendants have since been dismissed, as have the
independent trustees to those funds.
Franklin Resources, Inc. previously disclosed these private lawsuits in its
regulatory filings and on its public website. Any material updates regarding
these matters will be disclosed in Franklin Resources, Inc.'s Form 10-Q or
Form 10-K filings with the U.S. Securities and Exchange Commission.
ACQUIRING FUNDS' PORTFOLIO MANAGERS
The Franklin Total Return Fund is managed by a team of dedicated
professionals focused on investments in investment grade debt securities.
The portfolio managers of the team are as follows:
Roger Bayston, CFA, is a Senior Vice President of Franklin Advisers, Inc.
Mr. Bayston has been lead portfolio manager of the Franklin Total Return Fund
since its inception. He has primary responsibility for the investments of
the Franklin Total Return Fund. He has final authority over all aspects of
the Franklin Total Return Fund's investment portfolio, including but not
limited to, purchases and sales of individual securities, portfolio risk
assessment, and the management of daily cash balances in accordance with
anticipated management requirements. The degree to which he may perform
these functions, and the nature of these functions, may change from time to
time. He joined Franklin Templeton Investments in 1991.
Kent Burns, CFA, is a Portfolio Manager of Franklin Advisers, Inc. Mr. Burns
has been a portfolio manager of the Franklin Total Return Fund since its
inception, providing research and advice on the purchases and sales of
individual securities, and portfolio risk assessment. He joined Franklin
Templeton Investments in 1994.
Christopher J. Molumphy, CFA, is an Executive Vice President and Director of
Franklin Advisers, Inc. Mr. Molumphy has been a portfolio manager of the
Franklin Total Return Fund since its inception, providing research and advice
on the purchases and sales of individual securities, and portfolio risk
assessment. He joined Franklin Templeton Investments in 1988.
David Yuen, CFA, is a Portfolio Manager of Franklin Advisers, Inc. Mr. Yuen
has been a portfolio manager of the Franklin Total Return Fund since 2005,
providing research and advice on the purchases and sales of individual
securities, and portfolio risk assessment. He joined Franklin Templeton
Investments in 2000.
Michael J. Materasso is an Executive Vice President of FT Institutional.
Mr. Materasso has been a portfolio manager of the Franklin Total Return Fund
since 2008, providing research and advice on the purchases and sales of
individual securities, and portfolio risk assessment. He joined Franklin
Templeton Investments in 1988.
The Franklin New York Intermediate-Term Tax-Free Income Fund is managed by a
team of dedicated professionals focused on investments in New York municipal
securities. The portfolio managers of the team are as follows:
James P. Conn, CFA, is a Vice President of Franklin Advisers, Inc. Mr. Conn
has been lead portfolio manager of the Franklin New York Intermediate-Term
Tax-Free Income Fund since 1999. He has primary responsibility for the
investments of the Franklin New York Intermediate-Term Tax-Free Income Fund.
He has final authority over all aspects of the Franklin New York
Intermediate-Term Tax-Free Income Fund's investment portfolio, including but
not limited to, purchases and sales of individual securities, portfolio risk
assessment, and the management of daily cash balances in accordance with
anticipated management requirements. The degree to which he may perform
these functions, and the nature of these functions, may change from time to
time. He joined Franklin Templeton Investments in 1996.
John Pomeroy is a Vice President of Franklin Advisers, Inc. Mr. Pomeroy has
been a portfolio manager of the Franklin New York Intermediate-Term Tax-Free
Income Fund since its inception, providing research and advice on the
purchases and sales of individual securities, and portfolio risk assessment.
He joined Franklin Templeton Investments in 1986.
Information about the portfolio managers' compensation, other accounts
managed by these individuals, and their ownership of securities in the
Acquiring Funds or other funds that they manage is available in the Acquiring
Funds' Statements of Additional Information which are incorporated by
reference into the SAI to this Prospectus/Proxy Statement.
DISTRIBUTION OF TARGET FUND SHARES
Foreside Distribution Services LP ("Foreside" or the "Distributor"), whose
address is 10 High Street, Suite 302, Boston, MA 02110, acts as distributor
to the Target Funds under a Distribution Agreement with each of the HSBC
Investor Funds and HSBC Advisor Funds Trust. Under the terms of the
Distribution Agreement, Foreside provides services to the Trusts related to,
among other things, the review and approval of Target Fund selling
agreements, the review of the Target Funds' marketing materials, and the
compensation of third party intermediaries. Foreside and its affiliates also
serve as distributor to other investment companies. The Distributor may make
payments to broker-dealers for their services in distributing shares of the
Target Funds.
Distribution Plans have been adopted by the HSBC Investor Funds (the
"Distribution Plans") with respect to the Class A shares (the "Class A Plan"),
the Class B shares (the "Class B Plan"), and Class C shares (the "Class C
Plan"), of each Target Fund, as applicable. Pursuant to the Distribution
Plans, the Distributor is reimbursed from each Fund monthly for costs and
expenses incurred by the Distributor in connection with the distribution of
Class A shares, Class B shares, and Class C shares of the Funds and for the
provision of certain shareholder services with respect to these shares.
Payments to the Distributor are for various types of activities, including:
(1) payments to broker-dealers which advise shareholders regarding the
purchase, sale or retention of Class A shares, Class B shares, and Class C
shares of the Fund and which provide shareholders with personal services and
account maintenance services ("service fees"), (2) payments to employees of
the Distributor, and (3) printing and advertising expenses.
Pursuant to the Class A Plan, the amount reimbursed from a Fund may not
exceed on an annual basis 0.25% of the average daily net assets of the Fund
represented by Class A shares outstanding during the period for which payment
is being made. Pursuant to the Class B Plan and Class C Plan, respectively,
payments by the Distributor to broker-dealers may be in amounts on an annual
basis of up to 0.75% of a Fund's average daily net assets as presented by
Class B shares and Class C shares, respectively, outstanding during the
period for which payment is being made. The aggregate fees paid to the
Distributor pursuant to the Class B Plan and Class C Plan, respectively, and
to Servicing Agents (as defined in the Target Funds' statement of additional
information) pursuant to the Shareholder Services Plan will not exceed on an
annual basis 1.00% of a Fund's average daily net assets represented by Class
B shares and Class C shares, respectively, outstanding during the period for
which payment is being made. Salary expense of Foreside personnel who are
responsible for marketing shares of the various series of a Trust may be
allocated to such series on the basis of average net assets; travel expense
is allocated to, or divided among, the particular series for which it is
incurred. The distribution fees collected from the Funds by Foreside are
used to pay commissions for the sale of Fund shares. The Distribution Plans
are subject to the Board of Trustees' approval. The Funds are not liable for
distribution and shareholder servicing expenditures made by the Distributor
in any given year in excess of the maximum amount payable under the
Distribution Plans in that year.
For more information about the Target Funds' distribution, please refer to
the "Distribution Arrangements/Sales Charges" section of the Target Funds'
Prospectus, which is incorporated herein by reference, and to the
"Distribution Plans - Class A, Class B, and Class C shares Only" and "The
Distributor" and "Shareholder Services Plan" sections of the Target Funds'
statement of additional information.
DISTRIBUTION OF ACQUIRING FUND SHARES
Franklin Templeton Distributors, Inc. ("Franklin Distributors") acts as the
principal underwriter in the continuous public offering of the Acquiring
Funds' shares. Franklin Distributors is located at One Franklin Parkway, San
Mateo, CA 94403-1906. Franklin Distributors pays the expenses of the
distribution of Acquiring Fund shares, including advertising expenses and the
costs of printing sales material and prospectuses used to offer shares to the
public. Each Acquiring Fund pays the expenses of preparing and printing
amendments to its registration statements and prospectuses (other than those
necessitated by the activities of Franklin Distributors) and of sending
prospectuses to existing shareholders. Franklin Distributors does not
receive compensation from the Acquiring Funds for acting as underwriter of
the Acquiring Funds' Advisor Class shares.
The Boards of the Franklin Trusts have adopted a separate plan pursuant to
Rule 12b-1 for each class except Advisor Class of the Acquiring Funds.
Although the plans differ in some ways for each class, each plan is designed
to benefit the Acquiring Funds and their shareholders. The plans are
expected to, among other things, increase advertising of the Funds, encourage
purchases of the Acquiring Funds' shares and service to the shareholders, and
increase or maintain assets of an Acquiring Fund so that certain fixed
expenses may be spread over a broader asset base, with a positive impact on
per share expense ratios. In addition, a positive cash flow into the
Acquiring Funds is useful in managing the Acquiring Funds because the manager
has more flexibility in taking advantage of new investment opportunities and
handling shareholder redemptions. Under the plans, the Acquiring Funds pay
Franklin Distributors or others for the expenses of activities that are
primarily intended to sell shares of the class. These expenses also may
include service fees paid to securities dealers or others who have executed a
servicing agreement with an Acquiring Fund, Franklin Distributors or its
affiliates and who provide service or account maintenance to shareholders
(service fees), and the expenses of printing prospectuses and reports used
for sales purposes, and of preparing and distributing sales literature and
advertisements. Together, these expenses, including the service fees, are
"eligible expenses." The 12b-1 fees charged to each class are based only on
the fees attributable to that particular class.
The Franklin Total Return Fund may pay up to 0.25% per year of Class A's
average daily net assets and the Franklin New York Intermediate-Term Tax-Free
Income Fund may pay up to 0.10% per year of Class A's average daily net
assets. Each plan is a reimbursement plan. It allows the Acquiring Fund to
reimburse Franklin Distributors for eligible expenses that Franklin
Distributors has shown it has incurred. The Acquiring Funds will not
reimburse more than the maximum amount allowed under the plan.
The Franklin Total Return Fund pays Franklin Distributors up to 0.65% per
year of Class C's average daily net assets, out of which 0.15% may be paid
for services to the shareholders (service fees). The Franklin New York
Intermediate-Term Tax-Free Income Fund pays Franklin Distributors up to 0.65%
per year of Class C's average daily net assets, out of which 0.15% may be
paid for services to the shareholders (service fees). The Class C plans also
may be used to pay Franklin Distributors for advancing commissions to
securities dealers with respect to the initial sale of Class C shares. The
Class C plans are compensation plans. They allow the Acquiring Funds to pay
a fee to Franklin Distributors that may be more than the eligible expenses
Franklin Distributors has incurred at the time of the payment. Franklin
Distributors must, however, demonstrate to the board that it has spent or has
near-term plans to spend the amount received on eligible expenses. The
Acquiring Funds will not pay more than the maximum amount allowed under the
plan.
In addition to the payments that Franklin Distributors or others are entitled
to under each plan, each plan also provides that to the extent an Acquiring
Fund, Franklin Advisers, Inc. or Franklin Distributors or other parties on
behalf of an Acquiring Fund, Franklin Advisers, Inc. or Franklin Distributors
make payments that are deemed to be for the financing of any activity
primarily intended to result in the sale of Acquiring Fund shares 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.
If the Reorganizations are approved, the resulting combined Funds will retain
the Distribution and Service Plans for the Acquiring Funds.
For more information about the Acquiring Funds' distribution, please refer to
the "Distribution and Service (12b-1) Fees" section of the Acquiring Funds'
Prospectuses. In addition, please refer to "The Underwriter" section of the
Acquiring Funds' Statements of Additional Information, which are incorporated
by reference into the SAI to this Prospectus/Proxy Statement.
FINANCIAL HIGHLIGHTS OF THE TARGET FUNDS
The Target Funds' financial highlights audited by KPMG LLP ("KPMG") as
included in the Target Funds' prospectuses have been incorporated herein by
reference in reliance on their reports given on KPMG's authority as experts
in accounting and auditing.
FINANCIAL HIGHLIGHTS OF THE ACQUIRING FUNDS
FRANKLIN TOTAL RETURN FUND
These tables present the Franklin Total Return Fund's Class A, Class C and
Advisor Class financial performance for the past five years or since its
inception. Certain information reflects financial results for a single
Franklin Total Return Fund share. The total returns in the table represent
the rate that an investor would have earned or lost on an investment in the
Franklin Total Return Fund assuming reinvestment of dividends and capital
gains. This information has been derived from the financial statements
audited by PricewaterhouseCoopers LLP, whose report, along with the Fund's
financial statements, are included in the annual report, which is
incorporated by reference into the SAI relating to this Prospectus/Proxy
Statement.
Franklin Total Return Fund - Class A Shares
- -------------------------------------------------------------------------
Class A Year Ended October 31,
- -------------------------------------------------------------------------
2008 2007 2006 2005 2004
- -------------------------------------------------------------------------
Per share operating performance
(for a share outstanding
throughout the year)
- -------------------------------------------------------------------------
Net asset value, beginning of $9.92 $9.95 $9.91 $10.22 $10.06
year
- -------------------------------------------------------------------------
Income from investment
operations:(a)
- -------------------------------------------------------------------------
Net investment income 0.449 0.469 0.439 0.410 0.415
- -------------------------------------------------------------------------
Net realized and unrealized (1.289) (0.010) 0.096 (0.280) 0.226
gains (losses)
- -------------------------------------------------------------------------
Total from investment operations (0.840) 0.459 0.535 0.130 0.641
- -------------------------------------------------------------------------
Less distributions from net (0.480) (0.489)(0.495) (0.440)(0.481)
investment income
- -------------------------------------------------------------------------
Redemption fees(b,c) -- -- -- -- --
- -------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $8.60 $9.92 $9.95 $9.91 $10.22
- -------------------------------------------------------------------------
Total return(d) (8.79)% 4.62% 5.56% 1.27% 6.63%
- -------------------------------------------------------------------------
Ratios to average net assets
- -------------------------------------------------------------------------
Expenses before waiver and 1.01% 1.03% 1.03% 1.04% 1.04%
payments by affiliates
- -------------------------------------------------------------------------
Expenses net of waiver and 0.85%(e) 0.85%(e) 0.85%(e) 0.85%(e) 0.80%
payments by affiliates
- -------------------------------------------------------------------------
Net investment income 4.68% 4.69% 4.39% 3.88% 3.90%
- -------------------------------------------------------------------------
Supplemental data
- -------------------------------------------------------------------------
- -
Net assets, end of year (000's) $780,551 $683,73 $406,24 $291,473 $208,943
- -------------------------------------------------------------------------
Portfolio turnover rate 300.07% 313.08% 251.50% 58.81% 100.05%
- -------------------------------------------------------------------------
Portfolio turnover rate 68.00% 92.51% 89.19% 51.26% 45.85%
excluding mortgage dollar rolls
- -------------------------------------------------------------------------
a. The amount shown for a share outstanding throughout the period
may not correlate with the Statement of Operations in the annual
report for the period due to the timing of sales and repurchases
of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
b. Amount rounds to less than $0.01 per share.
c. Effective September 1, 2008, the redemption fee was eliminated.
d. Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
e. Benefit of expense reduction rounds to less than 0.01%.
Franklin Total Return Fund - Class C Shares
- -------------------------------------------------------------------------
Class C Year Ended October 31,
- -------------------------------------------------------------------------
2008 2007 2006 2005 2004
- -------------------------------------------------------------------------
Per share operating performance
(for a share outstanding
throughout the year)
- -------------------------------------------------------------------------
Net asset value, beginning of year $9.91 $9.94 $9.91 $10.22 $10.05
- -------------------------------------------------------------------------
Income from investment
operations:(a)
- -------------------------------------------------------------------------
Net investment income 0.406 0.424 0.395 0.364 0.363
- -------------------------------------------------------------------------
Net realized and unrealized gains (1.275)(0.005) 0.089 (0.275) 0.247
(losses)
- -------------------------------------------------------------------------
Total from investment operations (0.869) 0.419 0.484 0.089 0.610
- -------------------------------------------------------------------------
Less distributions from net (0.441)(0.449) (0.454)(0.399) (0.440)
investment income
- -------------------------------------------------------------------------
Redemption fees(b,c) -- -- -- -- --
- -------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $8.60 $9.91 $9.94 $9.91 $10.22
- -------------------------------------------------------------------------
Total return(d) (9.15)% 4.31% 5.03% 0.86% 6.31%
- -------------------------------------------------------------------------
Ratios to average net assets
- -------------------------------------------------------------------------
Expenses before waiver and 1.41% 1.43% 1.43% 1.44% 1.44%
payments by affiliates
- -------------------------------------------------------------------------
Expenses net of waiver and 1.25%(e) 1.25%(e) 1.25%(e) 1.25%(e)1.20%
payments by affiliates
- -------------------------------------------------------------------------
Net investment income 4.28% 4.29% 3.99% 3.48% 3.50%
- -------------------------------------------------------------------------
Supplemental data
- -------------------------------------------------------------------------
Net assets, end of year (000's) $103,56 $84,457 $46,110 $34,751 $22,202
- -------------------------------------------------------------------------
Portfolio turnover rate 300.07% 313.08% 251.50% 58.81% 100.05%
- -------------------------------------------------------------------------
Portfolio turnover rate excluding 68.00% 92.51% 89.19% 51.26% 45.85%
mortgage dollar rolls
- -------------------------------------------------------------------------
a. The amount shown for a share outstanding throughout the period
may not correlate with the Statement of Operations in the annual
report for the period due to the timing of sales and repurchases
of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
b. Amount rounds to less than $0.01 per share.
c. Effective September 1, 2008, the redemption fee was eliminated.
d. Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
e. Benefit of expense reduction rounds to less than 0.01%.
Franklin Total Return Fund - Advisor Class Shares
- -------------------------------------------------------------------------
Advisor Class Year Ended October 31,
- -------------------------------------------------------------------------
2008 2007 2006 2005 2004
- -------------------------------------------------------------------------
Per share operating performance
(for a share outstanding
throughout the year)
- -------------------------------------------------------------------------
Net asset value, beginning of $9.93 $9.96 $9.92 $10.24 $10.07
year
- -------------------------------------------------------------------------
Income from investment
operations:(a)
- -------------------------------------------------------------------------
Net investment income 0.479 0.497 0.470 0.436 0.426
- -------------------------------------------------------------------------
Net realized and unrealized (1.295) (0.012) 0.090 (0.289) 0.251
gains (losses)
- -------------------------------------------------------------------------
Total from investment operations (0.816) 0.485 0.560 0.147 0.677
- -------------------------------------------------------------------------
Less distributions from net (0.504) (0.515)(0.520) (0.467) (0.507)
investment income
- -------------------------------------------------------------------------
Redemption fees(b,c) -- -- -- -- --
- -------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $8.61 $9.93 $9.96 $9.92 $10.24
- -------------------------------------------------------------------------
Total return (8.64)% 4.99% 5.82% 1.43% 7.00%
- -------------------------------------------------------------------------
Ratios to average net assets
- -------------------------------------------------------------------------
Expenses before waiver and 0.76% 0.78% 0.78% 0.79% 0.79%
payments by affiliates
- -------------------------------------------------------------------------
Expenses net of waiver and 0.60%(d) 0.60%(d) 0.60%(d) 0.60%(d) 0.55%
payments by affiliates
- -------------------------------------------------------------------------
Net investment income 4.93% 4.94% 4.64% 4.13% 4.15%
- -------------------------------------------------------------------------
Supplemental data
- -------------------------------------------------------------------------
Net assets, end of year (000's)$345,256 $280,776 $222,992 $178,792 $146,053
- -------------------------------------------------------------------------
Portfolio turnover rate 300.07% 313.08% 251.50% 58.81% 100.05%
- -------------------------------------------------------------------------
Portfolio turnover rate 68.00% 92.51% 89.19% 51.26% 45.85%
excluding mortgage dollar rolls
- -------------------------------------------------------------------------
a. The amount shown for a share outstanding throughout the period
may not correlate with the Statement of Operations in the annual
report for the period due to the timing of sales and repurchases
of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
b. Amount rounds to less than $0.01 per share.
c. Effective September 1, 2008, the redemption fee was eliminated.
d. Benefit of expense reduction rounds to less than 0.01%.
FRANKLIN NEW YORK INTERMEDIATE-TERM TAX-FREE INCOME FUND
These tables present the Franklin New York Intermediate-Term Tax-Free Income
Fund's financial performance for the past five years or since its inception.
Certain information reflects financial results for a single Franklin New York
Intermediate-Term Tax-Free Income Fund share. The total returns in the table
represent the rate that an investor would have earned or lost on an
investment in the Franklin New York Intermediate-Term Tax-Free Income Fund
assuming reinvestment of dividends and capital gains. This information
(except for the six months ended March 31, 2009) has been derived from the
financial statements audited by PricewaterhouseCoopers LLP, whose report,
along with the Fund's financial statements, are included in the annual
report, which is incorporated by reference into the SAI relating to this
Prospectus/Proxy Statement.
Franklin New York Intermediate-Term Tax-Free Income Fund - Class A Shares
- ------------------------------------------------------------------------------
Six
Months Year
Ended Ended
March December
Class A 31, Year Ended September 30, 31,
- ------------------------------------------------------------------------------
2009 2008 2007 2006 2005 2004(g) 2003
- ------------------------------------------------------------------------------
Per share
operating
performance
(for a share
outstanding
throughout the
year)
- ------------------------------------------------------------------------------
Net asset value, $10.37 $10.80 $10.93 $10.96 $11.15 $11.16 $11.04
beginning of year
- ------------------------------------------------------------------------------
Income from
investment
operations:(a)
- ------------------------------------------------------------------------------
Net investment 0.20 0.39 0.39 0.39 0.38 0.30 0.41
incomeb
- ------------------------------------------------------------------------------
Net realized and
unrealized gains 0.26 (0.42) (0.12) (0.04) (0.19) (0.02) 0.12
(losses)
- ------------------------------------------------------------------------------
Total from
investment 0.46 (0.03) 0.27 0.35 0.19 0.28 0.53
operations
- ------------------------------------------------------------------------------
Less distributions
from net (0.19) (0.40) (0.40) (0.38) (0.38) (0.29) (0.41)
investment income
- ------------------------------------------------------------------------------
Redemption fees(c) -- --(f) --(f) --(f) --(f) -- --
- ------------------------------------------------------------------------------
NET ASSET VALUE, $10.64 $10.37 $10.80 $10.93 $10.96 $11.15 $11.16
END OF YEAR
- ------------------------------------------------------------------------------
Total returnd 4.48% (0.39)% 2.51% 3.28% 1.72% 2.57% 4.85%
- ------------------------------------------------------------------------------
Ratios to average
net assetse
- ------------------------------------------------------------------------------
Expenses before 0.73% 0.73% 0.74% 0.75% 0.74% 0.75% 0.75%
waiver and
payments by
affiliates
- ------------------------------------------------------------------------------
Expenses net of
waiver and 0.73% 0.73% 0.74% 0.75% 0.74% 0.67% 0.60%
payments by
affiliates
- ------------------------------------------------------------------------------
Net investment 3.74% 3.58% 3.62% 3.56% 3.40% 3.57% 3.64%
income
- ------------------------------------------------------------------------------
Supplemental data
- ------------------------------------------------------------------------------
Net assets, end $321,385 $320,661 $273,552 $222,308 $233,785 $227,288 $217,829
of year (000's)
- ------------------------------------------------------------------------------
Portfolio turnover 9.23% 8.37% 20.61% 30.01% 5.42% 4.66% 3.35%
rate
- ------------------------------------------------------------------------------
a. The amount shown for a share outstanding throughout the
period may not correlate with the Statement of Operations in the
annual report for the period due to the timing of sales and
repurchases of the Fund shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
b. Based on average daily shares outstanding.
c. Effective September 1, 2008, the redemption fee was eliminated.
d. Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than one
year.
e. Ratios are annualized for periods less than one year.
f. Amount rounds to less than $0.01 per share.
g. For the period January 1, 2004 to September 30, 2004.
Franklin New York Intermediate-Term Tax-Free Income Fund - Class C Shares
- ----------------------------------------------------------------------------
Six
Months Year
Ended Ended
March December
Class C 31, Year Ended September 30, 31,
- -------------------------------------------------------------------------------
2009 2008 2007 2006 2005 2004(g) 2003(h)
- -------------------------------------------------------------------------------
Per share operating
performance
(for a share
outstanding throughout
the year)
- -------------------------------------------------------------------------------
Net asset value, $10.38 $10.82 $10.95 $10.97 $11.16 $11.17 $11.27
beginning of year
- -------------------------------------------------------------------------------
Income from investment
operations: (a)
- -------------------------------------------------------------------------------
Net investment 0.17 0.33 0.33 0.33 0.32 0.25 0.17
income(b)
- -------------------------------------------------------------------------------
Net realized and 0.27 (0.43) (0.12) (0.03) (0.19) (0.01) (0.10)
unrealized gains
(losses)
- -------------------------------------------------------------------------------
Total from investment 0.44 (0.10) 0.21 0.30 0.13 0.24 0.07
operations
- -------------------------------------------------------------------------------
Less distributions
from net investment (0.16) (0.34) (0.34) (0.32) (0.32) (0.25) (0.17)
income
- -------------------------------------------------------------------------------
Redemption fees(c) -- --f --f --f --f -- --
- -------------------------------------------------------------------------------
NET ASSET VALUE, END $10.66 $10.38 $10.82 $10.95 $10.97 $11.16 $11.17
OF YEAR
- -------------------------------------------------------------------------------
Total return(d) 4.29% (1.04)% 1.95% 2.81% 1.16% 2.14% 0.64%
- -------------------------------------------------------------------------------
Ratios to average net
assets(e)
- -------------------------------------------------------------------------------
Expenses before waiver 1.28% 1.28% 1.29% 1.29% 1.29% 1.30% 1.30%
and payments by
affiliates
- -------------------------------------------------------------------------------
Expenses net of waiver 1.28% 1.28% 1.29% 1.29% 1.29% 1.22% 1.15%
and payments by
affiliates
- -------------------------------------------------------------------------------
Net investment income 3.19% 3.03% 3.07% 3.02% 2.85% 3.02% 3.09%
- -------------------------------------------------------------------------------
Supplemental data
- -------------------------------------------------------------------------------
Net assets, end of $29,094 $18,007 $11,175 $12,123 $12,323 $8,772 $3,965
year (000's)
- -------------------------------------------------------------------------------
Portfolio turnover rate 9.23% 8.37% 20.61% 30.01% 5.42% 4.66% 3.35%
- -------------------------------------------------------------------------------
a. The amount shown for a share outstanding throughout the
period may not correlate with the Statement of Operations in the
annual report for the period due to the timing of sales and
repurchases of the Fund shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
b. Based on average daily shares outstanding.
c. Effective September 1, 2008, the redemption fee was eliminated.
d. Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not
annualized for periods less than one year.
e. Ratios are annualized for periods less than one year.
f. Amount rounds to less than $0.01 per share.
g. For the period January 1, 2004 to September 30, 2004.
h. For the period July 1, 2003 (effective date) to December 31, 2003.
Franklin New York Intermediate-Term Tax-Free Income Fund - Advisor Class
Shares
- -------------------------------------------------------------------------
Advisor Class Period
Ended
March 31,
- -------------------------------------------------------------------------
2009(e)
- -------------------------------------------------------------------------
Per share operating performance
(for a share outstanding throughout the period)
- -------------------------------------------------------------------------
Net asset value, beginning of period $10.29
- -------------------------------------------------------------------------
Income from investment operations:(a)
- -------------------------------------------------------------------------
Net investment income(b) 0.14
- -------------------------------------------------------------------------
Net realized and unrealized gains (losses) 0.34
- -------------------------------------------------------------------------
Total from investment operations 0.48
- -------------------------------------------------------------------------
Less distributions from net investment income (0.13)
- -------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.64
- -------------------------------------------------------------------------
Total return(c) 4.67%
- -------------------------------------------------------------------------
Ratios to average net assets(d)
- -------------------------------------------------------------------------
Expenses 0.63%
- -------------------------------------------------------------------------
Net investment income 3.84%
- -------------------------------------------------------------------------
Supplemental data
- -------------------------------------------------------------------------
Net assets, end of period (000's) $297
- -------------------------------------------------------------------------
Portfolio turnover rate 9.23%
- -------------------------------------------------------------------------
a. The amount shown for a share outstanding throughout the
period may not correlate with the Statement of Operations in the
annual report for the period due to the timing of sales and
repurchases of the Fund shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
b. Based on average daily shares outstanding.
c. Total return does is not annualized for periods less than one year.
d. Ratios are annualized for periods less than one year.
e. For the period December 1, 2008 (effective date) to March 31, 2009.
VOTING INFORMATION
This Prospectus/Proxy Statement is furnished in connection with a
solicitation of proxies by, and on behalf of, the Board of Trustees of the
Target Funds, to be used at the Meeting. This Prospectus/Proxy Statement,
along with a Notice of the Meeting and a proxy card, is first being mailed to
shareholders of the HSBC Investor Core Plus Fixed Income, the HSBC Investor
Core Plus Fixed Income (Advisor), the HSBC Investor Intermediate Duration
Fixed Income and the HSBC Investor New York Tax-Free Bond Funds on or about
July 27, 2009. Only shareholders of record as of the close of business on
the Record Date, July 10, 2009, will be entitled to notice of, and to vote
at, the Meeting. If the enclosed form of proxy card is properly executed and
returned in time to be voted at the Meeting, the proxies named therein will
vote the shares represented by the proxy in accordance with the instructions
marked thereon. Unmarked but properly executed proxy cards will be voted FOR
the proposed Reorganization and FOR any other matters deemed appropriate.
You can vote in any one of three ways:
o By mail, with the enclosed proxy card;
o In person at the Meeting; or
o By telephone.
TO VOTE BY TELEPHONE:
(1) Read the Prospectus/Proxy Statement and have your proxy
card at hand.
(2) Call the 1-800 number that appears on your proxy card.
(3) Enter the control number set forth on the proxy card
and follow the instructions.
We encourage you to vote by telephone by using the control number that
appears on your enclosed proxy card. Use of telephone voting will reduce the
time and costs associated with this proxy solicitation.
A shareholder signing and returning a proxy has the power to revoke it at any
time before it is exercised: (i) by filing a written notice of revocation
with the Funds' sub-administrator, Citi Fund Services, whose address is 3435
Stelzer Road, Columbus, Ohio 43219-3035; (ii) by returning a duly executed
proxy with a later date before the time of the Meeting, or (iii) if a
shareholder has executed a proxy but is present at the Meeting and wishes to
vote in person, by notifying the Secretary of the Fund (without complying
with any formalities) at any time before it is voted. Being present at the
Meeting alone does not revoke a previously executed and returned proxy.
Unless revoked, all valid and executed proxies will be voted in accordance
with the specifications thereon or, in the absence of such specifications,
FOR approval of the Plan of Reorganization and the Reorganizations
contemplated thereby.
SOLICITATION OF VOTES
In addition to the mailing of this Prospectus/Proxy Statement, proxies may be
solicited by telephone or in person by the Target Funds' Trustees, officers
of the Target Funds' Trust, by personnel of AMUS, the Target Funds'
investment adviser, the Target Funds' sub-administrator or distributor, and
personnel of the Target Funds' transfer agent, or by broker-dealer firms.
Computershare Limited, a professional proxy solicitation firm (the
"Solicitor"), has been engaged to assist in the solicitation of proxies, at an
estimated cost of approximately $25,000. It is expected that the
solicitation will be primarily by mail. As the date of the Meeting
approaches, however, certain Target Fund shareholders may receive a telephone
call from a representative of the Solicitor if their votes have not yet been
received. Authorization to permit the Solicitor to execute proxies may be
obtained by telephonic instructions from shareholders of a Target Fund.
Proxies that are obtained telephonically will be recorded in accordance with
the procedures set forth below. The Trustees believe that these procedures
are reasonably designed to ensure that both the identity of the shareholder
casting the vote and the voting instructions of the shareholder are
accurately determined.
In all cases where a telephonic proxy is solicited, the Solicitor
representative is required to ask for each shareholder's full name and
address and to confirm that the shareholder has received the proxy materials
in the mail. If the shareholder is a corporation or other entity, the
Solicitor representative is required to ask for the person's title and
confirmation that the person is authorized to direct the voting of the
shares. If the information provided by the person agrees with the information
that the Solicitor has, then the Solicitor representative may ask for the
shareholder's instructions on the proposal described in this Prospectus/Proxy
Statement. Although the Solicitor representative is permitted to answer
questions about the process, he or she is not permitted to recommend to the
shareholder how to vote, other than by reading any recommendation set forth
in this Prospectus/Proxy Statement. The Solicitor representative will record
the shareholder's instructions on the proxy card. Within 72 hours, the
shareholder will be sent a letter or mailgram to confirm his or her vote and
asking the shareholder to call the Solicitor immediately if his or her
instructions are not correctly reflected in the confirmation.
If a shareholder wishes to participate in the Meeting, but does not wish to
give a proxy by telephone, the shareholder may still submit the proxy card
originally sent with this Prospectus/Proxy Statement or attend the Meeting in
person.
Each Target Fund will request broker-dealer firms, custodians, nominees, and
fiduciaries to forward proxy material to the beneficial owners of the shares
of record. Such broker-dealer firms, custodians, nominees, and fiduciaries
may be reimbursed for their reasonable expenses incurred in connection with
such proxy solicitation. In addition, certain officers and representatives
of AMUS or its affiliates, who will receive no extra compensation for their
services, may solicit proxies by telephone, telegram, or personally.
QUORUM AND VOTING REQUIREMENTS
With regard to each proposal, a majority of the shares of each Target Fund
outstanding on the Record Date, present in person or represented by proxy,
constitutes a quorum for the transaction of business with respect to the
proposal. Approval of each proposal requires the affirmative vote of a 1940
Act Majority.
EFFECT OF ABSTENTION AND BROKER "NON-VOTES"
For purposes of determining the presence of a quorum for transacting business
at the Meeting, executed proxies marked as abstentions and broker "non-votes"
(that is, proxies from brokers or nominees indicating that such persons have
not received instructions from the beneficial owner or other persons entitled
to vote shares on a particular matter with respect to which the brokers or
nominees do not have discretionary power) will be treated as shares that are
present for quorum purposes but which have not been voted. Such instructions
will have the same effect as that of a vote against approval of the Plan of
Reorganization, because approval requires the affirmative vote of a 1940 Act
Majority.
ADJOURNMENT
If a quorum is not present in person or by proxy at the time the Meeting is
called to order, the persons named as proxies may vote those proxies that
have been received to adjourn the Meeting at a later date. If a quorum is
present but there are not sufficient votes in favor of the Plan of
Reorganization, the persons named as proxies may propose one or more
adjournments of the Meeting to permit further solicitation of proxies
concerning the Plan of Reorganization. Any adjournment will require the
affirmative vote of a majority of the Funds' shares present at the Meeting to
be adjourned. If an adjournment of the Meeting is proposed because there are
not sufficient votes in favor of the Plan of Reorganization, the persons
named as proxies will vote their proxies as they deem appropriate under the
circumstances.
OTHER MATTERS
The Board of Trustees of the Target Funds does not intend to bring any
matters before the Meeting other than those described in this
Prospectus/Proxy Statement. The Trustees are not aware of any other matters
to be brought before the Meeting by others. If any other matter legally
comes before the Meeting, proxies for which discretion has been granted will
be voted in accordance with the views of management.
FUTURE SHAREHOLDER PROPOSALS
You may request inclusion in the HSBC Investor Funds' proxy statement for
shareholder meetings certain proposals for action which you intend to
introduce at such meeting. Any shareholder proposals must be presented a
reasonable time before the proxy materials for the next meeting are sent to
shareholders. The submission of a proposal does not guarantee its inclusion
in the proxy statement and is subject to limitations under the federal
securities laws. The Trust is not required to hold regular meetings of
shareholders, and in order to minimize its costs, does not intend to hold
meetings of the shareholders unless so required by applicable law,
regulation, regulatory policy, or unless otherwise deemed advisable by the
Board of Trustees of the Trust. Therefore, it is not practicable to specify
a date by which proposals must be received in order to be incorporated in an
upcoming proxy statement for a meeting of shareholders.
RECORD DATE AND OUTSTANDING SHARES
TARGET FUNDS
Only shareholders of record of the Target Funds at the close of business on
the Record Date are entitled to notice of and to vote at the Meeting and at
any postponement or adjournment thereof. The following table shows the
number of shares of each class and the total number of outstanding shares of
each Target Fund as of the close of business on the Record Date:
[TO BE UPDATED WITH RECORD DATE INFORMATION AS OF JULY 10, 2009]
Unless otherwise noted below, as of the Record Date, the current officers and
Trustees of the Target Funds in the aggregate beneficially owned less than 1%
of the Class A, Class B, Class C and Class I shares of the HSBC Investor Core
Plus Fixed Income, the HSBC Investor Core Plus Fixed Income (Advisor), the
HSBC Investor Intermediate Duration Fixed Income and the HSBC Investor New
York Tax-Free Bond Funds, respectively.
As of the Record Date, the following persons owned of record or beneficially
5% or more of the outstanding shares of the class identified of the HSBC
Investor Core Plus Fixed Income, the HSBC Investor Core Plus Fixed Income
(Advisor), the HSBC Investor Intermediate Duration Fixed Income and the HSBC
Investor New York Tax-Free Bond Funds, respectively:
[TO BE UPDATED WITH RECORD DATE INFORMATION AS OF JULY 10, 2009]
ACQUIRING FUNDS
The following table shows the number of shares of each class and the total
number of outstanding shares of each Acquiring Fund as of the close of
business on the Record Date:
[TO BE UPDATED WITH RECORD DATE INFORMATION AS OF JULY 10, 2009]
Unless otherwise noted below, as of the Record Date, the current officers and
Trustees of the Acquiring Funds in the aggregate beneficially owned less than
1% of the Class A, Class B, Class C and Advisor Class shares of the Franklin
Total Return Fund and Franklin New York Intermediate-Term Tax-Free Income
Fund.
As of the Record Date, the following persons owned of record or beneficially
5% or more of the outstanding shares of the class identified of the Franklin
Total Return Fund and Franklin New York Intermediate-Term Tax-Free Income
Fund:
[TO BE UPDATED WITH RECORD DATE INFORMATION AS OF JULY 10, 2009]
The votes of the shareholders of the Franklin Total Return and Franklin New
York Intermediate-Term Tax-Free Income Funds are not being solicited since
their approval or consent is not necessary for the Reorganizations to take
place.
INFORMATION ABOUT THE FUNDS
Each Fund is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and certain other federal securities
statutes, and files reports and other information with the SEC. Proxy
materials, reports and other information filed by the Funds can be inspected
and copied at the Public Reference Facilities maintained by the SEC at 100 F
Street NE, Room 1580, Washington, DC 20549. The SEC maintains an Internet
World Wide Website (at http://www.sec.gov) which contains other information
about the Fund.
ATTACHMENTS TO PROSPECTUS/PROXY STATEMENT
Attachment I Comparison of the Fundamental and Non-Fundamental
InvestmentPolicies of the Target Funds and the Acquiring Funds
Attachment II Form of Agreement and Plan of Reorganization
Attachment I
COMPARISONS OF THE FUNDAMENTAL AND NON-FUNDAMENTAL INVESTMENT
POLICIES OF THE TARGET FUNDS AND THE ACQUIRING FUNDS
While the fundamental and non-fundamental investment policies of the Target
Funds and the Acquiring Funds are comparable, there are certain differences
to note. First, with respect to concentration, each of the Target and
Acquiring Funds has a slightly different policy, each reflecting the Fund's
particular investment objective, strategy, type and industry or area of
focus. Second, the Target Funds and the Acquiring Funds have different
fundamental policies on making loans, each having different restrictions and
exceptions. Third, each of the Target and Acquiring Funds has a slightly
different non-fundamental policy with respect to short-selling securities,
investing in futures and/or options on futures, and repurchase agreements.
Finally, certain of the Target and Acquiring Funds have adopted fundamental
or non-fundamental investment policies that the other Funds have not. For
example, certain Target Funds have adopted non-fundamental investment
policies with respect to purchasing on margin and investments in warrants.
Additionally, certain Target funds have adopted fundamental investment
policies with respect to purchasing not more than 10% of all outstanding debt
obligations of any one issuer. Similarly, certain Acquiring Funds have
adopted non-fundamental investment policies with respect to asset-backed
securities, convertible securities, credit-linked securities, hybrid
securities, mortgage-backed securities and other investment strategies.
Below is a detailed side-by-side comparison of the Target Funds' and the
Acquiring Funds' fundamental and non-fundamental investment policies.
Fundamental investment policies and limitations are subject to change only by
shareholder vote, whereas non-fundamental investment policies and limitations
are subject to change by approval of the Board of Trustees. The prospectuses
of the Target Funds and the Acquiring Funds contain additional investment
policies that are considered non-fundamental, which are described in the
Proposals 1(A) and 1(B), Proposal 2 and Proposal 3 sections of this
Prospectus/Proxy Statement.
TARGET FUNDS ACQUIRING FUNDS
- ----------------------------------------------------------------------
HSBC INVESTOR CORE PLUS FIXED FRANKLIN TOTAL RETURN FUND
INCOME FUND AND HSBC INVESTOR
INTERMEDIATE DURATION FIXED INCOME
FUND
The Funds may not underwrite the The Fund may not act as an
securities of other issuers underwriter except to the extent
(except to the extent that the the Fund may be deemed to be an
Portfolio (Fund) may be deemed to underwriter when disposing of
be an underwriter within the securities it owns or when
meaning of the 1933 Act in the selling its own shares.
disposition of restricted (FUNDAMENTAL)
securities).
(FUNDAMENTAL)
The Funds may not make loans The Fund may not make loans if,
except: (i) by purchasing debt as a result, more than 33 1/3%
securities in accordance with its of its total assets would be
investment objective and policies, lent to other persons, including
or entering into repurchase other investment companies to
agreements, and (ii) by lending the extent permitted by the
its portfolio securities. Investment Company Act of 1940,
(FUNDAMENTAL) as amended (1940 Act), or any
rules, exemptions or
interpretations thereunder that
may be adopted, granted or
issued by the U.S. Securities
and Exchange Commission (SEC).
This limitation does not apply
to (i) the lending of portfolio
securities, (ii) the purchase of
debt securities, other debt
instruments, loan participations
and/or engaging in direct
corporate loans in accordance
with its investment goals and
policies, and (iii) repurchase
agreements to the extent the
entry into a repurchase
agreement is deemed to be a
loan.
(FUNDAMENTAL)
The Funds may not purchase or sell The Fund may not purchase or
real estate, although it may sell real estate unless acquired
purchase and sell securities of as a result of ownership of
companies which deal in real securities or other instruments
estate, other than real estate and provided that this
limited partnerships, and may restriction does not prevent the
purchase and sell marketable Fund from (i) purchasing or
securities which are secured by selling securities or
interests in real estate. instruments secured by real
(FUNDAMENTAL) estate or interests therein,
securities or instruments
representing interests in real
estate or securities or
instruments of issuers that
invest, deal or otherwise engage
in transactions in real estate
or interests therein, and (ii)
making, purchasing or selling
real estate mortgage loans.
(FUNDAMENTAL)
The Funds may not invest in The Fund may not purchase or
physical commodities or contracts sell physical commodities,
on physical commodities. unless acquired as a result of
(FUNDAMENTAL) ownership of securities or other
instruments and provided that
this restriction does not
prevent the Fund from (i)
engaging in transactions
involving currencies and futures
contracts and options thereon or
(ii) investing in securities or
other instruments that are
secured by physical commodities.
(FUNDAMENTAL)
The Funds may not issue senior The Fund may not issue senior
securities, except as permitted securities, except to the extent
under the 1940 Act. permitted by the 1940 Act or any
(FUNDAMENTAL) rules, exemptions or
interpretations thereunder that
may be adopted, granted or
issued by the SEC.
(FUNDAMENTAL)
The Funds may not with respect to The Fund may not purchase the
75% of its assets, purchase a securities of any one issuer
security if, as a result, it would (other than the U.S. government
hold more than 10% (taken at the or any of its agencies or
time of such investment) of the instrumentalities or securities
outstanding voting securities of of other investment companies,
any issuer. The Funds may not whether registered or excluded
with respect to 75% of its assets, from registration under Section
purchase securities of any issuer 3(c) of the 1940 Act) if
if, as the result, more than 5% of immediately after such
the Portfolio's (Fund's) total investment (i) more than 5% of
assets, taken at market value at the value of the Fund's total
the time of such investment, would assets would be invested in such
be invested in the securities of issuer or (ii) more than 10% of
such issuer, except that this the outstanding voting
restriction does not apply to securities of such issuer would
securities issued or guaranteed by be owned by the Fund, except
the U.S. Government or its that up to 25% of the value of
agencies or instrumentalities. the Fund's total assets may be
(FUNDAMENTAL) invested without regard to such
5% and 10% limitations.
(FUNDAMENTAL)
The Funds may not acquire any The Fund may not concentrate
securities of companies within one (invest more than 25% of its
industry if as a result of such total assets) in securities of
acquisition, more than 25% of the issuers in a particular industry
value of the Portfolio's (Fund's) (other than securities issued or
total assets would be invested in guaranteed by the U.S.
securities of companies within government or any of its
such industry; provided, however, agencies or instrumentalities).
that there shall be no limitation (FUNDAMENTAL)
on the purchase of obligations
issued or guaranteed by the U.S.
Government, its agencies or
instrumentalities, when the
Portfolio (Fund) adopts a
temporary defensive position; and
provided further that
mortgage-backed securities shall
not be considered a single
industry for the purposes of this
investment restriction.
(FUNDAMENTAL)
The Funds may not borrow money The Fund does not borrow money,
(including from a bank or through except that the Fund may borrow
reverse repurchase agreements or for temporary or emergency
forward dollar roll transactions purposes in an amount not to
involving mortgage-backed exceed 30% of its total assets
securities or similar investment (including the amount
techniques entered into for borrowed). As a matter of
leveraging purposes), except that non-fundamental policy, the Fund
the Portfolio (Fund) may borrow as does not consider the purchase
a temporary measure to satisfy and/or sale of a mortgage dollar
redemption requests or for roll to be a borrowing.
extraordinary or emergency (NON-FUNDAMENTAL)
purposes, provided that the
Portfolio (Fund) maintains asset
coverage of at least 300% for all
such borrowings.
(FUNDAMENTAL)
The Fund may not sell securities The Fund may invest, buy or
short, unless it owns or has the engage in:
right to obtain securities o asset-backed securities.
equivalent in kind and amount to o income-producing floating
the securities sold short, and interest rate corporate loans.
provided that transactions in o collateralized debt
options and futures contracts are obligations.
not deemed to constitute short o convertible securities.
sales of securities. o securities rated below
(NON-FUNDAMENTAL) investment grade.
o a portion of its assets in
The Fund may not invest in municipal securities.
securities of any registered o credit-linked securities.
investment company except to the o call and put options on
extent permitted under the 1940 securities and currencies.
Act generally or in accordance o futures contracts on
with any exemptive order granted securities and options on these
to the Trust by the SEC. contracts.
(NON-FUNDAMENTAL) o interest rate, total return,
currency and credit default
The Fund may not invest in futures swaps.
and/or options on futures to the o up to 20% of assets in forward
extent that its outstanding contracts including currency
obligations to purchase securities forwards, cross currency
under any future contracts in forwards, options on currencies
combination with its outstanding or financial and index futures
obligations with respect to contracts.
options transactions would exceed o a portion of its assets in
35% of its total assets. securities of issuers in any
(NON-FUNDAMENTAL) foreign country, developed or
developing, and may buy foreign
The Fund may not enter into securities that are traded in
repurchase agreements exceeding in the U.S. or securities of U.S.
the aggregate 15% of the market issuers that are denominated in
value of its total assets. a foreign currency.
(NON-FUNDAMENTAL - HSBC INVESTOR o hybrid securities.
CORE PLUS FIXED INCOME FUND ONLY) o up to 15% of its net assets in
illiquid securities.
o savings deposits.
o lending of portfolio
securities up to 33 1/3% of the
value of its total assets,
measured at the time of the most
recent loan.
o mortgage-backed securities
issued or guaranteed by foreign
governments and private
institutions.
o stripped mortgage securities
and net interest margin
securities.
o reverse mortgages, either
directly or through investments
in mortgage-backed securities.
o short selling.
o fixed and adjustable rate
mortgage-backed securities,
including those issued or
guaranteed by Ginnie Mae, Fannie
Mae and Freddie Mac.
o certain debt obligations that
are collateralized by mortgage
loans or mortgage pass-through
securities known as CMOs, which
are derivative multi-class
mortgage securities, and in
mortgage dollar rolls.
o a portion of its assets in
securities of other investment
companies.
o repurchase agreements.
o obligations of the U.S.
government or of corporations
chartered by Congress as federal
government instrumentalities.
o securities on a "when-issued"
or "delayed-delivery" basis.
(NON-FUNDAMENTAL)
The Fund may not purchase on No corresponding policy or
margin, except for use of limitation.
short-term credit as may be
necessary for the clearance of
purchases and sales of securities,
but it may make margin deposits in
connection with transactions in
options, futures, and options on
futures.
(NON-FUNDAMENTAL)
The Fund may not invest in No corresponding policy or
warrants, valued at the lower of limitation.
cost or market, in excess of 5% of
the value of its total assets,
except that this limitation does
not apply to warrants acquired in
units or attached to securities.
(NON-FUNDAMENTAL)
HSBC INVESTOR NEW YORK TAX-FREE FRANKLIN NEW YORK
BOND FUND INTERMEDIATE-TERM TAX-FREE
INCOME FUND
- ----------------------------------------------------------------------
The Fund may not borrow money or The Fund may not borrow money,
pledge, mortgage or hypothecate except to the extent permitted
assets of the Fund, except that as by the 1940 Act, or any rules,
a temporary measure for exemptions or interpretations
extraordinary or emergency thereunder that may be adopted,
purposes it may borrow in an granted or issued by the SEC.
amount not to exceed 1/3 of the (FUNDAMENTAL)
value of the net assets of the
Fund, including the amount
borrowed, and may pledge, mortgage
or hypothecate not more than 1/3
of such assets to secure such
borrowings (it is intended that
money would be borrowed only from
banks and only to accommodate
requests for the redemption of
shares of the Fund while effecting
an orderly liquidation of
portfolio securities), provided
that collateral arrangements with
respect to futures contracts,
including deposits of initial and
variation margin, are not
considered a pledge of assets for
purposes of this Investment
Restriction.
(FUNDAMENTAL)
The Fund may not underwrite The Fund may not act as an
securities issued by other underwriter except to the extent
persons, except insofar as the the Fund may be deemed to be an
Trust may technically be deemed an underwriter when disposing of
underwriter under the 1933 Act, in securities it owns or when
selling a portfolio security for selling its own shares.
the Fund. (FUNDAMENTAL)
(FUNDAMENTAL)
The Fund may not make loans to The Fund may not make loans if,
other persons except (a) through as a result, more than 331/3% of
the lending of securities held by its total assets would be lent
the Fund, but not in excess of 1/3 to other persons, including
of the Fund's net assets taken at other investment companies to
market value, (b) through the use the extent permitted by the 1940
of fixed time deposits or Act or any rules, exemptions or
repurchase agreements or the interpretations thereunder that
purchase of short-term may be adopted, granted or
obligations, (c) by purchasing all issued by the SEC. This
or a portion of an issue of debt limitation does not apply to (i)
securities of types commonly the lending of portfolio
distributed privately to financial securities, (ii) the purchase of
institutions; for purposes of this debt securities, other debt
Investment Restriction the instruments, loan participations
purchase of short-term commercial and/or engaging in direct
paper or a portion of an issue of corporate loans in accordance
debt securities which are part of with its investment goals and
an issue to the public shall not policies, and (iii) repurchase
be considered the making of a loan. agreements to the extent the
(FUNDAMENTAL) entry into a repurchase
agreement is deemed to be a
loan.
(FUNDAMENTAL)
The Fund may not purchase or sell The Fund may not purchase or
real estate (including limited sell real estate unless acquired
partnership interests but as a result of ownership of
excluding securities secured by securities or other instruments
real estate or interests therein), and provided that this
interests in oil, gas or mineral restriction does not prevent the
leases, commodities or commodity Fund from (i) purchasing or
contracts in the ordinary course selling securities or
of business (the Trust reserves instruments secured by real
the freedom of action to hold and estate or interests therein,
to sell for the Fund real estate securities or instruments
acquired as a result of its representing interests in real
ownership of securities). estate or securities or
(FUNDAMENTAL) instruments of issuers that
invest, deal or otherwise engage
in transactions in real estate
No corresponding policy or or interests therein, and (ii)
limitation. making, purchasing or selling
real estate mortgage loans.
The Fund may not purchase or
sell physical commodities,
unless acquired as a result of
ownership of securities or other
instruments and provided that
this restriction does not
prevent the Fund from (i)
engaging in transactions
involving currencies and futures
contracts and options thereon or
(ii) investing in securities or
other instruments that are
secured by physical commodities.
(FUNDAMENTAL)
The Fund may not issue any senior The Fund may not issue senior
security (as that term is defined securities, except to the extent
in the 1940 Act) if such issuance permitted by the 1940 Act or any
is specifically prohibited by the rules, exemptions or
1940 Act or the rules and interpretations thereunder that
regulations promulgated may be adopted, granted or
thereunder, except as appropriate issued by the SEC.
to evidence a debt incurred (FUNDAMENTAL)
without violating Investment
Restriction (1) above, and
provided that collateral
arrangements with respect to
futures contracts, including
deposits of initial and variation
margin, are not considered to be
the issuance of a senior security
for purposes of this Investment
Restriction.
(FUNDAMENTAL)
The Fund may not concentrate its The Fund may not invest more
investments in any particular than 25% of the Fund's net
industry, but if it is deemed assets in securities of issuers
appropriate for the achievement of in any one industry (other than
the Fund's investment objective, securities issued or guaranteed
up to 25% of the assets of the by the U.S. government or any of
Fund (taken at market value at the its agencies or
time of each investment) may be instrumentalities or securities
invested in any one industry, of other investment companies.
except that positions in futures (FUNDAMENTAL)
contracts shall not be subject to
this Investment Restriction and
except that the Trust may invest
all or substantially all of the
Fund's assets in another
registered investment company
having the same investment
objective and policies and
substantially the same investment
restrictions as those with respect
to the Fund.
(FUNDAMENTAL)
The Fund may not purchase The Fund may not purchase the
securities of any issuer if such securities of any one issuer
purchase at the time thereof would (other than the U.S. government
cause more than 10% of the voting or any of its agencies or
securities of such issuer to be instrumentalities or securities
held for the Fund, except that the of other investment companies,
Trust may invest all or whether registered or excluded
substantially all of the Fund's registration under Section
assets in another registered 3(c) of the 1940 Act) if
investment company having the same immediately after such
investment objective and policies investment (i) more than 5% of
and substantially the same the value of the Fund's total
investment restrictions as those assets would be invested in such
with respect to the Fund. issuer or (ii) more than 10% of
(FUNDAMENTAL) 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.
(FUNDAMENTAL)
Under normal circumstances, at The Fund normally invests at
least 80% of the net assets of the least 80% of its total assets in
Fund, plus the amount of any securities that pay interest
borrowing for investment purposes, free from the personal income
will be invested in obligations of taxes of New York City, and at
the State of New York and its least 65% of its total assets in
authorities, agencies, municipal securities issued by
instrumentalities and political the State of New York or its
subdivisions, and of Puerto Rico, counties, municipalities,
other U.S. territories and their authorities, agencies, or other
authorities, agencies, subdivisions.
instrumentalities and political (NON-FUNDAMENTAL)
subdivisions, the interest on
which is exempt from regular
federal income tax, and New York
State and New York City personal
income taxes.
(FUNDAMENTAL)
The Fund may not purchase any No corresponding policy or
security or evidence of interest limitation.
therein on margin, except that the
Trust may obtain such short-term
credit for the Fund as may be
necessary for the clearance of
purchases and sales of securities
and except that deposits of
initial and variation margin in
connection with the purchase,
ownership, holding or sale of
futures contracts may be made.
(FUNDAMENTAL)
The Fund may not write, purchase No corresponding policy or
or sell any put or call option or limitation.
any combination thereof, provided
that this shall not prevent the
writing, purchase, ownership,
holding or sale of futures
contracts.
(FUNDAMENTAL)
The Fund may not invest in No corresponding policy or
securities which are subject to limitation.
legal or contractual restrictions
on resale (other than fixed time
deposits and repurchase agreements
maturing in not more than seven
days) if, as a result thereof,
more than 10% of the net assets of
the Fund would be so invested
(including fixed time deposits and
repurchase agreements maturing in
more than seven days); provided,
however, that this Investment
Restriction shall not apply to (a)
any security if the holder thereof
is permitted to receive payment
upon a specified number of days
notice of the unpaid principal
balance plus accrued interest
either from the issuer or by
drawing on a bank letter of
credit, a guarantee or an
insurance policy issued with
respect to such security or by
tendering or "putting" such
security to a third party, or (b)
the investment by the Trust of all
or substantially all of the Fund's
assets in another registered
investment company having the same
investment objective and policies
and substantially the same
investment restrictions as those
with respect to the Fund.
(FUNDAMENTAL)
The Fund may not purchase more No corresponding policy or
than 10% of all outstanding debt limitation.
obligations of any one issuer
(other than obligations issued by
the U.S. Government, its agencies
or instrumentalities).
(FUNDAMENTAL)
The Fund may not purchase on No corresponding policy or
margin, except for use of limitation.
short-term credit as may be
necessary for the clearance of
purchases and sales of securities,
but it may make margin deposits in
connection with transactions in
options, futures, and options on
futures.
(NON-FUNDAMENTAL)
The Fund may not sell securities No corresponding policy or
short, unless it owns or has the limitation.
right to obtain securities
equivalent in kind and amount to
the securities sold short, and
provided that transactions in
options and futures contracts are
not deemed to constitute short
sales of securities.
(NON-FUNDAMENTAL)
The Fund may not invest in No corresponding policy or
securities of any registered limitation.
investment company except to the
extent permitted under the 1940
Act generally or in accordance
with any exemptive order granted
to the Trust by the SEC.
(NON-FUNDAMENTAL)
No futures contract will be No corresponding policy or
entered into for the New York limitation.
Tax-Free Bond Fund if immediately
thereafter the amount of margin
deposits on all the futures
contracts of the Fund would exceed
5% of the market value of the
total assets of the Fund.
(NON-FUNDAMENTAL)
The aggregate market value of the No corresponding policy or
futures contracts held for the limitation.
Fund not exceed 50% of the market
value of the Fund's total assets.
(NON-FUNDAMENTAL)
Attachment II
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION ("AGREEMENT") is adopted as of
this ____ day of June, 2009 by and among (i) HSBC Investor Funds, a
Massachusetts business trust ("TRUST"), with its principal place of business
at 452 Fifth Avenue, New York, NY 10018, on behalf of its series, HSBC
Investor Core Plus Fixed Income Fund ("CPFI FUND"), HSBC Investor
Intermediate Duration Fixed Income Fund ("IDFI FUND") and HSBC Investor New
York Tax-Free Bond Fund ("NYTFB FUND"); (ii) HSBC Advisor Funds Trust, a
Massachusetts business trust ("ADVISOR TRUST"), with its principal place of
business at 452 Fifth Avenue, New York, NY 10018, on behalf of its series,
HSBC Investor Core Plus Fixed Income Fund ("CPFI ADVISOR FUND"); (iii) HSBC
Investor Portfolios, a New York trust ("MASTER TRUST"), with its principal
place of business at 452 Fifth Avenue, New York, NY 10018, on behalf of its
series, HSBC Investor Core Plus Fixed Income Portfolio ("CPFI PORTFOLIO") and
HSBC Investor Intermediate Duration Fixed Income Portfolio ("IDFI
Portfolio"); (iv) HSBC Global Asset Management (USA) Inc., a registered
investment adviser ("HGAM"), with its principal place of business at 452
Fifth Avenue, New York, NY 10018; (v) Franklin Investors Securities Trust, a
Delaware statutory trust ("FRANKLIN TRUST"), with its principal place of
business at One Franklin Parkway, San Mateo, CA 94403, on behalf of its
series, Franklin Total Return Fund ("FRANKLIN TR FUND"); (vi) Franklin New
York Tax Free Trust, a Delaware statutory trust ("FRANKLIN NY TRUST"), with
its principal place of business at One Franklin Parkway, San Mateo, CA 94403,
on behalf of its series, Franklin New York Intermediate-Term Tax-Free Income
Fund ("FRANKLIN NY FUND"); and (vii) Franklin Advisers, Inc, ("FRANKLIN
ADVISERS"), with its principal place of business at One Franklin Parkway, San
Mateo, CA 94403.
WHEREAS, each of the Trust, Advisor Trust, Master Trust, Franklin
Trust and Franklin NY Trust is an open-end, registered investment company of
the management type;
WHEREAS, each of CPFI Fund, CPFI Advisor Fund, IDFI Fund and NYTFB Fund
may hereinafter be referred to herein as a "TARGET FUND," and each of
Franklin TR Fund and Franklin NY Fund may hereinafter be referred to herein
as an "ACQUIRING FUND";
WHEREAS, the parties hereto intend for each Acquiring Fund and its
corresponding Target Fund (as set forth in Exhibit A hereto) to enter into a
transaction pursuant to which: (i) the Acquiring Fund will acquire the assets
of the corresponding Target Fund (subject to the retention by the Target Fund
of certain assets to discharge liabilities) in exchange for A, C and Advisor
Class shares (as applicable) of the Acquiring Fund of equal value to the net
assets of the Target Fund, and (ii) the Target Fund will distribute such
shares of each class of the corresponding Acquiring Fund to shareholders of
the corresponding class of the Target Fund (as set forth in Exhibit A), in
connection with the liquidation of the Target Fund, all upon the terms and
conditions hereinafter set forth in this Agreement (each such transaction, a
"REORGANIZATION").
WHEREAS, this Agreement is intended to be and is adopted as a plan of
reorganization and liquidation with respect to each Reorganization within the
meaning of Section 368(a)(1) of the United States Internal Revenue Code of
1986, as amended ("CODE");
WHEREAS, the CPFI Fund, CPFI Advisor Fund and IDFI Fund each own
securities, directly or indirectly through investment in CPFI Portfolio and
IDFI Portfolio, respectively, and NYTFB Fund owns securities directly, that
generally are assets of the character in which its corresponding Acquiring
Fund is permitted to invest;
WHEREAS, each of CPFI Fund and CPFI Advisor Fund invests all of its
investable assets in CPFI Portfolio, and IDFI Fund invests all of its
investable assets in IDFI Portfolio, in master-feeder structures;
NOW, THEREFORE, in consideration of the premises and of the covenants
and agreements hereinafter set forth, the parties hereto covenant and agree
as follows:
1. DESCRIPTION OF THE REORGANIZATIONS
1.1. It is the intention of the parties hereto that each Reorganization
described herein shall be conducted separately of the others, and a party
hereto which is not a party to a Reorganization shall incur no obligations,
duties or liabilities with respect to such Reorganization by reason of being
a party to this Agreement. If any one or more Reorganizations should fail to
be consummated hereunder, such failure shall not affect the other
Reorganizations in any way. The parties shall cooperate in preparing, and
each of Franklin Trust and Franklin NY Trust each shall file, a Registration
Statement on Form N-14 under the Securities Act of 1933, as amended, which
collectively shall properly register the Acquiring Fund shares to be issued
in connection with the Reorganizations with the Securities and Exchange
Commission ("COMMISSION") and include a proxy statement with respect to the
votes of the shareholders of each Target Fund to approve its Reorganization
(collectively, the "REGISTRATION STATEMENT").
1.2. With respect to the Reorganizations of the CPFI Fund, CPFI Advisor Fund
and IDFI Fund, prior to or as of the close of each of the Target Funds'
business on the Closing Date (as defined in Paragraph 3.1 hereof) of the
Reorganization for that Target Fund, CPFI Portfolio or IDFI Portfolio, as
appropriate, shall conduct an in-kind liquidating distribution, and shall
deliver to CPFI Fund and CPFI Advisor Fund or IDFI Fund, as appropriate, all
of its assets or such pro rata share of its assets as is appropriate given
CPFI Fund's and CPFI Advisor Fund's or IDFI Fund's relative ownership of its
beneficial interests.
1.3. On or as soon as practicable prior to the Closing Date for a
Reorganization, the Target Fund (with the assistance of CPFI Portfolio or
IDFI Portfolio, to the extent appropriate), will declare and pay to its
shareholders of record one or more dividends and/or other distributions so
that it will have distributed substantially all (and in no event less than
98%) of its investment company taxable income (computed without regard to any
deduction for dividends paid) and realized net capital gain, if any, for the
current taxable year through the Closing Date.
1.4. Provided that all conditions precedent to a Reorganization have been
satisfied as of the Closing Date and based on the representations and
warranties each party herein provides to the others, the Trust or Advisor
Trust and Franklin Trust or Franklin NY Trust, as appropriate, agree to take
the following steps with respect to that Reorganization, the parties to which
and classes of shares to be issued in connection with which as set forth in
Exhibit A:
(a) The Target Fund shall transfer all of its Assets, as defined
and set forth in Paragraph 1.4(b), to the corresponding Acquiring
Fund, and the Acquiring Fund in exchange therefore shall deliver to
the Target Fund the number of full and fractional Acquiring Fund
shares, determined in the manner and as of the time on the Closing
Date set forth in Paragraph 2.
(b) The assets of the Target Fund to be acquired by the Acquiring
Fund shall consist of all assets and property, including, without
limitation, all cash, securities, commodities and futures interests,
claims (whether absolute or contingent, known or unknown, accrued or
unaccrued and including, without limitation, any interest in pending
or future legal claims in connection with past or present portfolio
holdings, whether in the form of class action claims, opt-out or other
direct litigation claims, or regulator or government-established
investor recovery fund claims, and any and all resulting recoveries)
and dividends or interest receivable that are owned by the Target Fund
and any deferred or prepaid expenses shown as an asset on the books of
the Target Fund on the Closing Date, except for cash, bank deposits or
cash equivalent securities in an estimated amount necessary to (i)
discharge the Target Fund's unpaid liabilities on the Target Fund's
books at the Closing Date and (ii) pay such contingent liabilities, if
any, as the Board of Trustees of the Trust or Advisor Trust, as
applicable, shall reasonably deem to exist against the Target Fund at
the Closing Date, for which contingent and other appropriate liability
reserves shall be established on the Target Fund's books
(collectively, "ASSETS"). ------
(c) The Target Fund will use commercially reasonable efforts to
discharge all of its known liabilities and obligations prior to the
Closing Date. Neither the Acquiring Fund nor the Franklin Trust or
Franklin NY Trust, as applicable, shall assume any of the liabilities
of the Target Fund, whether accrued or contingent, known or unknown,
existing at the Closing Date (collectively, "LIABILITIES") and the
Acquiring Fund and the Franklin Trust or the Franklin NY Trust, as
appropriate, specifically disclaim the assumption of any such
Liabilities.
(d) Immediately after the transfer of Assets provided for in this
Paragraph, the Target Fund will distribute to its shareholders of
record ("TARGE FUND SHAREHOLDERS") with respect to each class of
shares, as set forth in Exhibit A, the shares of the Acquiring Fund of
the corresponding class received by the Target Fund pursuant to
Paragraph 1.4(a), determined as of immediately after the close of
business on the Closing Date, on a pro rata basis within that class,
and will completely liquidate (except as to the contingent liability
reserve provided for in Paragraph 1.4(b) herein). Such distribution
and liquidation will be accomplished, with respect to each class of
the Target Fund's shares, by the transfer of the Acquiring Fund shares
of the corresponding class then credited to the account of the Target
Fund on the books of the Acquiring Fund to open accounts on the share
records of the Acquiring Fund in the names of the Target Fund
Shareholders of the class. The aggregate net asset value of each class
of shares of the Acquiring Fund to be so credited to the corresponding
class or classes of Target Fund Shareholders shall be equal to the
aggregate net asset value of the Target Fund's shares of the
corresponding class or classes owned by the Target Fund Shareholders
on the Closing Date (as set forth in Exhibit A). All issued and
outstanding shares of the Target Fund will simultaneously be canceled
on the books of the Target Fund. The Acquiring Fund shall not issue
certificates representing shares in connection with such exchange.
(e) Ownership of Acquiring Fund shares will be shown on its
books, as such are maintained by the Acquiring Fund's Transfer Agent,
as defined in Paragraph 3.2.
(f) Any reporting responsibility of the Target Fund, including,
but not limited to, the responsibility for filing regulatory reports,
tax returns, or other documents with the Commission, any state
securities commission, and any Federal, state or local tax authorities
or any other relevant regulatory authority, is and shall remain the
responsibility of the Target Fund.
2. VALUATION
2.1. With respect to each Reorganization:
(a) The value of the Target Fund's Assets shall be the value of
such Assets computed as of immediately after the close of business of
the New York Stock Exchange and after the declaration of any dividends
on the Closing Date, using the valuation procedures set forth in
then-current prospectus and statement of additional information with
respect to the Acquiring Fund, and valuation procedures established by
the Acquiring Fund's Board of Trustees and provided to the Target Fund
prior to the Closing Date.
(b) The net asset value of each class of Acquiring Fund shares
issued in connection with the Reorganization shall be the net asset
value per share computed with respect to that class as of the Closing
Date, using the valuation procedures set forth in the Acquiring Fund's
then-current prospectus and statement of additional information, and
valuation procedures established by the Acquiring Fund's Board of
Trustees.
(c) The number of each class of Acquiring Fund shares issued
(including fractional shares, if any) in exchange for the Target
Fund's Assets shall be determined by dividing the value of the net
assets with respect to each class of shares of the Target Fund
determined using the same valuation procedures referred to in
Paragraph 2.1(a), by the net asset value of an Acquiring Fund share of
the corresponding class, as set forth in Exhibit A, determined in
accordance with Paragraph 2.1(b).
(d) All computations of value shall be made by the Target Fund's
designated recordkeeping agent and shall be subject to review by the
Acquiring Fund's recordkeeping agent and by each of the Target Fund's
and Acquiring Fund's respective independent registered public
accountants.
3. CLOSING AND CLOSING DATE
3.1. Each Reorganization shall close on August 28, 2009 or such other date as
the parties may agree with respect to any or all Reorganizations (the
"CLOSING DATE"). All acts taking place at the closing of the Reorganizations
("CLOSING") shall be deemed to take place simultaneously as of immediately
after the close of business on the Closing Date unless otherwise agreed to by
the parties. The close of business on the Closing Date shall be as of 4:00
p.m., Eastern Time. The Closing shall be held by facsimile, email or such
other communication means as the parties may reasonably agree.
3.2. With respect to each Reorganization:
(a) The Trust or Advisor Trust, as appropriate, shall direct the
custodian for the Target Fund ("CUSTODIAN"), to deliver, at the
Closing, a certificate of an authorized officer stating that (i)
except as permitted by Paragraphs 1.4(b) and 3.2(b) hereunder, the
Assets shall have been delivered in proper form to the corresponding
Acquiring Fund no later than as of the close of business on the
Closing Date, and (ii) all necessary taxes in connection with the
delivery of the Assets, including all applicable Federal and state
stock transfer stamps, if any, have been paid or provision for payment
has been made.
(b) The Target Fund's portfolio securities represented by a
certificate or other written instrument shall be transferred and
delivered by the Target Fund as of the Closing Date for the account of
the corresponding Acquiring Fund duly endorsed in proper form for
transfer and in such condition as to constitute good delivery thereof.
The Target Fund shall direct the Custodian to deliver as of the
Closing Date by book entry, in accordance with the customary practices
of the Custodian and any securities depository, as defined in Rule
17f-4 under the Investment Company Act of 1940, as amended (the "1940
ACT"), in which the Assets are deposited, the Target Fund's portfolio
securities and instruments so held. The cash to be transferred by a
Target Fund shall be delivered by wire transfer of federal funds on
the Closing Date. If, on the Closing Date, the Target Fund is unable
to make delivery in the manner contemplated by this Paragraph of
securities held by the Target Fund for the reason that any of such
securities purchased prior to the Closing Date have not yet been
delivered to the Target Fund or its broker, then the corresponding
Acquiring Fund may, in its sole discretion, waive the delivery
requirements of this Paragraph with respect to said undelivered
securities if the Target Fund has delivered to the Acquiring Fund or
its custodian by or on the Closing Date, and with respect to said
undelivered securities, executed copies of an agreement of assignment
and escrow and due bills executed on behalf of said broker or brokers,
together with such other documents as may be required by the Acquiring
Fund or its custodian, including brokers' confirmation slips.
(c) At such time prior to the Closing Date as the parties
mutually agree, the Target Fund shall provide (i) instructions and
related information to the Acquiring Fund or its transfer agent with
respect to the shares of each class of the Acquiring Fund to be issued
to the Target Fund Shareholders, including names, addresses and tax
withholding status of the Target Fund Shareholders as of the date
agreed upon (such information to be updated as of the Closing Date, as
necessary) and (ii) the information and documentation maintained by
the Target Fund or its agents relating to the identification and
verification of the Target Fund Shareholders under the USA PATRIOT ACT
and other applicable anti-money laundering laws, rules and regulations
(the "AML Documentation") and such other information as the Acquiring
Fund may reasonably request. The Acquiring Fund and its transfer agent
shall have no obligation to inquire as to the validity, propriety or
correctness of any such instruction, information or documentation, but
shall, in each case, assume that such instruction, information or
documentation is valid, proper, correct and complete.
(d) The Trust or Advisor Trust, as appropriate, shall direct Citi
Fund Services Ohio, Inc., in its capacity as transfer agent for the
Target Fund ("TRANSFER AGENT"), to deliver to Franklin Trust or
Franklin NY Trust, as appropriate, at the Closing a certificate of an
authorized officer stating that its records contain the names and
addresses of the Target Fund Shareholders and the number and
percentage ownership of outstanding shares of each class owned by each
such shareholder immediately prior to the Closing. The Acquiring Fund
shall issue and deliver a confirmation evidencing the Acquiring Fund
shares to be credited on the Closing Date to the Secretary of the
Target Fund, or provide other evidence satisfactory to the Trust that
such Acquiring Fund shares have been credited to the Target Fund
Shareholders' accounts on the books of the Acquiring Fund. At the
Closing, each party shall deliver to the other such bills of sale,
checks, assignments, certificates, if any, receipts or other documents
as such other party or its counsel may reasonably request.
(e) In the event that on the Closing Date (a) the New York Stock
Exchange or another primary trading market for portfolio securities of
the Acquiring Fund or the Target Fund (each, an "EXCHANGE") shall be
closed to trading or trading thereupon shall be restricted, or (b)
trading or the reporting of trading on such Exchange or elsewhere
shall be disrupted so that, in the judgment of the Board of Trustees
of the Trust or Advisor Trust or, as applicable, Franklin Trust or
Franklin NY Trust, accurate appraisal of the value of the net assets
of the Acquiring Fund or the Target Fund, respectively, is
impracticable, the Closing Date shall be postponed until the first
business day after the day when trading shall have been fully resumed
and reporting shall have been restored.
4. REPRESENTATIONS AND WARRANTIES
4.1. With respect to each Reorganization, the Trust or Advisor Trust, as
applicable, on behalf of the Target Fund, represents and warrants to the
corresponding Acquiring Fund, as follows:
(a) The Target Fund is duly organized as a series of the Trust or
Advisor Trust, as appropriate, which is a business trust validly
existing and in good standing under the laws of the Commonwealth of
Massachusetts, with power under the Trust's or Advisor Trust's
Declaration of Trust, as amended from time to time, to own all of its
Assets, to carry on its business as it is now being conducted and to
enter into this Agreement and perform its obligations hereunder;
(b) The Trust or Advisor Trust, as appropriate, is a registered
investment company classified as a management company of the open-end
type, and its registration with the Commission as an investment
company under the 1940 Act, and the registration of the shares of the
Target Fund under the Securities Act of 1933, as amended ("1933 ACT"),
is in full force and effect;
(c) No consent, approval, authorization, or order of any court or
governmental authority or the Financial Industry Regulatory Authority
("FINRA") is required for the consummation by the Target Fund of the
transactions contemplated herein, except such as have been obtained
under the 1933 Act, the Securities Exchange Act of 1934, as amended
("1934 ACT"), the 1940 Act and state securities laws;
(d) The current prospectus and statement of additional
information of the Target Fund and each prospectus and statement of
additional information of the Target Fund used at all times prior to
the date of this Agreement conforms or conformed at the time of its
use in all material respects to the applicable requirements of the
1933 Act and the 1940 Act and the rules and regulations of the
Commission thereunder and does not or did not at the time of its use
include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they
were made, not materially misleading;
(e) Except as otherwise disclosed in writing to and accepted by
or on behalf of the Acquiring Fund, on the Closing Date, the Target
Fund will have good and marketable title to the Assets and full right,
power, and authority to sell, assign, transfer and deliver such Assets
hereunder free of any liens or other encumbrances, and upon delivery
and payment for such Assets, the Acquiring Fund will acquire good and
marketable title thereto, subject to no restrictions on the full
transfer thereof, including such restrictions as might arise under the
1933 Act;
(f) The Target Fund is not engaged currently, and the execution,
delivery and performance of this Agreement will not result, in (i) a
material violation of the Trust's or Advisor Trust's, as appropriate,
or the Master Trust's, Declaration of Trust or By-Laws or of any
agreement, indenture, instrument, contract, lease or other undertaking
to which the Target Fund is a party or by which it is bound, or (ii)
the acceleration of any obligation, or the imposition of any lien,
encumbrance, penalty or additional fee under any agreement, indenture,
instrument, contract, lease, judgment or decree to which the Target
Fund, the Trust, the Advisor Trust or the Master Trust, is a party or
by which it is bound;
(g) All material contracts or other commitments of the Target
Fund (other than this Agreement and certain investment contracts,
including options, futures, and forward contracts) will terminate with
respect to the Target Fund without liability to the Target Fund on or
prior to the Closing Date;
(h) Except as otherwise disclosed in writing to and accepted by
or on behalf of the Acquiring Fund, (i) no litigation or
administrative proceeding or investigation of or before any court,
tribunal, arbitrator, governmental body or FINRA is presently pending
or, to the Target Fund's knowledge, threatened against the Target Fund
that, if adversely determined, would materially and adversely affect
the Target Fund's financial condition or the conduct of its business,
and (ii) without any special investigation or inquiry, to the
knowledge of the portfolio managers of the Target Fund as identified
in the Target Fund's prospectus (the "Target Fund Portfolio
Managers"), no litigation or administrative proceeding or
investigation of or before any court, tribunal, arbitrator,
governmental body or FINRA is presently pending or threatened against
any of the Target Fund's properties or assets, that, if adversely
determined, would materially and adversely affect the Target Fund's
financial condition or the conduct of its business. The Target Fund
and, with respect to the Target Fund's properties or assets, the
Target Fund Portfolio Managers, without any special investigation or
inquiry, know of no facts that might form the basis for the
institution of such proceedings and the Target Fund is not a party to
or subject to the provisions of any order, decree or judgment of any
court or governmental body that materially and adversely affects its
business or its ability to consummate the transactions herein
contemplated;
(i) The financial statements of the Target Fund as of and for the
year ended October 31, 2008 have been audited by KPMG LLP, independent
registered public accounting firm. Such statements, as well as the
unaudited, semi-annual financial statements for the semi-annual period
ended April 30, 2009, are in accordance with accounting principles
generally accepted in the United States of America ("GAAP")
consistently applied, ---- and such statements (copies of which have
been furnished to the Acquiring Fund) present fairly, in all material
respects, the financial condition of the Target Fund as of such date
in accordance with GAAP, and there are no known contingent liabilities
of the Target Fund required to be reflected on a balance sheet
(including the notes thereto) in accordance with GAAP as of such date
not disclosed therein;
(j) Since October 31, 2008, there has not been any material
adverse change in the Target Fund's financial condition, assets,
liabilities or business, other than changes occurring in the ordinary
course of business, except as otherwise disclosed to and accepted by
the Acquiring Fund in writing. For the purposes of this subparagraph
(j), a decline in net asset value per share of Target Fund shares due
to declines in market values of securities held by the Target Fund,
the discharge of the Target Fund's ordinary course liabilities, or the
redemption of the Target Fund's shares by shareholders of the Target
Fund shall not constitute a material adverse change;
(k) On the Closing Date, Trust or Advisor Trust, as appropriate,
has duly and timely filed, on behalf of Target Fund, all Tax (as
defined below) returns and reports (including information returns),
which are required to be filed by such Target Fund, and all such
returns and reports accurately state the amount of Tax owed for the
periods covered by the returns, or, in the case of information
returns, the amount and character of income required to be reported by
such Target Fund. On behalf of Target Fund, Trust or Advisor Trust, as
appropriate, has paid or made provision and properly accounted for all
Taxes (as defined below) due or properly shown to be due on such
returns and reports. The amounts set up as provisions for Taxes in the
books and records of Target Fund as of the close of business on the
Closing Date will, to the extent required by GAAP, be sufficient for
the payment of all Taxes of any kind, whether accrued, due, absolute,
contingent or otherwise, which were or which may be payable by Target
Fund for any periods or fiscal years prior to and including the close
of business on the Closing Date, including all Taxes imposed before or
after the close of business on the Closing Date that are attributable
to any such period or fiscal year. No return filed by Target Fund is
currently being audited by the Internal Revenue Service or by any
state or local taxing authority. As used in this Agreement, "TAX" or
"TAXES" means all federal, state, local --- ----- and foreign (whether
imposed by a country or political subdivision or authority thereunder)
income, gross receipts, excise, sales, use, value added, employment,
franchise, profits, property, ad valorem or other taxes, stamp taxes
and duties, fees, assessments or charges, whether payable directly or
by withholding, together with any interest and any penalties,
additions to tax or additional amounts imposed by any taxing authority
(foreign or domestic) with respect thereto. To its knowledge, there
are no levies, liens or encumbrances relating to Taxes existing,
threatened or pending with respect to the assets of Target Fund. There
are no known actual or proposed deficiency assessments with respect to
any Taxes payable by it;
(l) For each taxable year of its operation (including the taxable
year ending on the Closing Date), the Target Fund has met (or will
meet) the requirements of Subchapter M of the Code for qualification
as a regulated investment company ("RIC"), has been (or will be)
eligible to --- and has computed (or will compute) its Federal income
tax under Section 852 of the Code, and will have distributed all of
its investment company taxable income and net capital gain (as defined
in the Code) that has accrued through the Closing Date, and before the
Closing Date will have declared dividends sufficient to distribute all
of its investment company taxable income and net capital gain for the
period ending on the Closing Date. Consummation of the transactions
contemplated by this Agreement will not cause the Target Fund to fail
to be qualified as a RIC as of the Closing Date;
(m) All issued and outstanding shares of the Target Fund are, and
on the Closing Date will be, duly and validly issued and outstanding,
fully paid and non-assessable by the Trust or the Advisor Trust, as
appropriate, and, in every state where offered or sold, such offers
and sales have been in compliance in all material respects with
applicable registration requirements of the 1933 Act and state and
District of Columbia securities laws. All of the issued and
outstanding shares of the Target Fund will, at the time of Closing, be
held by the persons and in the amounts set forth in the records of the
Transfer Agent, on behalf of the Target Fund, as provided in Paragraph
3.2(d). The Target Fund does not have outstanding any options,
warrants or other rights to subscribe for or purchase any of the
shares of the Target Fund, nor is there outstanding any security
convertible into any of the Target Fund's shares, except for the
automatic conversion right of Class B shareholders of the Target Fund
to convert to Class A shares in accordance with the terms set forth in
the Target Fund's prospectus and statement of additional information;
(n) The execution, delivery and performance of this Agreement
will have been duly authorized prior to the Closing Date by all
necessary action, if any, on the part of the Trustees of the Trust or
Advisor Trust, as appropriate, and subject to the approval of the
shareholders of the Target Fund, this Agreement will constitute a
valid and binding obligation of the Target Fund, enforceable in
accordance with its terms, subject, as to enforcement, to bankruptcy,
insolvency, reorganization, moratorium and other laws relating to or
affecting creditors' rights and to general equity principles;
(o) The information to be furnished by the Target Fund for use in
the Registration Statement and other documents filed or to be filed
with any Federal, state or local regulatory authority (including the
Financial Industry Regulatory Authority), which may be necessary in
connection with the transactions contemplated hereby, shall be
accurate and complete in all material respects and shall comply in all
material respects with Federal securities and other laws and
regulations thereunder applicable thereto;
(p) The books and records of Target Fund, including, without
limitation, FIN 48 work papers and supporting statements, made
available to Acquiring Fund and/or its counsel and authorized agents
are true and correct in all material respects and contain no material
omissions with respect to the business and operations of Target Fund;
(q) The Trust or Advisor Trust, as appropriate, is not under the
jurisdiction of a court in a Title 11 or similar case within the
meaning of Section 368(a)(3)(A) of the Code;
(r) The Target Fund has no unamortized or unpaid organizational
fees or expenses; and
(s) The Target Fund shall waive any contingent deferred sales
charge to which Target Fund Shareholders holding Class B shares may be
subject as a result of the Reorganization.
4.2. With respect to each Reorganization, the Franklin Trust or Franklin NY
Trust, as appropriate, on behalf of the Acquiring Fund, represents and
warrants to the corresponding Target Fund as follows:
(a) The Acquiring Fund is duly organized as a series of the
Franklin Trust or Franklin NY Trust, as appropriate, which is a
statutory trust duly organized, validly existing, and in good standing
under the laws of the State of Delaware, with power under its
Agreement and Declaration of Trust, as amended from time to time, to
own all of its properties and assets and to carry on its business as
it is now being conducted;
(b) The Franklin Trust or the Franklin NY Trust, as appropriate,
is a registered investment company classified as a management company
of the open-end type, and its registration with the Commission as an
investment company under the 1940 Act and the registration of shares
of the Acquiring Fund under the 1933 Act, is in full force and effect;
(c) No consent, approval, authorization, or order of any court,
governmental authority or FINRA is required for the consummation by
the Acquiring Fund of the transactions contemplated herein, except
such as have been or will be (at or prior to the Closing Date)
obtained under the 1933 Act, the 1934 Act, the 1940 Act and state
securities laws;
(d) The current prospectus and statement of additional
information of the Acquiring Fund and each prospectus and statement of
additional information of the Acquiring Fund used at all times prior
to the date of this Agreement conforms or conformed at the time of its
use in all material respects to the applicable requirements of the
1933 Act and the 1940 Act and the rules and regulations of the
Commission thereunder and does not or did not at the time of its use
include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they
were made, not materially misleading;
(e) On the Closing Date, the Acquiring Fund will have good and
marketable title to the Acquiring Fund's assets, free of any liens or
other encumbrances, except those liens or encumbrances that have been
incurred in the ordinary course of business of the Acquiring Fund,
including without limitation, those that have arisen under (i) the
Term Asset-Backed Securities Loan Facility operated by the Federal
Reserve Bank of New York or (ii) International Swaps and Derivatives
Association, Inc. (ISDA) agreements, or as to which the Target Fund
has received notice and necessary documentation at or prior to the
Closing;
(f) The Acquiring Fund is not engaged currently, and the
execution, delivery and performance of this Agreement will not result,
in (i) a material violation of, as appropriate, the Franklin Trust's
or Franklin NY Trust's Agreement and Declaration of Trust or By-Laws
or of any agreement, indenture, instrument, contract, lease or other
undertaking to which the Acquiring Fund is a party or by which it is
bound, or (ii) the acceleration of any obligation, or the imposition
of any lien, encumbrance, penalty, or additional fee under any
agreement, indenture, instrument, contract, lease, judgment or decree
to which the Acquiring Fund, the Franklin Trust or the Franklin NY
Trust is a party or by which it is bound;
(g) Except as otherwise disclosed in writing to and accepted by
or on behalf of the Target Fund, (i) no litigation or administrative
proceeding or investigation of or before any court, tribunal,
arbitrator, governmental body or FINRA is presently pending or, to the
Acquiring Fund's knowledge, threatened against the Acquiring Fund
that, if adversely determined, would materially and adversely affect
the Acquiring Fund's financial condition or the conduct of its
business, and (ii) without any special investigation or inquiry, to
the knowledge of the portfolio managers of the Acquiring Fund as
identified in the Acquiring Fund's prospectus (the "Acquiring Fund
Portfolio Managers"), no litigation or administrative proceeding or
investigation of or before any court, tribunal, arbitrator,
governmental body or FINRA is presently pending or threatened against
any of the Acquiring Fund's properties or assets, that, if adversely
determined, would materially and adversely affect the Acquiring Fund's
financial condition or the conduct of its business. The Acquiring Fund
and, with respect to the Acquiring Fund's properties or assets, the
Acquiring Fund Portfolio Managers, without any special investigation
or inquiry, know of no facts that might form the basis for the
institution of such proceedings and the Acquiring Fund is not a party
to or subject to the provisions of any order, decree or judgment of
any court or governmental body that materially and adversely affects
its business or its ability to consummate the transactions herein
contemplated;
(h) The financial statements of the Acquiring Fund as of and for
the year ended October 31, 2008 (if a series of Franklin Trust) or
September 30, 2008 (if a series of Franklin NY Trust) have been
audited by PricewaterhouseCoopers LLP, independent registered public
accounting firm. Such statements, as well as the unaudited,
semi-annual financial statements of the Acquiring Fund for the
semi-annual period ended April 30, 2009 (if a series of Franklin
Trust) or March 31, 2009 (if a series of Franklin NY Trust), are in
accordance with GAAP consistently applied, and such statements (copies
of which have been furnished to the Target Fund) present fairly, in
all material respects, the financial condition of the Acquiring Fund
as of such date in accordance with GAAP, and there are no known
contingent liabilities of the Acquiring Fund required to be reflected
on a balance sheet (including the notes thereto) in accordance with
GAAP as of such date not disclosed therein;
(i) Since October 31, 2008 (if the Acquiring Fund is a series of
Franklin Trust) or September 30, 2008 (if the Acquiring Fund is a
series of Franklin NY Trust), there has not been any material adverse
change in the Acquiring Fund's financial condition, assets,
liabilities or business, other than changes occurring in the ordinary
course of business, except as otherwise disclosed to and accepted by
the Target Fund in writing. For purposes of this subparagraph (i), a
decline in net asset value per share of the Acquiring Fund's shares
due to declines in market values of securities held by the Acquiring
Fund, the discharge of the Acquiring Fund's ordinary course
liabilities, or the redemption of the Acquiring Fund's shares by
shareholders of the Acquiring Fund, shall not constitute a material
adverse change;
(j) On the Closing Date, it has duly and timely filed, on behalf
of the Acquiring Fund, all Tax (as defined below) returns and reports
(including information returns), which are required to be filed by
such Acquiring Fund, and all such returns and reports accurately state
the amount of Tax owed for the periods covered by the returns, or, in
the case of information returns, the amount and character of income
required to be reported by such Acquiring Fund. On behalf of Acquiring
Fund, Franklin Trust or Franklin NY Trust, as appropriate, has paid or
made provision and properly accounted for all Taxes due or properly
shown to be due on such returns and reports. The amounts set up as
provisions for Taxes in the books and records of Acquiring Fund as of
the close of business on the Closing Date will, to the extent required
by generally accepted accounting principles, be sufficient for the
payment of all Taxes of any kind, whether accrued, due, absolute,
contingent or otherwise, which were or which may be payable by
Acquiring Fund for any periods or fiscal years prior to and including
the close of business on the Closing Date, including all Taxes imposed
before or after the close of business on the Closing Date that are
attributable to any such period or fiscal year. No return filed by
Acquiring Fund is currently being audited by the Internal Revenue
Service or by any state or local taxing authority. To its knowledge,
there are no levies, liens or encumbrances relating to Taxes existing,
threatened or pending with respect to the assets of Acquiring Fund.
There are no known actual or proposed deficiency assessments with
respect to any Taxes payable by it;
(k) For each taxable year of its operation (including the taxable
year that includes the Closing Date), the Acquiring Fund has met (or
will meet) the requirements of Subchapter M of the Code for
qualification as a RIC, has been eligible to (or will be eligible to)
and has computed (or will compute) its Federal income tax under
Section 852 of the Code, and has distributed all of its investment
company taxable income and net capital gain (as defined in the Code)
for periods ending prior to the Closing Date. Consummation of the
transactions contemplated by this Agreement will not cause the
Acquiring Fund to fail to be qualified as a RIC as of the Closing;
(l) All issued and outstanding Acquiring Fund shares are, and on
the Closing Date will be, duly and validly issued and outstanding,
fully paid and non-assessable by the Franklin Trust and Franklin NY
Trust, as appropriate, and, in every state where offered or sold, all
offers and sales have been in compliance in all material respects with
applicable registration requirements of the 1933 Act and state and
District of Columbia securities laws. The Acquiring Fund does not have
outstanding any options, warrants or other rights to subscribe for or
purchase any Acquiring Fund shares, nor is there outstanding any
security convertible into any Acquiring Fund shares, except for the
automatic conversion right of Class B shareholders of the Acquiring
Fund to convert to Class A shares in accordance with the terms set
forth in the Acquiring Fund's prospectus and statement of additional
information;
(m) The execution, delivery and performance of this Agreement
will have been duly authorized prior to the Closing Date by all
necessary action, if any, on the part of the Trustees of the Franklin
Trust or Franklin NY Trust, as appropriate, on behalf of the Acquiring
Fund, and this Agreement will constitute a valid and binding
obligation of the Acquiring Fund, enforceable in accordance with its
terms, subject, as to enforcement, to bankruptcy, insolvency,
reorganization, moratorium and other laws relating to or affecting
creditors' rights and to general equity principles;
(n) The shares of the Acquiring Fund to be issued and delivered
to the Target Fund, for the account of the Target Fund Shareholders,
pursuant to the terms of this Agreement, as set forth in Exhibit A,
will on the Closing Date have been duly authorized and, when so issued
and delivered, will be duly and validly issued Acquiring Fund shares,
and will be fully paid and non-assessable by the Acquiring Fund; and
(o) The information to be furnished by the Acquiring Fund for use
in the Registration Statement and other documents that may be
necessary in connection with the transactions contemplated hereby
shall be accurate and complete in all material respects and shall
comply in all material respects with federal securities and other laws
and regulations applicable thereto, and, insofar as it relates to the
Franklin Trust or Franklin NY Trust (as applicable) and the Acquiring
Fund, the Registration Statement, and any amendment or supplement to
the foregoing will, from the effective date of the Registration
Statement through the date of the meeting of shareholders of the
Target Fund contemplated therein and on the Closing Date (i) not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which such
statements were made, not materially misleading, provided, however,
that the representations and warranties of this subparagraph (o) shall
not apply to statements in or omissions from the Registration
Statement made in reliance upon and in conformity with information
that was furnished by the Target Fund for use therein, and (ii) comply
in all material respects with the provisions of the 1933 Act, the 1934
Act, and the 1940 Act and the rules and regulations thereunder.
(p) The Franklin Trust or Franklin NY Trust, as appropriate, is
not under the jurisdiction of a court in a Title 11 or similar case
within the meaning of Section 368(a)(3)(A) of the Code;
(q) The Acquiring Fund has no unamortized or unpaid
organizational fees or expenses.
5. COVENANTS OF THE ACQUIRING FUND AND THE TARGET FUND
5.1. With respect to each Reorganization:
(a) The Acquiring Fund and the Target Fund each: (i) will operate
its business in the ordinary course and substantially in accordance
with past practices between the date hereof and the Closing Date for
the Reorganization, it being understood that such ordinary course of
business will include changes to the composition of the portfolio of
the Target Fund in anticipation of the Reorganization and the
declaration and payment of customary dividends and distributions, and
any other distribution that may be advisable, and (ii) shall use its
reasonable best efforts to preserve intact its business organization
and material assets and maintain the rights, franchises and business
and customer relations necessary to conduct the business operations of
the Acquiring Fund or the Target Fund, as appropriate, in the ordinary
course in all material respects.
(b) The Trust or Advisor Trust, as appropriate, will call a
meeting of the shareholders of the Target Fund to consider and act
upon this Agreement and to take all other action necessary to obtain
approval of the transactions contemplated herein. Trust and Advisor
Trust, as appropriate, shall, through its Board of Trustees, recommend
to the shareholders of Target Fund approval of this Agreement.
(c) The Target Fund covenants that the Class A, C and Advisor
Acquiring Fund shares to be issued hereunder (as set forth in Exhibit
A) are not being acquired for the purpose of making any distribution
thereof, other than in accordance with the terms of this Agreement.
(d) The Target Fund will assist the Acquiring Fund in obtaining
such information as the Acquiring Fund reasonably requests concerning
the beneficial ownership of the Target Fund's shares.
(e) The Trust or Advisor Trust, as appropriate, will at the
Closing (or, with respect to delivery of the tax basis of a Target
Fund's investments to be transferred as provided in clause (1) below,
will within five business days after the Closing Date in the case of
CPFI Fund and IDFI Fund and within one business day after the Closing
Date in the case of NYTFB Fund) provide the Acquiring Fund with (1) a
statement of the respective tax basis of all investments to be
transferred by the Target Fund to the Acquiring Fund, (2) a copy
(which may be in electronic form) of the shareholder ledger accounts
including, without limitation, the name, address and taxpayer
identification number of each shareholder of record, the number of
shares of beneficial interest held by each shareholder, the dividend
reinvestment elections applicable to each shareholder, and the backup
withholding and nonresident alien withholding certifications, notices
or records on file with the Target Fund with respect to each
shareholder, for all of the shareholders of record of the Target Fund
as of the close of business on the Closing Date, who are to become
holders of the Acquiring Fund as a result of the transfer of assets
that is the subject of this Agreement (the "TARGET FUND SHAREHOLDER
DOCUMENTATION"), certified by its transfer agent or its President or
its Vice-President to the best of their knowledge and belief, and (3)
all FIN 48 work papers and supporting statements pertaining to the
Target Fund (the "FIN 48 WORKPAPERS").
(f) Subject to the provisions of this Agreement, the Acquiring
Fund and the Target Fund will each take, or cause to be taken, all
action, and do or cause to be done all things, reasonably necessary,
proper or advisable to consummate and make effective the transactions
contemplated by this Agreement.
(g) As soon as is reasonably practicable after the Closing, the
Target Fund will make a liquidating distribution to its shareholders
consisting of the Class A, C and Advisor Acquiring Fund shares
received at the Closing, as set forth in Paragraph 1.4(d) hereof.
(h) The Acquiring Fund and the Target Fund shall each use their
reasonable best efforts to fulfill or obtain the fulfillment of the
conditions precedent to effect the transactions contemplated by this
Agreement as promptly as practicable.
(i) The Target Fund shall, from time to time, as and when
reasonably requested by the Acquiring Fund, execute and deliver or
cause to be executed and delivered all such assignments and other
instruments, and will take or cause to be taken such further action as
the Acquiring Fund may reasonably deem necessary or desirable in order
to vest in and confirm the Acquiring Fund's title to and possession of
all the Assets and otherwise to carry out the intent and purpose of
this Agreement.
(j) The Acquiring Fund will use all reasonable efforts to obtain
the approvals and authorizations required by the 1933 Act, the 1940
Act and such of the state blue sky or securities laws as may be
necessary in order to continue its operations after the Closing Date.
(k) As promptly as practicable, but in any case within sixty days
after the Closing Date, each Target Fund shall furnish the
corresponding Acquiring Fund, in such form as is reasonably
satisfactory to such Acquiring Fund, a statement of the earnings and
profits of such Target Fund for federal income tax purposes that will
be carried over by such Acquiring Fund as a result of Section 381 of
the Code, which will be reviewed by KPMG, LLP and certified by such
Target Fund's President and Treasurer or Chief Financial Officer.
(l) It is the intention of the parties that the transaction will
qualify as a reorganization with the meaning of Section 368(a) of the
Code. None of the parties to this Agreement shall take any action or
cause any action to be taken (including, without limitation the filing
of any tax return) that is inconsistent with such treatment or results
in the failure of the transaction to qualify as a reorganization with
the meaning of Section 368(a) of the Code.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TARGET FUND
6.1. With respect to each Reorganization, the obligations of the Target Fund
to consummate the transactions provided for herein shall be subject, at the
Target Fund's election, to the performance by the Acquiring Fund of all the
obligations to be performed by it hereunder on or before the Closing Date,
and, in addition thereto, the following further conditions:
(a) All representations and warranties of the Acquiring Fund and
the Franklin Trust or Franklin NY Trust, as appropriate, contained in
this Agreement shall be true and correct in all material respects as
of the date hereof and, except as they may be affected by the
transactions contemplated by this Agreement, as of the Closing Date,
with the same force and effect as if made on and as of the Closing
Date;
(b) The Franklin Trust or Franklin NY Trust, as appropriate,
shall have delivered to the Trust or Advisor Trust, as appropriate, on
the Closing Date a certificate executed in its name by its Chief
Executive Officer and Treasurer, in form and substance reasonably
satisfactory to Target Fund and dated as of the Closing Date, to the
effect that the representations and warranties of or with respect to
the Acquiring Fund made in this Agreement are true and correct at and
as of the Closing Date, except as they may be affected by the
transactions contemplated by this Agreement, and as to such other
matters as the Target Fund shall reasonably request;
(c) The Franklin Trust or Franklin NY Trust, as appropriate, and
the Acquiring Fund shall have performed all of the covenants and
complied with all of the provisions required by this Agreement to be
performed or complied with by the Franklin Trust or Franklin NY Trust
and the Acquiring Fund, on or before the Closing Date;
(d) The Target Fund and the Acquiring Fund shall have agreed on
the number of full and fractional Class A, C and Advisor shares of the
Acquiring Fund to be issued in connection with the Reorganization
after such number has been calculated in accordance with Paragraph 1.4
hereto;
(e) The Trust or Advisor Trust, as appropriate, shall have
received on the Closing Date the opinion of Stradley Ronon Stevens &
Young, LLP, counsel to the Franklin Trust or Franklin NY Trust, as
appropriate, (which may rely as to matters governed by the laws of the
State of Delaware on an opinion of Delaware counsel and/or
certificates of officers or Trustees of the Franklin Trust or Franklin
NY Trust), dated as of the Closing Date, covering the following
points:
(i) The Franklin Trust or Franklin NY Trust, as appropriate,
is a statutory trust duly organized, validly existing and in good
standing under the laws of the State of Delaware and has the
trust power to own all of the Acquiring Funds' properties and
assets and to carry on its business, including that of the
Acquiring Fund, as a registered investment company;
(ii) The Agreement has been duly authorized by the Franklin
Trust or Franklin NY Trust, as appropriate, on behalf of the
Acquiring Fund and, assuming due authorization, execution and
delivery of the Agreement by the Trust, Advisor Trust, as
appropriate, Master Trust and HGAM, is a valid and binding
obligation of the Franklin Trust or Franklin NY Trust, as
appropriate, on behalf of the Acquiring Fund enforceable against
it in accordance with its terms, subject, as to enforcement, to
bankruptcy, insolvency, reorganization, moratorium and other laws
relating to or affecting creditors' rights generally and to
general equity principles;
(iii)The Acquiring Fund shares to be issued to the Target
Fund Shareholders as provided by this Agreement are duly
authorized, upon such delivery will be validly issued and
outstanding, and will be fully paid and non-assessable by the
Franklin Trust or Franklin NY Trust, as appropriate, and no
shareholder of an Acquiring Fund has any preemptive rights to
subscription or purchase in respect thereof;
(iv) The execution and delivery of the Agreement did not,
and the consummation of the transactions contemplated hereby will
not, result in a material violation of, as appropriate, the
Franklin Trust's or Franklin NY Trust's Agreement and Declaration
of Trust or By-Laws or any provision of any agreement (known to
such counsel) to which the Franklin Trust or Franklin NY Trust is
a party or by which it is bound or, to the knowledge of such
counsel, result in the acceleration of any obligation or the
imposition of any penalty under any agreement, judgment or decree
to which the Franklin Trust or Franklin NY Trust is a party or by
which it is bound;
(v) To the knowledge of such counsel, no consent, approval,
authorization or order of any court or governmental authority of
the United States or the State of Delaware is required to be
obtained by the Franklin Trust or Franklin NY Trust in order to
consummate the transactions contemplated herein, except such as
have been obtained under the 1933 Act, the 1934 Act and the 1940
Act, and such as may be required under state securities laws;
(vi) The Franklin Trust or Franklin NY Trust, as
appropriate, is a registered investment company classified as a
management company of the open-end type with respect to each
series of shares it offers, including those of the Acquiring
Fund, under the 1940 Act, and its registration with the
Commission as an investment company under the 1940 Act is in full
force and effect; and
(vii)To the knowledge of such counsel, and except as
otherwise disclosed to the Trust or Advisor Trust pursuant to
Paragraph 4.2(g) hereunder, no litigation or administrative
proceeding or investigation of or before any court or
governmental body is presently pending or threatened as to the
Franklin Trust or Franklin NY Trust or the Acquiring Fund and
neither the Franklin Trust or Franklin NY Trust, as appropriate,
nor the Acquiring Fund is a party to or subject to the provisions
of any order, decree or judgment of any court or governmental
body which materially and adversely affects its business.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
7.1. With respect to each Reorganization, the obligations of the Acquiring
Fund to complete the transactions provided for herein shall be subject, at
the Acquiring Fund's election, to the performance by the Target Fund of all
of the obligations to be performed by it hereunder on or before the Closing
Date and, in addition thereto, the following conditions:
(a) All representations and warranties of the Trust or Advisor
Trust, as appropriate, and the Target Fund, contained in this
Agreement shall be true and correct in all material respects as of the
date hereof and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Closing Date, with the same
force and effect as if made on and as of the Closing Date;
(b) The Trust or Advisor Trust, as appropriate, on behalf of the
Target Fund, shall have delivered to the Franklin Trust or Franklin NY
Trust, as appropriate, on the Closing Date (i) a statement of the
Target Fund's assets, together with a list of portfolio securities of
the Target Fund showing the tax costs of such securities by lot and
the holding periods of such securities, as of the Closing Date,
certified by the Treasurer of the Trust or Advisor Trust, as
appropriate, (ii) the Target Fund Shareholder Documentation, (iii) the
AML Documentation and (iv) the FIN 48 Workpapers;
(c) The Trust or Advisor Trust, as appropriate, shall have
delivered to the Franklin Trust or Franklin NY Trust, as appropriate,
on the Closing Date a certificate executed in its name by its
President and Treasurer, in form and substance satisfactory to the
Acquiring Fund and dated as of the Closing Date, to the effect that
the representations and warranties of or with respect to the Target
Fund made in this Agreement are true and correct at and as of the
Closing Date, except as they may be affected by the transactions
contemplated by this Agreement, and as to such other matters as the
Acquiring Fund shall reasonably request;
(d) The Trust or Advisor Trust, as appropriate, and the Target
Fund shall have performed all of the covenants and complied with all
of the provisions required by this Agreement to be performed or
complied with by the Trust or Advisor Trust, as appropriate, and the
Target Fund, on or before the Closing Date;
(e) The Target Fund and the Acquiring Fund shall have agreed on
the number of full and fractional Class A, C and Advisor shares of the
Acquiring Fund to be issued in connection with the Reorganization
after such number has been calculated in accordance with Paragraph 1.4
hereto;
(f) The Target Fund shall have declared and paid a distribution
or distributions prior to the Closing that, together with all previous
distributions, shall have the effect of distributing to its
shareholders (i) all of its investment company taxable income and all
of its net realized capital gains, if any, for the period from the
close of its last fiscal year to 4:00 p.m. Eastern time on the Closing
Date; and (ii) any undistributed investment company taxable income and
net realized capital gains from any period to the extent not otherwise
already distributed;
(g) The Franklin Trust or Franklin NY Trust, as appropriate,
shall have received on the Closing Date the opinion of Dechert LLP,
counsel to the Trust or Advisor Trust, as appropriate, (which may rely
on certificates of officers or Trustees of the Trust or Advisor
Trust), covering the following points:
(i) The Trust or Advisor Trust, as appropriate, is a
business trust duly organized, validly existing and in good
standing under the laws of the Commonwealth of Massachusetts and
has the trust power to own all of Target Fund's properties and
assets, and to carry on its business, including that of the
Target Fund, as presently conducted;
(ii) The Agreement has been duly authorized by the Trust or
Advisor Trust, as appropriate, on behalf of the Target Fund, and,
assuming due authorization, execution and delivery of the
Agreement by the Franklin Trust or Franklin NY Trust, as
applicable, is a valid and binding obligation of the Trust or
Advisor Trust, on behalf of the Target Fund, enforceable against
the Trust or Advisor Trust in accordance with its terms, subject,
as to enforcement, to bankruptcy, insolvency, reorganization,
moratorium and other laws relating to or affecting creditors'
rights generally and to general equity principles;
(iii) The execution and delivery of the Agreement did not,
and the consummation of the transactions contemplated hereby will
not, result in a material violation of, as appropriate, the
Trust's or Advisor Trust's Declaration of Trust or By-Laws or any
provision of any agreement (known to such counsel) to which the
Trust or Advisor Trust is a party or by which it is bound or, to
the knowledge of such counsel, result in the acceleration of any
obligation or the imposition of any penalty under any agreement,
judgment or decree to which the Trust or Advisor Trust is a party
or by which it is bound;
(iv) To the knowledge of such counsel, no consent, approval,
authorization or order of any court or governmental authority of
the United States or the Commonwealth of Massachusetts is
required to be obtained by the Trust or Advisor Trust in order to
consummate the transactions contemplated herein, except such as
have been obtained under the 1933 Act, the 1934 Act and the 1940
Act, and such as may be required under state securities laws;
(v) The Trust or Advisor Trust, as appropriate, is a
registered investment company classified as a management company
of the open-end type with respect to each series of shares it
offers, including those of the Target Fund, under the 1940 Act
and its registration with the Commission as an investment company
under the 1940 Act is in full force and effect;
(vi) The outstanding shares of the Target Fund are
registered under the 1933 Act, and such registration is in full
force and effect; and
(vii) To the knowledge of such counsel, no litigation or
administrative proceeding or investigation of or before any court
or governmental body is presently pending or threatened as to the
Trust or Advisor Trust or Target Fund and neither the Trust or
Advisor Trust nor the Target Fund is a party to or subject to the
provisions of any order, decree or judgment of any court or
governmental body which materially and adversely affects its
business.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND AND
THE TARGET FUND
With respect to each Reorganization, if any of the conditions set forth
below have not been satisfied on or before the Closing Date with respect to
the Target Fund or the Acquiring Fund, the other party to this Agreement
shall, at its option, not be required to consummate the transactions
contemplated by this Agreement:
8.1. The Agreement and the transactions contemplated herein shall have been
approved by the requisite vote of the holders of the outstanding shares of
the Target Fund in accordance with the provisions of the Trust's or Advisor
Trust's, as appropriate, Declaration of Trust and By-Laws, applicable
Massachusetts law and the 1940 Act, and certified copies of the resolutions
evidencing such approval shall have been delivered to the Acquiring Fund.
Notwithstanding anything herein to the contrary, neither the Target Fund nor
the Acquiring Fund may waive the conditions set forth in this Paragraph 8.1;
8.2. The Agreement and transactions contemplated herein shall have been
approved by the Board of Trustees of the Trust and Advisor Trust, as
appropriate, and Franklin Trust or Franklin NY Trust, as appropriate, and
each party shall have delivered a copy to the other of the resolutions
approving this Agreement and the transactions contemplated in connection
herewith adopted by the other party's Board of Trustees, certified by the
Secretary or equivalent officer. Notwithstanding anything herein to the
contrary, neither the Target Fund nor the Acquiring Fund may waive the
conditions set forth in this Paragraph 8.2;
8.3. On the Closing Date no action, suit or other proceeding shall be pending
or, to, as applicable, the Trust's or Advisor Trust's and, as applicable,
Franklin Trust or Franklin NY Trust's knowledge, threatened before any court
or governmental agency in which it is sought to restrain or prohibit, or
obtain damages or other relief in connection with, this Agreement or the
transactions contemplated herein;
8.4. All consents of other parties and all other consents, orders and permits
of Federal, state and local regulatory authorities deemed necessary by the
Acquiring Fund or Target Fund to permit consummation, in all material
respects, of the transactions contemplated hereby shall have been obtained,
except where failure to obtain any such consent, order or permit would not
involve a risk of a material adverse effect on the assets or properties of
the Acquiring Fund or the Target Fund, provided that either party hereto may
for itself waive any of such conditions;
8.5. The Registration Statement shall have become effective under the 1933
Act and no stop orders suspending the effectiveness thereof shall have been
issued and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending,
threatened or contemplated under the 1933 Act; and
8.6. Dechert LLP shall deliver an opinion addressed to the Trust or Advisor
Trust, as applicable, and Franklin Trust or Franklin NY Trust, as applicable,
substantially to the effect that, based upon certain facts, assumptions, and
representations, the transaction contemplated by this Agreement shall
constitute a tax-free reorganization for Federal income tax purposes, unless,
based on circumstances existing at the time of Closing, Dechert LLP
determines that the transaction contemplated by this Agreement does not
qualify as such. The delivery of such opinion is conditioned upon receipt by
Dechert LLP of representations it shall request of the parties.
Notwithstanding anything herein to the contrary, no party may waive the
condition set forth in this Paragraph 8.6.
9. BROKERAGE FEES AND EXPENSES
9.1. The parties hereto represent and warrant to each other that there are no
brokers or finders entitled to receive any payments in connection with the
transactions provided for herein.
9.2. Each of Franklin Advisers and HSBC agrees to bear or arrange for an
entity under common ownership to bear the expenses relating to the
Reorganizations, allocated among Franklin Advisers and HSBC as set forth in a
Letter Agreement dated as of the date hereof. The costs of the
Reorganizations shall include, but not be limited to, costs associated with
obtaining any necessary order of exemption from the 1940 Act, if any,
preparation, printing and distribution of the Registration Statement, legal
fees, accounting fees, and expenses of holding shareholders' meetings.
Notwithstanding any of the foregoing, expenses will in any event be paid by
the party directly incurring such expenses if and to the extent that the
payment by another person of such expenses would result in the
disqualification of such party as a "regulated investment company" within the
meaning of Section 851 of the Code.
10. FINAL TAX RETURNS AND FORMS 1099 OF TARGET FUND
10.1.After the Closing of a Reorganization, Trust or Advisor Trust, as
appropriate, shall or shall cause its agents to prepare any federal, state or
local Tax returns, including any Forms 1099, required to be filed by Trust or
Advisor Trust, as appropriate, with respect to the Target Fund's final
taxable year ending with its complete liquidation and for any prior periods
or taxable years and shall further cause such Tax returns and Forms 1099 to
be duly filed with the appropriate taxing authorities.
10.2.Notwithstanding the provisions of Paragraph 9 hereof, any expenses
incurred by Trust, Advisor Trust or Target Fund (other than for payment of
Taxes) in connection with the preparation and filing of said Tax returns and
Forms 1099 after the Closing, shall be borne by Target Fund.
11. COOPERATION AND EXCHANGE OF INFORMATION
Trust, Advisor Trust, Franklin Trust, and Franklin NY Trust will provide
each other and their respective representatives with such cooperation,
assistance and information as any of them reasonably may request of the
others in filing any Tax returns, amended returns or claims for refunds,
determining a liability for Taxes, or in determining the financial reporting
of any tax position, or a right to a refund of Taxes or participating in or
conducting any audit or other proceeding in respect of Taxes. Each party or
their respective agents will retain for a period of six (6) years following
the Closing all returns, schedules and work papers and all material records
or other documents relating to Tax matters and financial reporting of tax
positions of the Target Fund and the Acquiring Fund for its taxable period
first ending after the Closing of the applicable Reorganization and for all
prior taxable periods.
12. INDEMNIFICATION
12.1. With respect to each Reorganization, the Franklin Trust or Franklin
NY Trust, as appropriate, agrees to indemnify out of the assets of the Acquiring
Fund and hold harmless the Trust or Advisor Trust, as appropriate, and, as
appropriate, each of the Trust's or Advisor Trust's officers and Trustees from
and against any and all losses, claims, damages, liabilities or expenses
(including, without limitation, the payment of reasonable legal fees and
reasonable costs of investigation) to which jointly and severally, the Trust or
Advisor Trust, as appropriate, or any of its Trustees or officers may become
subject, insofar as such loss, claim, damage, liability or expense (or actions
with respect thereto) arises out of or is based on any breach by the Franklin
Trust or Franklin NY Trust, as appropriate, of any of its representations,
warranties, covenants or agreements set forth in this Agreement. This
indemnification obligation shall survive the termination of this Agreement and
the closing of the Reorganizations.
12.2. With respect to each Reorganization, the Trust or Adviser Trust, as
appropriate, agrees to indemnify and hold harmless the Franklin Trust or
Franklin NY Trust, as appropriate, and, as appropriate, each of the Franklin
Trust's or Franklin NY Trust's officers and Trustees from and against any and
all losses, claims, damages, liabilities or expenses (including, without
limitation, the payment of reasonable legal fees and reasonable costs of
investigation) to which jointly and severally, the Franklin Trust or Franklin NY
Trust, as appropriate, or any of its Trustees or officers may become subject,
insofar as such loss, claim, damage, liability or expense (or actions with
respect thereto) arises out of or is based on any breach by the Trust or Advisor
Trust, as appropriate, of any of its representations, warranties, covenants or
agreements set forth in this Agreement and provided that the obligation to so
indemnify is limited as set forth in Paragraph 17.5 hereof. This indemnification
obligation shall survive the termination of this Agreement and the closing of
the Reorganizations.
12.3. With respect to each Reorganization, HGAM agrees to indemnify and
hold harmless the Franklin Trust or Franklin NY Trust, as appropriate, and, as
appropriate, each of the Franklin Trust's or Franklin NY Trust's officers and
Trustees from and against any and all losses, claims, damages, liabilities or
expenses (including, without limitation, the payment of reasonable legal fees
and reasonable costs of investigation) to which jointly and severally, the
Franklin Trust or Franklin NY Trust or any of its Trustees or officers may
become subject, insofar as (and only to the extent that) such loss, claim,
damage, liability or expense (or actions with respect thereto) arises out of the
negligence or intentional misconduct by HGAM in performing its obligations as
investment adviser or administrator, or by Halbis Capital Management (USA) Inc.
in performing its obligations as sub-adviser, of the Target Funds. This
indemnification obligation shall survive the termination of this Agreement and
the closing of the Reorganizations.
13. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
13.1. Each party agrees that no party has made any representation, warranty
or covenant not set forth herein and that this Agreement constitutes the entire
agreement between the parties.
13.2. The representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection herewith
shall survive the consummation of the transactions contemplated hereunder. The
covenants to be performed after the Closing shall survive the Closing.
14. TERMINATION
This Agreement may be terminated and the transactions contemplated
hereby may be abandoned with respect to one or more (or all) Reorganizations
by (i) mutual agreement of the parties; (ii) by either party to a
Reorganization, if the Board of Trustees of the terminating party determines
that it cannot permit the party to consummate the Reorganization in light of
the Board of Trustees' fiduciary obligations to the party's shareholders;
(iii) by either party with respect to a Reorganization if the Closing of the
Reorganization shall not have occurred on or before December 31, 2009, unless
such date is extended by mutual agreement of the parties; or (iv) by either
party with respect to a Reorganization if the other party shall have
materially breached its obligations under this Agreement or made a material
and intentional misrepresentation herein or in connection herewith. In the
event of any such termination, this Agreement shall become void with respect
to the Reorganization or Reorganizations terminated and there shall be no
liability hereunder on the part of any party or their respective Trustees or
Trustees or officers, except for any such material breach or intentional
misrepresentation, as to each of which all remedies at law or in equity of
the party adversely affected shall survive. This Agreement shall be
terminated in its entirety if it is terminated with respect to all of the
Reorganizations.
15. AMENDMENTS
This Agreement may be amended, modified or supplemented in a writing
signed by the parties hereto to be bound by such Amendment; provided,
however, that with respect to each Reorganization, following the meeting of
the shareholders of the Target Fund called by the Trust, pursuant to
Paragraph 5.1(b) of this Agreement, no such amendment may have the effect of
changing the provisions for determining the number of Class A, C and Advisor
Acquiring Fund shares to be issued to the Target Fund under this Agreement to
the detriment of any or all Target Fund shareholders, without their further
approval.
16. NOTICES
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be given by
facsimile, personal service or prepaid or certified mail addressed to:
For the Trust, Advisor Trust, Master Trust and HGAM:
Richard A. Fabietti
HSBC Global Asset Management (USA) Inc.
452 Fifth Avenue
New York, NY 10018
Fax: (212) 525-1032
With a copy to:
David J. Harris
Dechert LLP
1775 I Street, NW
Washington, DC 20006
Fax: (202) 261-3333
For Franklin Trust, Franklin NY Trust and Franklin Advisers:
Karen L. Skidmore
Franklin Templeton Investments
One Franklin Parkway
San Mateo, CA 94403
Fax: (650) 525-7141
with a copy to:
Bruce G. Leto
Stradley Ronon Stevens & Young, LLP
2600 One Commerce Square
Philadelphia, PA 19103-7098
Fax: (215) 564-8120
17. HEADINGS; GOVERNING LAW; COUNTERPARTS; ASSIGNMENT; LIMITATION OF
LIABILITY
17.1. The Article and Paragraph headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
17.2. This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware and applicable Federal law, without regard to
its principles of conflicts of laws.
17.3. This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other parties. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm or corporation, other than the parties hereto and their respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.
17.4. This agreement may be executed in any number of counterparts, each of
which shall be considered an original.
17.5. It is expressly agreed that the obligations of the parties hereunder
shall not be binding upon any of their respective Trustees, shareholders,
nominees, officers, agents, or employees personally, but, except as provided in
Sections 12.3 and 9.2 hereof, shall bind only the property of the Target Funds
or the Acquiring Funds as provided in the Declaration of Trust of the Trust or
Advisor Trust or the Agreement and Declaration of Trust of the Franklin Trust or
Franklin NY Trust, respectively. The execution and delivery by such officers
shall not be deemed to have been made by any of them individually or to impose
any liability on any of them personally, but shall bind only the property of
such party.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
approved on behalf of each of the Acquiring Funds and Target Funds.
FRANKLIN INVESTOR SECURITIES TRUST HSBC INVESTOR FUNDS
By: By:
_________________________________ _________________________________
Name: Name: Richard A. Fabietti
Title: Title: President
FRANKLIN NEW YORK TAX-FREE TRUST HSBC ADVISOR FUNDS TRUST
By: By:
_________________________________ _________________________________
Name: Name: Richard A. Fabietti
Title: Title: President
FRANKLIN ADVISERS, INC.
HSBC INVESTOR PORTFOLIOS
By:
_________________________________ By:
Name: _________________________________
Title: Name: Richard A. Fabietti
Title: President
HSBC GLOBAL ASSET MANAGEMENT
(USA) INC.
By:
_________________________________
Name:
Title:
EXHIBIT A
CHART OF REORGANIZATIONS
- ----------------------------------------------------------------------
ACQUIRING FUND CORRESPONDING TARGET FUND
- ----------------------------------------------------------------------
Franklin Total Return Fund HSBC Investor Core Plus Fixed
Income Fund (HSBC Investor Funds)
- ----------------------------------------------------------------------
Class A Class A
- ----------------------------------------------------------------------
Class A Class B
- ----------------------------------------------------------------------
Class C Class C
- ----------------------------------------------------------------------
Franklin Total Return Fund HSBC Investor Core Plus Fixed
Income Fund (HSBC Advisor Funds
Trust)
- ----------------------------------------------------------------------
Advisor Class Class I
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Franklin Total Return Fund HSBC Investor Intermediate
Duration Fixed Income Fund
- ----------------------------------------------------------------------
Class A Class A
- ----------------------------------------------------------------------
Class A Class B
- ----------------------------------------------------------------------
Class C Class C
- ----------------------------------------------------------------------
Advisor Class Class I
- ----------------------------------------------------------------------
Franklin New York HSBC Investor New York Tax-Free
Intermediate-Term Bond Fund
Tax-Free Income Fund
- ----------------------------------------------------------------------
Class A Class A
- ----------------------------------------------------------------------
Class A Class B
- ----------------------------------------------------------------------
Class C Class C
- ----------------------------------------------------------------------
Advisor Class Class I
- ----------------------------------------------------------------------
EVERY SHAREHOLDER'S VOTE IS IMPORTANT
PLEASE SIGN, DATE AND RETURN YOUR
PROXY TODAY
PROXY PROXY
SPECIAL MEETING OF SHAREHOLDERS
HSBC INVESTOR CORE PLUS FIXED INCOME FUND,
A SERIES OF HSBC INVESTOR FUNDS
AUGUST 24, 2009
The undersigned hereby revokes all previous proxies for his/her shares of HSBC
Investor Core Plus Fixed Income Fund ("Core Plus Fixed Income Fund") and
appoints [Insert names], and each of them, proxies of the undersigned with full
power of substitution to vote all shares of Core Plus Fixed Income Fund that the
undersigned is entitled to vote at Core Plus Fixed Income Fund's Special Meeting
of Shareholders ("Special Meeting") to be held at the offices of Citi Fund
Services Ohio, Inc. at 100 Summer Street, Suite 1500, Boston, Massachusetts
02110, at 10:00 a.m., Eastern Time on August 24, 2009, including any
postponements or adjournments thereof, upon the matter set forth below and
instructs them to vote upon any other matters that may properly be acted upon at
the Special Meeting.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF HSBC INVESTOR
FUNDS (THE "TRUST") ON BEHALF OF CORE PLUS FIXED INCOME FUND. IT WILL BE VOTED
AS SPECIFIED. IF NO SPECIFICATION IS MADE, THIS PROXY SHALL BE VOTED FOR THE
PROPOSAL REGARDING THE REORGANIZATION OF CORE PLUS FIXED INCOME FUND INTO
FRANKLIN TOTAL RETURN FUND PURSUANT TO AN AGREEMENT AND PLAN OF REORGANIZATION.
IF ANY OTHER MATTERS PROPERLY COME BEFORE THE SPECIAL MEETING TO BE VOTED ON,
THE PROXY HOLDERS WILL VOTE, ACT AND CONSENT ON THOSE MATTERS IN ACCORDANCE WITH
THE VIEWS OF MANAGEMENT.
IMPORTANT: PLEASE SEND IN YOUR PROXY TODAY.
YOU ARE URGED TO DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY. THIS WILL SAVE
THE EXPENSE OF FOLLOW-UP LETTERS TO SHAREHOLDERS WHO HAVE NOT RESPONDED.
VOTE VIA TELEPHONE: [INSERT TELEPHONE NUMBER]
CONTROL NUMBER: [INSERT CONTROL NUMBER]
Note: Please sign exactly as your name appears on the proxy.
If signing for estates, trusts or corporations, your title
or capacity should be stated. If shares are held jointly,
one or more joint owners should sign personally.
------------------------------------------------------------
Signature
------------------------------------------------------------
Signature
, 2009
---------------------------------------------------
Date
(Please see reverse side)
EVERY SHAREHOLDER'S VOTE IS IMPORTANT
PLEASE SIGN, DATE AND RETURN YOUR PROXY TODAY
THE BOARD OF TRUSTEES OF HSBC INVESTOR FUNDS UNANIMOUSLY RECOMMENDS THAT YOU
VOTE IN FAVOR OF PROPOSAL 1(A).
FOR AGAINST ABSTAIN
PROPOSAL 1(A). To approve an Agreement and Plan of [] [] []
Reorganization providing for the (i) transfer of
substantially all of the assets of the HSBC Investor
Core Plus Fixed Income Fund, a series of HSBC
Investor Funds, to the Franklin Total Return Fund
(subject to the retention of certain assets to
discharge liabilities) in exchange solely for Class
A and Class C shares of beneficial interest of the
Franklin Total Return Fund, and (ii) distribution of
such shares to Class A, Class B, and Class C
shareholders of the HSBC Investor Core Plus Fixed
Income Fund in connection with its liquidation.
IMPORTANT: PLEASE SIGN AND MAIL IN YOUR PROXY...TODAY
PLEASE SIGN AND PROMPTLY RETURN IN THE ACCOMPANYING ENVELOPE. NO POSTAGE IS
REQUIRED IF MAILED IN THE U.S.
EVERY SHAREHOLDER'S VOTE IS IMPORTANT
PLEASE SIGN, DATE AND RETURN YOUR
PROXY TODAY
PROXY PROXY
SPECIAL MEETING OF SHAREHOLDERS
HSBC INVESTOR CORE PLUS FIXED INCOME FUND,
A SERIES OF HSBC ADVISOR FUNDS TRUST
AUGUST 24, 2009
The undersigned hereby revokes all previous proxies for his/her shares of HSBC
Investor Core Plus Fixed Income Fund ("Core Plus Fixed Income Fund") and
appoints [Insert names], and each of them, proxies of the undersigned with full
power of substitution to vote all shares of Core Plus Fixed Income Fund that the
undersigned is entitled to vote at Core Plus Fixed Income Fund's Special Meeting
of Shareholders ("Special Meeting") to be held at the offices of Citi Fund
Services Ohio, Inc. at 100 Summer Street, Suite 1500, Boston, Massachusetts
02110, at 10:00 a.m., Eastern Time on August 24, 2009, including any
postponements or adjournments thereof, upon the matter set forth below and
instructs them to vote upon any other matters that may properly be acted upon at
the Special Meeting.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF HSBC ADVISOR FUNDS
TRUST (THE "TRUST") ON BEHALF OF CORE PLUS FIXED INCOME FUND. IT WILL BE VOTED
AS SPECIFIED. IF NO SPECIFICATION IS MADE, THIS PROXY SHALL BE VOTED FOR THE
PROPOSAL REGARDING THE REORGANIZATION OF CORE PLUS FIXED INCOME FUND PURSUANT TO
THE AGREEMENT AND PLAN OF REORGANIZATION WITH FRANKLIN TOTAL RETURN FUND. IF ANY
OTHER MATTERS PROPERLY COME BEFORE THE SPECIAL MEETING TO BE VOTED ON, THE PROXY
HOLDERS WILL VOTE, ACT AND CONSENT ON THOSE MATTERS IN ACCORDANCE WITH THE VIEWS
OF MANAGEMENT.
IMPORTANT: PLEASE SEND IN YOUR PROXY TODAY.
YOU ARE URGED TO DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY. THIS WILL SAVE
THE EXPENSE OF FOLLOW-UP LETTERS TO SHAREHOLDERS WHO HAVE NOT RESPONDED.
VOTE VIA THE INTERNET: [INSERT WEBSITE ADDRESS]
VOTE VIA TELEPHONE: [INSERT TELEPHONE NUMBER]
CONTROL NUMBER: [INSERT CONTROL NUMBER]
Note: Please sign exactly as your name appears on the proxy.
If signing for estates, trusts or corporations, your title
or capacity should be stated. If shares are held jointly,
one or more joint owners should sign personally.
------------------------------------------------------------
Signature
------------------------------------------------------------
Signature
, 2009
---------------------------------------------------
Date
(Please see reverse side)
EVERY SHAREHOLDER'S VOTE IS IMPORTANT
PLEASE SIGN, DATE AND RETURN YOUR PROXY TODAY
THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF PROPOSAL
1(B).
FOR AGAINST ABSTAIN
PROPOSAL 1(B). To approve an Agreement and Plan of [] [] []
Reorganization providing for the (i) transfer of
substantially all of the assets of the HSBC
Investor Core Plus Fixed Income Fund (Advisor), a
series of HSBC Advisor Funds Trust, to the Franklin
Total Return Fund (subject to the retention of
certain assets to discharge liabilities) in exchange
solely for Advisor Class shares of beneficial interest
of the Franklin Total Return Fund, and (ii)
distribution of such shares to Class I shareholders
of the HSBC Investor Core Plus Fixed Income Fund
(Advisor) in connection with its liquidation.
IMPORTANT: PLEASE SIGN AND MAIL IN YOUR PROXY...TODAY
PLEASE SIGN AND PROMPTLY RETURN IN THE ACCOMPANYING ENVELOPE. NO POSTAGE IS
REQUIRED IF MAILED IN THE U.S.
EVERY SHAREHOLDER'S VOTE IS IMPORTANT
PLEASE SIGN, DATE AND RETURN YOUR
PROXY TODAY
PROXY PROXY
SPECIAL MEETING OF SHAREHOLDERS
HSBC INVESTOR INTERMEDIATE DURATION FIXED INCOME FUND
AUGUST 24, 2009
The undersigned hereby revokes all previous proxies for his/her shares of HSBC
Investor Intermediate Duration Fixed Income Fund ("Intermediate Duration Fixed
Income Fund") and appoints [Insert names], and each of them, proxies of the
undersigned with full power of substitution to vote all shares of Intermediate
Duration Fixed Income Fund that the undersigned is entitled to vote at
Intermediate Duration Fixed Income Fund's Special Meeting of Shareholders
("Special Meeting") to be held at the offices of Citi Fund Services Ohio, Inc.
at 100 Summer Street, Suite 1500, Boston, Massachusetts 02110, at 10:00 a.m.,
Eastern Time on August 24, 2009, including any postponements or adjournments
thereof, upon the matter set forth below and instructs them to vote upon any
other matters that may properly be acted upon at the Special Meeting.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF HSBC INVESTOR
FUNDS (THE "TRUST") ON BEHALF OF INTERMEDIATE DURATION FIXED INCOME FUND. IT
WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION IS MADE, THIS PROXY SHALL BE
VOTED FOR THE PROPOSAL REGARDING THE REORGANIZATION OF INTERMEDIATE DURATION
FIXED INCOME FUND PURSUANT TO THE AGREEMENT AND PLAN OF REORGANIZATION WITH
FRANKLIN TOTAL RETURN FUND. IF ANY OTHER MATTERS PROPERLY COME BEFORE THE
SPECIAL MEETING TO BE VOTED ON, THE PROXY HOLDERS WILL VOTE, ACT AND CONSENT ON
THOSE MATTERS IN ACCORDANCE WITH THE VIEWS OF MANAGEMENT.
IMPORTANT: PLEASE SEND IN YOUR PROXY TODAY.
YOU ARE URGED TO DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY. THIS WILL SAVE
THE EXPENSE OF FOLLOW-UP LETTERS TO SHAREHOLDERS WHO HAVE NOT RESPONDED.
VOTE VIA THE INTERNET: [INSERT WEBSITE ADDRESS]
VOTE VIA TELEPHONE: [INSERT TELEPHONE NUMBER]
CONTROL NUMBER: [INSERT CONTROL NUMBER]
Note: Please sign exactly as your name appears on the proxy.
If signing for estates, trusts or corporations, your title
or capacity should be stated. If shares are held jointly,
one or more joint owners should sign personally.
------------------------------------------------------------
Signature
------------------------------------------------------------
Signature
, 2009
---------------------------------------------------
Date
(Please see reverse side)
EVERY SHAREHOLDER'S VOTE IS IMPORTANT
PLEASE SIGN, DATE AND RETURN YOUR PROXY TODAY
THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF PROPOSAL
2.
FOR AGAINST ABSTAIN
PROPOSAL 2. To approve an Agreement and Plan of [] [] []
Reorganization providing for the (i) transfer of
substantially all of the assets of the HSBC Investor
Intermediate Duration Fixed Income Fund to the
Franklin Total Return Fund (subject to the retention
of certain assets to discharge liabilities) in exchange
solely for Class A and C and Advisor Class shares of
beneficial interest of the Franklin Total Return Fund,
and (ii) distribution of such shares to shareholders
of the HSBC Investor Intermediate Duration Fixed
Income Fund in connection with its liquidation.
IMPORTANT: PLEASE SIGN AND MAIL IN YOUR PROXY...TODAY
PLEASE SIGN AND PROMPTLY RETURN IN THE ACCOMPANYING ENVELOPE. NO POSTAGE IS
REQUIRED IF MAILED IN THE U.S.
PART B
STATEMENT OF ADDITIONAL INFORMATION
DATED JULY 20, 2009
FOR
FRANKLIN TOTAL RETURN FUND
AND
FRANKLIN NEW YORK INTERMEDIATE-TERM TAX-FREE INCOME FUND
ACQUISITION OF SUBSTANTIALLY ALL OF THE ASSETS OF
HSBC INVESTOR CORE PLUS FIXED INCOME FUND
HSBC INVESTOR CORE PLUS FIXED INCOME FUND (ADVISOR)
HSBC INVESTOR INTERMEDIATE DURATION FIXED INCOME FUND
BY AND IN EXCHANGE FOR SHARES OF
FRANKLIN TOTAL RETURN FUND
AND
ACQUISITION OF SUBSTANTIALLY ALL OF THE ASSETS OF
HSBC INVESTOR NEW YORK TAX-FREE BOND FUND
BY AND IN EXCHANGE FOR SHARES OF
FRANKLIN NEW YORK INTERMEDIATE-TERM TAX-FREE INCOME FUND
This Statement of Additional Information ("SAI") relates specifically to the
proposed acquisition of substantially all of the assets of HSBC Investor Core
Plus Fixed Income, HSBC Investor Core Plus Fixed Income (Advisor), HSBC
Investor Intermediate Duration Fixed Income and HSBC Investor New-York
Tax-Free Bond Funds (each a "Target Fund") by and in exchange for shares of
Franklin Total Return and Franklin New York Intermediate-Term Tax-Free Income
Funds (each an "Acquiring Fund") as indicated below:
- -----------------------------------------------------------------------
TARGET FUND ACQUIRING FUND
- -----------------------------------------------------------------------
HSBC Investor Core Plus Fixed Income Franklin Total Return Fund
Fund (HSBC Investor Funds)
- -----------------------------------------------------------------------
Class A Shares Class A Shares
- -----------------------------------------------------------------------
Class B Shares Class A Shares
- -----------------------------------------------------------------------
Class C Shares Class C Shares
- -----------------------------------------------------------------------
HSBC Investor Core Plus Fixed Income Franklin Total Return Fund
Fund (HSBC Advisor Funds Trust)
- -----------------------------------------------------------------------
Class I Shares Advisor Class Shares
- -----------------------------------------------------------------------
HSBC Investor Intermediate Duration Franklin Total Return Fund
Fixed Income Fund
- -----------------------------------------------------------------------
Class A Shares Class A Shares
- -----------------------------------------------------------------------
Class B Shares Class A Shares
- -----------------------------------------------------------------------
Class C Shares Class C Shares
- -----------------------------------------------------------------------
Class I Shares Advisor Class Shares
- -----------------------------------------------------------------------
HSBC Investor New York Tax-Free Bond Franklin New York
Fund Intermediate-Term Tax-Free
Income Fund
- -----------------------------------------------------------------------
Class A Shares Class A Shares
- -----------------------------------------------------------------------
Class B Shares Class A Shares
- -----------------------------------------------------------------------
Class C Shares Class C Shares
- -----------------------------------------------------------------------
Class I Shares Advisor Class Shares
- -----------------------------------------------------------------------
This SAI consists of this Cover Page and the following documents, each
of which was filed electronically with the Securities and Exchange
Commission and is incorporated by reference herein (is legally
considered to be part of this SAI):
1. Statement of Additional Information of Franklin Total Return Fund dated
March 1, 2009 as previously filed via EDGAR is incorporated herein by
reference to Franklin Investors Securities Trust's filing under Rule
485(b) [Accession No. 0000809707-09-000004] filed February 26, 2009 and
will be mailed to any shareholder who requests this SAI.
2. Statement of Additional Information of Franklin New York
Intermediate-Term Tax-Free Income Fund dated February 1, 2009 as
previously filed via EDGAR is incorporated herein by reference to
Franklin New York Tax-Free Trust's filing under Rule 485(b) [Accession
No. 0000798523-09-000004] filed January 27, 2009 and will be mailed to
any shareholder who requests this SAI.
3. Supplement dated April 1, 2009, to the Statement of Additional
Information of Franklin Total Return Fund dated March 1, 2009, as
previously filed via EDGAR is incorporated herein by reference to
Franklin Investors Securities Trust's filing under Rule 497 [Accession
No. 0000225375-09-000007] filed April 1, 2009 and will be mailed to any
shareholder who requests this SAI.
4. Supplement dated April 1, 2009, to the Statement of Additional
Information of Franklin New York Intermediate-Term Tax-Free Income Fund
dated February 1, 2009, as previously filed via EDGAR is incorporated
herein by reference to Franklin New York Tax-Free Trust's filing under
Rule 497 [Accession No. 0000225375-09-000007] filed April 1, 2009 and
will be mailed to any shareholder who requests this SAI.
5. Annual Report of Franklin Total Return Fund for the fiscal year ended
October 31, 2008 as previously filed via EDGAR is incorporated herein by
reference to Franklin Investors Securities Trust's Form N-CSR [Accession
No. 0000809707-08-000049] filed December 31, 2008 and will be mailed to
any shareholder who requests this SAI.
6. Annual Report of Franklin New York Intermediate-Term Tax-Free Income
Fund for the fiscal year ended September 30, 2008 as previously filed
via EDGAR is incorporated herein by reference to Franklin New York
Tax-Free Trust's N-CSR [Accession No. 0000798523-08-000038] filed
December 2, 2008 and will be mailed to any shareholder who requests this
SAI.
7. Semi-Annual Report of Franklin Total Return Fund for the period ended
April 30, 2009 to be incorporated herein by reference by Post-Effective
Amendment upon filing via EDGAR to Franklin Investors Securities Trust's
Form N-CSR [Accession No. [TBP] filed [TBP], 2009 and will be mailed to
any shareholder who requests this SAI.
8. Semi-Annual Report of Franklin New York Intermediate-Term Tax-Free
Income Fund for the period ended March 31, 2009 as previously filed via
EDGAR is incorporated herein by reference to Franklin New York Tax-Free
Trust's N-CSR [Accession No. Acc-no: 0000798523-09-000012] filed May
29, 2009 and will be mailed to any shareholder who requests this SAI.
9. Annual Report of HSBC Investor Core Plus Fixed Income Fund, HSBC
Investor Intermediate Duration Fixed Income Fund and HSBC Investor
New-York Tax-Free Bond Fund for the fiscal year ended October 31, 2008
as previously filed via EDGAR is incorporated herein by reference to
HSBC Investor Funds' N-CSR [Accession No. 0000930413-09-000202] filed
January 9, 2009 and will be mailed to any shareholder who requests this
SAI.
10. Annual Report of HSBC Investor Core Plus Fixed Income Fund for the
fiscal year ended October 31, 2008 as previously filed via EDGAR is
incorporated herein by reference to HSBC Advisor Funds Trust's N-CSR
[Accession No. 0000930413-09-000200] filed January 9, 2009 and will be
mailed to any shareholder who requests this SAI.
11. Semi-Annual Report of HSBC Investor Core Plus Fixed Income Fund, HSBC
Investor Intermediate Duration Fixed Income Fund and HSBC Investor
New-York Tax-Free Bond Fund for the period ended April 30, 2009 to be
incorporated herein by reference by Post-Effective Amendment upon filing
via EDGAR to HSBC Investor Funds' N-CSR [Accession No. [TBP] filed
[TBP], 2009 and will be mailed to any shareholder who requests this SAI.
12. Semi-annual Report of HSBC Investor Core Plus Fixed Income Fund for the
period ended April 30, 2009 to be incorporated herein by reference by
Post-Effective Amendment upon filing via EDGAR to HSBC Advisor Funds
Trust's N-CSR [Accession No. [TBP] filed [TBP], 2009 and will be mailed
to any shareholder who requests this SAI.
Pro Forma Financial Statements for the Franklin New York Intermediate-Term
Tax-Free Income Fund are attached hereto as Appendix I.
Pro Forma Financial Statements for the Reorganization of each of the Target
Funds except the HSBC Investor New York Tax-Free Bond Fund into the
corresponding Acquiring Funds required by Rule 11-01 of Regulation S-X have
not been prepared and included in this Form N-14 are not included since, as
of May 20, 2009 the net asset value of each such Target Fund did not exceed
ten percent of its respective Acquiring Funds' net asset value.
This SAI is not a Prospectus; you should read this SAI in conjunction with
the Prospectus/Proxy Statement dated July 20, 2009, relating to the above-
referenced transactions. You can request a copy of the Prospectus/Proxy
Statement by calling 1-800/DIAL BEN(R) or by writing to the Acquiring Funds at
P.O. Box 997151, Sacramento, CA 95899-7151.
APPENDIX I
TO THE
STATEMENT OF ADDITIONAL INFORMATION
DATED JULY 20, 2009
FRANKLIN NEW YORK INTERMEDIATE-TERM
TAX-FREE INCOME FUND
HSBC NEW YORK
TAX-FREE BOND FUND
PRO FORMA COMBINING STATEMENTS, MARCH 31, 2009
(UNAUDITED)
The following unaudited Pro Forma Combining Statements give effect to the
proposed Reorganization, accounted as if the Reorganization had occurred as
of April 1, 2008. Each Pro Forma Combining Statement has been prepared based
upon the proposed fee and expense structure after the Reorganization, as
discussed in the combined proxy statement/prospectus.
The unaudited Pro Forma Combining Statements should be read in conjunction
with the historical financial statements and notes thereto of the HSBC New
York Tax-Free Bond Fund and Franklin New York Intermediate-Term Tax-Free
Income Fund which are incorporated by reference in this Statement of
Additional Information. The Reorganization will be accounted for as a
tax-free reorganization.
FRANKLIN NEW YORK INTERMEDIATE-TERM TAX-FREE INCOME FUND
HSBC NEW YORK TAX-FREE BOND FUND
CAPITALIZATION SCHEDULE
Franklin New
Franklin New York
York Intermediate-Term
Intermediate- Tax-Free
Term Tax-Free Income Fund
HSBC New York Income Fund After
Tax-Free Bond (unaudited) Transaction
Fund ----------- (1)
(unaudited) (unaudited)
---------- -----------
Net assets (all classes) $42,088,067 $350,775,531 $392,863,598
Shares outstanding (all
classes) 3,934,895 32,973,456 36,929,017
Class A net assets $23,258,382 $321,384,897 $348,559,371
Class A shares outstanding 2,174,452 30,215,834 32,769,826
Class A net asset value per
share $10.70 $10.64 $10.64
Class B net assets $3,916,092 - -
Class B shares outstanding 366,455 - -
Class B net asset value per
share $10.69 - -
Class C net assets $477,309 $29,093,667 $29,570,976
Class C shares outstanding 44,482 2,729,706 2,774,482
Class C net asset value per
share $10.73 $10.66 $10.66
Class I net assets $14,436,284 - -
Class I shares outstanding 1,349,506 - -
Class I net asset value
per share $10.70 - -
Advisor Class net assets - $296,967 $14,733,251
Advisor Class shares
outstanding - 27,916 $1,384,710
Advisor Class net asset
value per share - $10.64 $10.64
- -------------------------------------------------------------------------------
(1) HSBC New York Tax-Free Bond Fund's Class B will be acquired by Franklin
New York Intermediate-Term Fund's Class A and HSBC New York Tax-Free Bond
Fund's Class I will be acquired by Franklin New York Intermediate-Term Fund's
Advisor Class.
FRANKLIN NEW YORK INTERMEDIATE-TERM TAX-FREE INCOME FUND
HSBC NEW YORK TAX-FREE BOND FUND
PRO FORMA COMBINING STATEMENTS, MARCH 31, 2009
(UNAUDITED)
The following unaudited Pro Forma Combining Statements give effect to the
proposed Reorganization, accounted as if the Reorganization had occurred as of
April 1, 2008. Each Pro Forma Combining Statement has been prepared based upon
the proposed fee and expense structure after the Reorganization, as discussed in
the combined proxy statement/prospectus.
The unaudited Pro Forma Combining Statements should be read in conjunction with
the historical financial statements and notes thereto of the HSBC New York
Tax-Free Bond Fund and Franklin New York Intermediate-Term Tax-Free Income Fund
which are incorporated by reference in this Statement of Additional Information.
The Reorganization will be accounted for as a tax-free reorganization.
FRANKLIN NEW YORK INTERMEDIATE-TERM TAX-FREE INCOME FUND
HSBC NEW YORK TAX-FREE BOND FUND
CAPITALIZATION SCHEDULE
FRANKLIN NEW YORK
INTERMEDIATE-TERM
FRANKLIN NEW YORK TAX-FREE INCOME
HSBC NEW YORK TAX- INTERMEDIATE-TERM FUND AFTER
FREE BOND FUND TAX-FREE INCOME FUND TRANSACTION (1)
(UNAUDITED) (UNAUDITED) (UNAUDITED)
------------------ -------------------- -----------------
Net assets (all classes) $42,088,067 $350,775,531 $392,863,598
Shares outstanding (all classes) 3,934,895 32,973,456 36,929,017
Class A net assets $23,258,382 $321,384,897 $348,559,371
Class A shares outstanding 2,174,452 30,215,834 32,769,826
Class A net asset value per share $ 10.70 $ 10.64 $ 10.64
Class B net assets $ 3,916,092
Class B shares outstanding 366,455
Class B net asset value per share $ 10.69
Class C net assets $ 477,309 $ 29,093,667 $ 29,570,976
Class C shares outstanding 44,482 2,729,706 2,774,482
Class C net asset value per share $ 10.73 $ 10.66 $ 10.66
Class I net assets $14,436,284
Class I shares outstanding 1,349,506
Class I net asset value per share $ 10.70
Advisor Class net assets $ 296,967 $ 14,733,251
Advisor Class shares outstanding 27,916 1,384,710
Advisor Class net asset value per share $ 10.64 $ 10.64
(1) HSBC New York Tax-Free Bond Fund's Class B will be acquired by Franklin New
York Intermediate-Term Fund's Class A and HSBC New York Tax-Free Bond
Fund's Class I will be acquired by Franklin New York Intermediate-Term
Fund's Advisor Class.
FRANKLIN NEW YORK INTERMEDIATE-TERM TAX-FREE INCOME FUND
HSBC NEW YORK TAX-FREE BOND FUND
PRO FORMA COMBINING STATEMENTS OF INVESTMENTS, MARCH 31, 2009 (UNAUDITED)
FRANKLIN NEW YORK
FRANKLIN NEW YORK INTERMEDIATE-TERM
INTERMEDIATE-TERM TAX-FREE HSBC NEW YORK TAX-FREE INCOME FUND
INCOME FUND TAX-FREE BOND FUND PRO FORMA COMBINED
(UNAUDITED) (UNAUDITED) (UNAUDITED)
--------------------------- ----------------------- --------------------------
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
----------- ------------- --------- ----------- ----------- ------------
MUNICIPAL BONDS 98.1%
NEW YORK 88.7%
Albany County Airport Authority Revenue,
Series B, FSA Insured, 4.75%, 12/15/13 $ 1,850,000 $ 1,876,326 $ 1,850,000 $ 1,876,326
Albany IDA Civic Facility Revenue,
Albany Medical Center Project, 5.75%,
5/01/09 275,000 274,706 275,000 274,706
St. Peter's Hospital Project, Series A,
5.75%, 11/15/22 4,090,000 3,722,309 4,090,000 3,722,309
St. Rose Project, Series A, AMBAC Insured,
Pre-Refunded, 5.00%, 7/01/12 420,000 462,189 420,000 462,189
Amherst IDA Civic Facility Revenue,
Mandatory Put 10/01/11, Refunding, Series
A, Radian Insured, 4.20%, 10/01/31 4,145,000 4,062,349 4,145,000 4,062,349
University of Buffalo Foundation, Student
Housing, Creekside Project, Series A,
AMBAC Insured, 4.625%, 8/01/16 1,030,000 1,089,235 1,030,000 1,089,235
Bath Central School District GO,
FSA Insured, Pre-Refunded, 5.10%, 6/15/13 775,000 782,394 775,000 782,394
Refunding, FGIC Insured, 4.00%, 6/15/19 1,850,000 1,855,975 1,850,000 1,855,975
Buffalo GO,
Refunding, Series C, FGIC Insured, 5.25%,
12/01/15 1,225,000 1,286,924 1,225,000 1,286,924
Series E, FSA Insured, Pre-Refunded,
5.35%, 12/01/12 880,000 917,682 880,000 917,682
Byram Hills Central School District GO, ETM,
4.00%, 11/15/10 1,375,000 1,446,665 1,375,000 1,446,665
Canisteo Central School District GO,
Refunding, FSA Insured, 4.25%, 6/15/14 1,080,000 1,140,815 1,080,000 1,140,815
Clarence Central School District GO,
Refunding, FSA Insured, 4.75%, 5/15/15 2,390,000 2,535,455 2,390,000 2,535,455
Connetquot Central School District Islip GO,
Series B, FSA Insured, 4.40%, 6/15/16 1,000,000 1,027,070 1,000,000 1,027,070
Dansville Central School District GO,
Refunding, Series B, FGIC Insured,
4.25%, 6/15/11 930,000 984,712 930,000 984,712
4.35%, 6/15/12 870,000 933,049 870,000 933,049
4.45%, 6/15/13 995,000 1,059,655 995,000 1,059,655
Erie County GO,
FGIC Insured, 4.70%, 11/01/12 585,000 591,768 585,000 591,768
Public Improvement, Series A, FGIC Insured,
5.625%, 10/01/12 1,000,000 1,025,640 1,000,000 1,025,640
Erie County Water Authority Water Revenue,
Refunding, 5.00%, 12/01/17 1,935,000 2,173,218 1,935,000 2,173,218
Fayetteville-Manlius Central School District
GO, Refunding, FGIC Insured, 4.50%,
6/15/15 1,095,000 1,156,736 1,095,000 1,156,736
Fredonia Central School District GO, FGIC
Insured, ETM, 4.125%, 6/01/09 1,000,000 1,006,040 1,000,000 1,006,040
Guilderland Central School District,
Refunding, Series A, FSA Insured, 4.00%,
5/15/10 1,260,000 1,306,015 1,260,000 1,306,015
Harborfields Central School District
Greenlawn GO, FSA Insured, Pre-Refunded,
5.00%, 6/01/17 2,105,000 2,291,166 2,105,000 2,291,166
Highland Central School District GO,
Refunding, FSA Insured, 4.125%, 6/15/16 1,080,000 1,119,442 1,080,000 1,119,442
Holland Patent Central School District GO,
MBIA Insured, ETM, 4.25%,
6/15/09 1,125,000 1,133,831 1,125,000 1,133,831
6/15/10 1,125,000 1,176,795 1,125,000 1,176,795
Huntington GO, Public Improvement, 4.20%,
9/01/13 1,230,000 1,266,051 1,230,000 1,266,051
Islip Union Free School District No. 002 GO,
Refunding, FGIC Insured, 5.00%, 7/01/18 2,215,000 2,381,789 2,215,000 2,381,789
Long Island Power Authority Electric System
Revenue,
General, Refunding, Series A, FGIC Insured,
5.00%, 12/01/19 5,000,000 5,160,550 5,000,000 5,160,550
Refunding, Series 8, AMBAC Insured, 5.25%,
4/01/09 2,000,000 2,000,000 2,000,000 2,000,000
Long Island Power Authority Electrical
Systems Revenue, 5.00%, 12/1/22, Callable
12/1/16 @ 100 500,000 499,720 500,000 499,720
Madison County IDA Civic Facility Revenue,
Morrisville State College Foundation,
Series A, CIFG Insured, 5.00%, 6/01/15 1,000,000 1,082,440 1,000,000 1,082,440
Metropolitan Transportation Authority
Revenue,
5.50%, 1/1/19, (MBIA Insured), Callable
7/1/12 @ 100 480,000 495,058 480,000 495,058
5.00%, 11/15/32, (FSA Insured), Callable
11/15/12 @ 100 1,625,000 1,570,270 1,625,000 1,570,270
Middle Country Central School District at
Centereach GO, FSA Insured, 4.75%, 6/01/17 1,650,000 1,694,946 1,650,000 1,694,946
Monroe County Airport Authority Revenue,
5.63%, 1/1/10, AMT, (MBIA Insured) 1,240,000 1,261,018 1,240,000 1,261,018
5.75%, 1/1/14, AMT, (MBIA Insured) 750,000 761,423 750,000 761,423
Monroe County GO, Public Improvement, FGIC
Insured, 4.30%, 3/01/13 3,015,000 3,071,079 3,015,000 3,071,079
Montgomery Otsego Schoharie Counties Solid
Waste Management Authority Revenue,
Refunding, MBIA Insured, 4.00%, 1/01/13 1,920,000 2,057,107 1,920,000 2,057,107
MTA Service Contract Revenue, Refunding,
Series A, 5.50%, 7/01/15 5,000,000 5,468,250 5,000,000 5,468,250
MTA Transit Facilities Revenue,
Series A, Pre-Refunded, 6.00%, 7/01/15 1,500,000 1,520,790 1,500,000 1,520,790
Series C, FSA Insured, Pre-Refunded, 4.75%,
7/01/16 1,370,000 1,525,673 1,370,000 1,525,673
Series C, FSA Insured, Pre-Refunded, 4.75%,
7/01/16 545,000 597,538 545,000 597,538
Nassau County GO, Refunding, Series A, FGIC
Insured, 6.00%, 7/01/11 1,000,000 1,090,560 1,000,000 1,090,560
Nassau County Interim Finance Authority
Revenue, Sales Tax Secured, Refunding,
Series H, AMBAC Insured, 5.25%, 11/15/17 1,500,000 1,653,645 1,500,000 1,653,645
Nassau Health Care Corp. Health System
Revenue, Nassau County Guaranteed, FSA
Insured, Pre-Refunded, 6.00%, 8/01/10 1,000,000 1,037,370 1,000,000 1,037,370
New York Bridge Authority Revenue, General,
4.125%, 1/01/13 4,000,000 4,200,600 4,000,000 4,200,600
New York City GO,
5.00%, 8/1/14 200,000 215,814 200,000 215,814
5.00%, 8/1/15 325,000 347,188 325,000 347,188
5.00%, 8/1/17 500,000 530,740 500,000 530,740
Refunding, Series F, 5.25%, 8/01/13 1,095,000 1,147,823 1,095,000 1,147,823
Refunding, Series G, XLCA Insured, 5.50%,
8/01/12 2,000,000 2,186,360 2,000,000 2,186,360
Series C, 5.00%, 8/1/16, (MBIA Insured),
Callable 8/1/15 @ 100 500,000 529,570 500,000 529,570
Series E, 5.00%, 8/01/19 3,000,000 3,109,380 3,000,000 3,109,380
Series H, 4.125%, 8/01/11 1,560,000 1,625,567 1,560,000 1,625,567
Sub Series L-1, 5.00%, 4/01/23 10,000,000 10,050,300 10,000,000 10,050,300
New York City Health and Hospital Corp.
Revenue, Health System,
Refunding, Series A, AMBAC Insured, 4.60%,
2/15/12 1,000,000 1,009,410 1,000,000 1,009,410
Series A, FSA Insured, 4.15%, 2/15/12 750,000 786,983 750,000 786,983
Series A, FSA Insured, 4.30%, 2/15/13 1,000,000 1,042,420 1,000,000 1,042,420
New York City Housing Development Corp.
Revenue, 5.60%, 11/1/19, AMT, Callable
11/1/09 @ 101 100,000 101,442 100,000 101,442
New York City IDA Civic Facility Revenue,
Institute of International Education Inc.
Project, 5.125%, 9/01/16 2,320,000 2,416,187 2,320,000 2,416,187
USTA National Tennis Center, 5.00%,
11/15/19, (FSA Insured), Callable 5/1/13
@ 100 1,000,000 1,056,520 1,000,000 1,056,520
New York City IDAR,
Capital Appreciation, Yankee Stadium,
Pilot, Assured Guaranty, zero cpn.,
3/01/21 10,150,000 5,136,915 10,150,000 5,136,915
Queens Baseball Stadium, 5.00%, 1/1/18,
(AMBAC Insured), Callable 1/1/17 @ 100 550,000 527,368 550,000 527,368
New York City Municipal Water Finance
Authority,
5.13%, 6/15/30, Callable 6/15/18 @ 100 1,000,000 999,280 1,000,000 999,280
5.00%, 6/15/34, Callable 6/15/13 @ 100 1,250,000 1,218,437 1,250,000 1,218,437
5.00%, 6/15/36, Callable 12/15/14 @ 100 1,000,000 970,980 1,000,000 970,980
New York City Transitional Finance Authority
Building Aid Revenue,
5.00%, 7/15/18, (FGIC Insured), Callable
1/15/17 @ 100 550,000 569,547 550,000 569,547
5.00%, 7/15/36, (FGIC Insured), Callable
1/15/17 @ 100 1,000,000 943,150 1,000,000 943,150
Fiscal 2009, Series S-3, 5.00%, 1/15/22 11,865,000 11,853,016 11,865,000 11,853,016
New York City Transitional Finance Authority
Revenue,
5.25%, 5/1/17, Callable 5/1/11 @ 100 400,000 424,844 400,000 424,844
5.00%, 11/1/22, Callable 5/1/17 @ 100 160,000 166,774 160,000 166,774
5.25%, 2/1/29, Callable 2/1/11 @ 100 1,540,000 1,594,870 1,540,000 1,594,870
Future Tax Secured, Series A, 4.75%,
11/15/13 1,000,000 1,012,860 1,000,000 1,012,860
Future Tax Secured, Series B, 4.75%,
11/01/16 2,200,000 2,224,794 2,200,000 2,224,794
Future Tax Secured, Series B, Pre-Refunded,
6.00%, 11/15/13 1,000,000 1,071,690 1,000,000 1,071,690
sub. bond, Future Tax Secured, Refunding,
Series B, 5.00%, 11/01/23 5,000,000 5,208,850 5,000,000 5,208,850
New York Convention Center Development Corp.
Revenue, Hotel Unit Fee Secured, AMBAC
Insured, 5.00%, 11/15/20 5,775,000 5,958,356 5,775,000 5,958,356
New York State Dormitory Authority Lease
Revenue,
Delaware Chenango Madison Otsego Board of
Cooperative Education Services, XLCA
Insured, 5.00%, 8/15/21 5,340,000 5,650,094 5,340,000 5,650,094
State University Dormitory Facilities,
Series A, Pre-Refunded, 5.50%, 7/01/12 1,815,000 1,946,660 1,815,000 1,946,660
New York State Dormitory Authority Revenue,
Department of Health, 5.25%, 7/1/16,
Callable 7/1/14 @ 100 500,000 524,710 500,000 524,710
Fashion Institute, 5.25%, 7/1/22, (FGIC
Insured) 1,250,000 1,259,400 1,250,000 1,259,400
Master Boces PG, 5.25%, 8/15/19, (FSA
Insured), Callable 8/15/12 @ 100 1,000,000 1,066,980 1,000,000 1,066,980
Mental Health, 5.00%, 2/15/15, (FGIC
Insured) 1,245,000 1,315,405 1,245,000 1,315,405
Mount St. Mary College, Radian Insured,
4.00%, 7/01/12 2,080,000 2,002,624 2,080,000 2,002,624
New York University, 5.50%, 7/1/18, (AMBAC
Insured) 500,000 568,250 500,000 568,250
NYSARC, Inc., 5.25%, 7/1/18, (FSA Insured),
Callable 7/1/12 @ 101 1,460,000 1,567,602 1,460,000 1,567,602
Sloan Kettering Institute, 5.50%, 7/1/23,
(MBIA Insured) 1,300,000 1,395,823 1,300,000 1,395,823
St. Johns University, 5.00%, 7/1/24, (MBIA
Insured), Callable 7/1/17 @ 100 1,000,000 1,009,350 1,000,000 1,009,350
State Personal Income Tax Revenue, 5.00%,
3/15/23, Callable 3/15/15 @ 100 1,000,000 1,029,210 1,000,000 1,029,210
Teachers College, MBIA Insured, 4.00%,
7/01/12 1,000,000 1,077,870 1,000,000 1,077,870
University of Rochester, 5.00%, 7/1/22,
Callable 1/1/17 @100 500,000 504,440 500,000 504,440
New York State Dormitory Authority Revenues,
City University, Refunding, Series F, FGIC
Insured, 5.75%, 7/01/09 450,000 454,689 450,000 454,689
Department of Health, Refunding, Series 2,
5.00%, 7/01/19 3,740,000 3,800,027 3,740,000 3,800,027
Department of Health, Refunding, Sub Series
2, FGIC Insured, 5.00%, 7/01/18 5,000,000 5,260,700 5,000,000 5,260,700
Hospital, Insured, Mortgage, Series A, FSA
Insured, 5.25%, 8/15/15 5,000,000 5,455,200 5,000,000 5,455,200
Hospital, Maimonides, MBIA Insured, 5.00%,
8/01/17, 1,720,000 1,827,139 1,720,000 1,827,139
Hospital, Maimonides, MBIA Insured, 5.00%,
8/01/19, 1,895,000 1,974,855 1,895,000 1,974,855
Mandatory Put 5/15/12, Refunding, Series B,
5.25%, 11/15/23 2,000,000 2,112,100 2,000,000 2,112,100
Montefiore Hospital, FGIC Insured, 5.00%,
2/01/18 2,975,000 3,142,373 2,975,000 3,142,373
New York State Department of Health,
Refunding, 5.25%, 7/01/17 5,000,000 5,232,500 5,000,000 5,232,500
Non-State Supported Debt, Bishop Henry B.
Hucles Nursing, 5.00%, 7/01/24 4,765,000 4,526,512 4,765,000 4,526,512
Non-State Supported Debt, Mount Sinai
School Medical New York University,
Refunding, MBIA Insured, 5.00%, 7/01/19 2,500,000 2,683,025 2,500,000 2,683,025
Non-State Supported Debt, Mount Sinai
School Medical New York University,
Refunding, MBIA Insured, 5.00%, 7/01/20 3,670,000 3,898,861 3,670,000 3,898,861
Non-State Supported Debt, Municipal Health
Facilities, Lease, Refunding, Sub Series
2-2, 5.00%, 1/15/21 6,675,000 7,063,485 6,675,000 7,063,485
Non-State Supported Debt, New York
University, Series A, AMBAC Insured,
5.00%, 7/01/23 2,000,000 2,077,880 2,000,000 2,077,880
Non-State Supported Debt, North Shore L.I.
Jewish Obligation Group, Series A,
5.00%, 5/01/23 2,000,000 1,798,240 2,000,000 1,798,240
Non-State Supported Debt, School District
Bond Financing Program, Series C,
Assured Guaranty, 7.25%, 10/01/28 7,615,000 8,730,064 7,615,000 8,730,064
(a) Non-State Supported Debt, School Districts,
Financing Program, Series A, Assured
Guaranty, 5.00%, 10/01/24 5,000,000 5,044,700 5,000,000 5,044,700
Office of General Services, MBIA Insured,
Pre-Refunded, 5.00%, 4/01/18 2,000,000 2,020,000 2,000,000 2,020,000
Secured Hospital, Catskill Regional,
Refunding, FGIC Insured, 5.25%, 2/15/18 2,300,000 2,465,048 2,300,000 2,465,048
St. John's University, Series A, MBIA
Insured, 5.00%, 7/01/14 750,000 800,468 750,000 800,468
State Supported Debt, FSA Insured, 5.00%,
2/15/19 5,470,000 5,672,663 5,470,000 5,672,663
State Supported Debt, FSA Insured, 5.00%,
2/15/20 3,500,000 3,594,640 3,500,000 3,594,640
State Supported Debt, FSA Insured, 5.00%,
2/15/21 5,475,000 5,560,629 5,475,000 5,560,629
State Supported Debt, Lease, State
University Dormitory Facilities, Series
A, MBIA Insured, 5.00%, 7/01/21 1,980,000 2,009,898 1,980,000 2,009,898
State Supported Debt, Lease, State
University Dormitory Facilities, Series
A, MBIA Insured, 5.00%, 7/01/22 1,730,000 1,744,515 1,730,000 1,744,515
State University Educational Facilities,
Third General Resolution, Refunding,
Series A, MBIA Insured, 5.50%, 5/15/21 7,000,000 7,479,080 7,000,000 7,479,080
University of Rochester, Series A,
Pre-Refunded, 5.25%, 7/01/21 500,000 579,425 500,000 579,425
New York State Dormitory Authority State
Personal Income Tax Revenue, Education,
Series D, 5.00%, 3/15/14 1,000,000 1,109,800 1,000,000 1,109,800
New York State Energy Research and
Development Authority PCR, New York State
Electric and Gas Corp. Project,
MBIA Insured, 4.10%, 3/15/15 2,000,000 2,015,260 2,000,000 2,015,260
Series B, MBIA Insured, 4.00%, 10/15/15 5,000,000 5,056,650 5,000,000 5,056,650
Series D, MBIA Insured, 4.10%, 12/01/15 2,000,000 2,024,020 2,000,000 2,024,020
New York State Environmental Facilities
Corp.,
5.70%, 1/15/14, Callable 7/15/09 @ 101 415,000 424,084 415,000 424,084
5.70%, 1/15/14, Pre-refunded 7/15/09 @ 101 15,000 15,382 15,000 15,382
New York State Environmental Facilities
Corp. State Clean Water and Drinking
Revenue, Revolving Funds, Series B,
5.80%, 1/15/16 1,010,000 1,029,756 1,010,000 1,029,756
Pre-Refunded, 5.80%, 1/15/16 1,490,000 1,527,980 1,490,000 1,527,980
New York State Mortgage Agency Revenue,
5.60%, 10/1/14, AMT, Callable 9/1/09 @
100.75 1,000,000 1,005,210 1,000,000 1,005,210
New York State Municipal Bond Bank Revenue,
5.50%, 12/1/12 850,000 935,518 850,000 935,518
New York State Thruway Authority General
Revenue, Series F, AMBAC Insured, 5.00%,
1/01/22 6,535,000 6,735,036 6,535,000 6,735,036
New York State Thruway Authority Highway and
Bridge Trust Fund Revenue,
General, Second, Refunding, Series B, AMBAC
Insured, 5.00%, 4/01/21 5,000,000 5,196,500 5,000,000 5,196,500
General, Second, Series B, 5.00%, 4/01/18 5,000,000 5,413,250 5,000,000 5,413,250
Series A, FSA Insured, 5.25%, 4/01/12 1,620,000 1,779,732 1,620,000 1,779,732
New York State Thruway Authority Revenue,
Personal Income Tax Revenue, 5.00%,
3/15/21, (MBIA Insured), Callable
3/15/13 @ 100 500,000 518,690 500,000 518,690
Second General Highway & Bridge, 5.00%,
4/1/22, (MBIA Insured), Callable 4/1/14
@ 100 1,000,000 1,042,800 1,000,000 1,042,800
New York State Urban Development Corp.
Revenue,
5.00%, 3/15/21, (FSA Insured), Callable
3/15/15 @ 100 1,000,000 1,054,350 1,000,000 1,054,350
5.13%, 1/1/22, Callable 7/1/14 @ 100 885,000 897,735 885,000 897,735
5.75%, 4/1/12 500,000 551,410 500,000 551,410
State Personal Income Tax, Series A-1,
5.00%, 12/15/22 1,500,000 1,587,345 1,500,000 1,587,345
State Personal Income Tax, Series A-1,
5.00%, 12/15/23 2,500,000 2,621,275 2,500,000 2,621,275
State Personal Income Tax, Series C-1,
Empire State, 4.125%, 12/15/16 1,490,000 1,551,626 1,490,000 1,551,626
State Personal Income Tax, Series C-1,
Empire State, 4.25%, 12/15/17 1,955,000 2,026,533 1,955,000 2,026,533
North Hempstead GO, FGIC Insured,
Pre-Refunded, 6.00%, 7/15/14 1,715,000 1,759,436 1,715,000 1,759,436
Olean City School District GO, Refunding,
FGIC Insured, 4.375%, 6/15/17 1,335,000 1,371,646 1,335,000 1,371,646
Onondaga County, Water Authority Revenue,
5.00%,
9/15/14, (FSA Insured), Callable 9/15/10 @
101 300,000 317,367 300,000 317,367
9/15/15, (FSA Insured), Callable 9/15/10 @
101 665,000 702,007 665,000 702,007
Port Authority of New York & New Jersey
Revenue,
5.00%, 9/1/27, Callable 9/1/13 @ 100 795,000 801,909 795,000 801,909
5.38%, 3/1/28 1,100,000 1,144,264 1,100,000 1,144,264
Port Authority of New York & New Jersey
Special Obligation Revenue, 5.75%,
12/1/22, AMT, (MBIA Insured), Callable
12/1/09 @ 101 500,000 397,565 500,000 397,565
Rochester GO,
MBIA Insured, ETM, 4.125%, 2/15/10 520,000 536,739 520,000 536,739
Refunding, MBIA Insured, 4.125%, 2/15/10 490,000 502,402 490,000 502,402
Sales Tax Asset Receivable Corp. Revenue,
Series A, MBIA Insured, 5.25%, 10/15/18 5,000,000 5,486,700 5,000,000 5,486,700
Saratoga Springs City School District GO,
Series A, FSA Insured, 4.50%, 6/15/15 1,025,000 1,072,878 1,025,000 1,072,878
Schenectady Metroplex Development Authority
Revenue, FGIC Insured, 4.50%, 9/15/21 1,720,000 1,746,987 1,720,000 1,746,987
Suffolk County Judicial Facilities Agency
Service Agreement Revenue, John P.
Cohalan Complex, AMBAC Insured,
5.25%, 10/15/14 1,435,000 1,468,608 1,435,000 1,468,608
5.00%, 4/15/16 1,000,000 1,019,690 1,000,000 1,019,690
Suffolk County, New York GO, 5.25%, 5/1/15,
(FSA Insured) 100,000 114,535 100,000 114,535
Suffolk County Water Authority Waterworks
Revenue, sub. lien, Refunding, MBIA
Insured, 5.10%, 6/01/13 2,000,000 2,241,220 2,000,000 2,241,220
Syracuse Industrial Development Agency
Revenue, 5.00%, 1/1/36, AMT, (XLCA
Insured), Callable 1/1/17 @ 100 1,000,000 793,850 1,000,000 793,850
Tobacco Settlement Financing Corp., 5.50%,
6/1/21, Callable 6/1/13 @ 100 1,000,000 1,008,690 1,000,000 1,008,690
Tobacco Settlement Financing Corp. Revenue,
Asset-Backed, Series A-1,
5.10%, 6/01/19 5,000,000 5,083,100 5,000,000 5,083,100
AMBAC Insured, 5.25%, 6/01/21 4,200,000 4,256,028 4,200,000 4,256,028
Upper Mohawk Valley Regional Water Finance
Authority Water System Revenue, AMBAC
Insured,
5.75%, 4/01/20 165,000 170,701 165,000 170,701
Pre-Refunded, 5.75%, 4/01/20 835,000 887,605 835,000 887,605
Webster, Central School District GO, 5.00%,
6/15/14, (FSA Insured) 500,000 560,460 500,000 560,460
Western Nassau County Water Authority Water
System Revenue, AMBAC Insured, 5.00%,
5/01/19 1,525,000 1,602,318 1,525,000 1,602,318
Yonkers, New York, 5.00%, 12/1/14, (MBIA
Insured) 750,000 754,800 750,000 754,800
Yonkers GO, Series A, AMBAC Insured, 5.00%,
12/15/14 1,795,000 1,893,743 1,795,000 1,893,743
Yorktown Central School District GO, MBIA
Insured, Pre-Refunded, 4.625%, 6/15/18 1,890,000 1,944,356 1,890,000 1,944,356
------------- ----------- ------------
310,492,344 38,065,809 348,558,153
------------- ----------- ------------
U.S. TERRITORIES 9.4%
PUERTO RICO 8.1%
Puerto Rico Commonwealth, Highway &
Transportation Authority Grant Antic
Revenue, 5.00%, 9/15/17, (MBIA Insured),
Callable 3/15/14 @ 100 1,000,000 1,054,000 1,000,000 1,054,000
Puerto Rico Commonwealth Aqueduct and Sewer
Authority Revenue, Senior Lien, Series A,
Assured Guaranty, 5.00%, 7/01/16 5,190,000 5,265,203 5,190,000 5,265,203
Puerto Rico Commonwealth GO, Public
Improvement, Assured Guaranty Insured,
5.25%, 7/01/18 1,820,000 1,849,156 1,820,000 1,849,156
Puerto Rico Commonwealth Highway and
Transportation Authority Transportation
Revenue, Refunding, Series N, Assured
Guaranty, 5.50%, 7/01/21 4,000,000 4,158,840 4,000,000 4,158,840
Puerto Rico Commonwealth Infrastructure
Financing Authority Special Tax Revenue,
Refunding, Series C, BHAC Insured, 5.50%,
7/01/20 11,550,000 13,005,416 11,550,000 13,005,416
Puerto Rico Electric Power Authority Power
Revenue, 5.25%, 7/1/22, (MBIA Insured) 1,000,000 894,900 1,000,000 894,900
Puerto Rico Industrial Tourist Educational
Medical and Environmental Control
Facilities Financing Authority Revenue,
Ana G. Mendez University System Project,
5.00%,
3/01/16 2,605,000 2,187,835 2,605,000 2,187,835
3/01/21 2,555,000 1,900,077 2,555,000 1,900,077
Puerto Rico Public Buildings Authority
Revenue, 5.25%, 7/1/33, (Commonwealth
Guaranteed),
Callable 7/1/14 @ 100 690,000 528,927 690,000 528,927
Pre-refunded 7/1/14 @ 100 10,000 11,271 10,000 11,271
Puerto Rico Public Finance Corp. Revenue,
5.25%, 8/1/29, (MBIA Insured), Callable
7/1/10 @ 101 1,000,000 974,310 1,000,000 974,310
------------- ----------- ------------
28,366,527 3,463,408 31,829,935
------------- ----------- ------------
VIRGIN ISLANDS 1.3%
Virgin Islands PFAR, Virgin Islands Matching
Fund Loan Notes, senior lien, Refunding,
Series A, 5.30%, 10/01/11 3,000,000 3,007,620 3,000,000 3,007,620
Virgin Islands Water and Power Authority
Electric System Revenue, Refunding,
5.125%, 7/01/13 1,775,000 1,759,203 1,775,000 1,759,203
Virgin Islands Water and Power Authority
Water System Revenue, Refunding, 5.00%,
7/01/09 200,000 198,496 200,000 198,496
------------- ----------- ------------
4,965,319 4,965,319
------------- ----------- ------------
TOTAL U.S. TERRITORIES 33,331,846 3,463,408 36,795,254
------------- ----------- ------------
TOTAL MUNICIPAL BONDS BEFORE SHORT TERM
INVESTMENTS (COST $383,678,598) 343,824,190 41,529,217 385,353,407
------------- ----------- ------------
SHORT TERM INVESTMENTS 1.7%
MUNICIPAL BONDS 1.6%
NEW YORK 1.6%
(b) New York City IDAR, Liberty, One Bryant
Park LLC, Series B, Daily VRDN and Put,
0.35%, 11/01/39 1,700,000 1,700,000 1,700,000 1,700,000
(b) New York City Municipal Water Finance
Authority Water and Sewer System Revenue,
Refunding, Series B, Sub Series B-3, Daily
VRDN and Put, 0.30%, 6/15/25 3,850,000 3,850,000 3,850,000 3,850,000
Second General Resolution, Refunding,
Series CC, Sub Series CC-1, Daily VRDN
and Put, 0.30%, 6/15/38 800,000 800,000 800,000 800,000
------------- ------------
6,350,000 6,350,000
------------- ------------
MUTUAL FUNDS 0.1% SHARES SHARES
(c) BlackRock Liquidity New York Money Fund,
Portfolio Institutional Shares, 0.60% 216,189 216,189 216,189 216,189
(c) Northern Institutional Diversified Assets
Portfolio, Shares Class, 0.46% 530 530 530 530
----------- ------------
216,719 216,719
----------- ------------
TOTAL SHORT TERM INVESTMENTS (COST
$6,566,719) 6,350,000 216,719 6,566,719
------------- ----------- ------------
TOTAL INVESTMENTS (COST $390,245,317) 99.8% 350,174,190 41,745,936 391,920,126
OTHER ASSETS, LESS LIABILITIES 0.2% 601,341 342,131 943,472
------------- ----------- ------------
NET ASSETS 100.0% $ 350,775,531 $42,088,067 $392,863,598
============= =========== ============
FOOTNOTE LEGEND
(a) Security purchased on a when-issued basis.
(b) Variable rate demand notes (VRDNs) are tax-exempt obligations which contain
a floating or variable interest rate adjustment formula and an
unconditional right of demand to receive payment of the principal balance
plus accrued interest at specified dates. The coupon rate shown represents
the rate at period end.
(c) The rate shown is the annualized seven-day yield at period end.
ABBREVIATION LEGEND
AMBAC - American Municipal Bond Assurance Corp.
AMT - Interest on security is subject to federal alternative minimum tax
BHAC - Berkshire Hathaway Housing Assurance Corp.
CIFG - CDC IXIS Financial Guaranty
COP - Certificate of Participation
ETM - Escrow to Maturity
FGIC - Financial Guaranty Insurance Co.
FSA - Financial Security Assurance Inc.
GO - General Obligation
IDA - Industrial Development Authority/Agency
IDAR - Industrial Development Authority Revenue
MBIA - Municipal Bond Investors Assurance Corp.
MTA - Metropolitan Transit Authority
PCR - Pollution Control Revenue
PFAR - Public Financing Authority Revenue
XLCA - XL Capital Assurance
See notes to Pro Forma combining statements
FRANKLIN NEW YORK INTERMEDIATE-TERM TAX-FREE INCOME FUND
HSBC NEW YORK TAX-FREE BOND FUND
FINANCIAL STATEMENTS
PRO FORMA COMBINING STATEMENT OF ASSETS AND LIABILITIES
AS OF MARCH 31, 2009 (UNAUDITED)
FRANKLIN
NEW YORK
INTERMEDIATE-
FRANKLIN NEW YORK TERM TAX-FREE
INTERMEDIATE-TERM HSBC NEW YORK INCOME FUND
TAX-FREE INCOME TAX-FREE BOND PRO FORMA PRO FORMA
FUND FUND ADJUSTMENTS COMBINED
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
----------------- -------------- ------------ --------------
Assets:
Investments in securities:
Cost $ 348,059,836 $ 42,185,481 $ 390,245,317
============= ============ ==============
Value 350,174,190 41,745,936 391,920,126
Cash 159,430 -- 159,430
Receivables:
Capital shares sold 1,730,004 93,168 1,823,172
Dividends 175 175
Interest 4,573,392 514,474 5,087,866
Other Assets 672 7,346 8,018
------------- ------------ --------------
Total assets 356,637,688 42,361,099 398,998,787
------------- ------------ --------------
Liabilities:
Payables:
Investment securities purchased 4,904,850 -- 4,904,850
Capital shares redeemed 274,034 89,120 363,154
Affiliates 235,963 18,509 254,472
Distributions to shareholders 384,540 133,968 518,508
Accrued expenses and other liabilities 62,770 31,435 94,205
------------- ------------ --------------
Total liabilities 5,862,157 273,032 6,135,189
------------- ------------ --------------
Net assets, at value $ 350,775,531 $ 42,088,067 $ 392,863,598
============= ============ ==============
Net assets consist of:
Paid-in-capital $ 353,522,016 $ 42,513,465 396,035,481
Undistributed net investment income (distributions in
excess of net investment income) (68,041) 295 (67,746)
Net unrealized appreciation (depreciation) 2,114,354 (439,545) 1,674,809
Accumulated net realized gain (loss) (4,792,798) 13,852 (4,778,946)
------------- ------------ --------------
Net assets, at value $ 350,775,531 $ 42,088,067 $ 392,863,598
============= ============ ==============
CLASS A:
Net assets, at value(a) $ 321,384,897 $ 23,258,382 $ 3,916,092 $ 348,559,371
============= ============ ============ ==============
Shares outstanding(a) 30,215,834 2,174,452 379,540 32,769,826
============= ============ ============ ==============
Net asset value per share(b) $ 10.64 $ 10.70 $ 10.64
============= ============ ==============
Maximum offering price per share (net asset value share /
97.75% and 95.25%, respectively) $ 10.88 $ 11.23 $ 10.88
============= ============ ==============
CLASS B:
Net assets, at value(a) -- $ 3,916,092 $ (3,916,092) --
============= ============ ============ ==============
Shares outstanding(a) -- 366,455 (366,455) --
============= ============ ============ ==============
Net asset value and maximum offering price per share(b) -- $ 10.69 --
============= ============ ==============
CLASS C:
Net assets, at value(a) $ 29,093,667 $ 477,309 $ 29,570,976
============= ============ ==============
Shares outstanding(a) 2,729,706 44,482 294 2,774,482
============= ============ ============ ==============
Net asset value and maximum offering price per share(b) $ 10.66 $ 10.73 $ 10.66
============= ============ ==============
CLASS I:
Net assets, at value(a) -- $ 14,436,284 $(14,436,284) --
============= ============ ============ ==============
Shares outstanding(a) -- 1,349,506 (1,349,506) --
============= ============ ============ ==============
Net asset value and maximum offering price per share -- $ 10.70 --
============= ============ ==============
ADVISOR CLASS:
Net assets, at value(a) $ 296,967 -- $ 14,436,284 $ 14,733,251
============= ============ ============ ==============
Shares outstanding(a) 27,916 -- 1,356,794 1,384,710
============= ============ ============ ==============
Net asset value and maximum offering price per share $ 10.64 -- $ 10.64
============= ============ ==============
(a) See note 2 in the accompanying notes to Pro Forma combining statements.
(b) Redemption price is equal to the net asset value less contingent sales
charges, if applicable.
See notes to Pro Forma combining statements
FRANKLIN NEW YORK INTERMEDIATE-TERM TAX-FREE INCOME FUND
HSBC NEW YORK TAX-FREE BOND FUND
FINANCIAL STATEMENTS
PRO FORMA COMBINING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 2009 (UNAUDITED)
FRANKLIN NEW YORK
FRANKLIN NEW YORK INTERMEDIATE-TERM
INTERMEDIATE-TERM HSBC NEW YORK TAX-FREE INCOME
TAX-FREE INCOME TAX-FREE BOND PRO FORMA FUND PRO FORMA
FUND FUND ADJUSTMENTS COMBINED
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
----------------- ------------- ----------- -----------------
Investment Income:
Dividends $ -- $ 2,284,729 $ -- $ 2,284,729
Interest 14,663,520 18,841 14,682,361
----------- ----------- ----------- -----------
Total investment income 14,663,520 2,303,570 16,967,090
----------- ----------- ----------- -----------
Expenses:
Management fees 1,764,907 127,888 94,683(a) 1,987,478
Administration 19,841 (19,841)(b)
Distribution fees:
Class A 301,061 47,415(a) 348,476
Class B -- 38,955 (38,955)(b)
Class C 124,003 3,712 (350)(a) 127,365
Transfer agent fees 167,045 140,965 (111,954)(a) 196,056
Custodian fees 4,930 3,651 (2,999)(a) 5,582
Reports to shareholders 27,318 17,820 (16,370)(a) 28,768
Registration and filing fees 39,777 4,311 44,088
Professional fees 32,587 73,404 (70,145)(a) 35,846
Trustees' fees and expenses 24,082 1,558 (1,558)(a) 24,082
Other 51,737 13,341 (13,341)(a) 51,737
----------- ----------- ----------- -----------
Total expense 2,537,447 445,446 (133,415) 2,849,478
----------- ----------- ----------- -----------
Net investment income 12,126,073 1,858,124 133,415 14,117,612
----------- ----------- ----------- -----------
Realized and unrealized gains (losses):
Net realized gain (loss) from investments (2,679,847) 138,625 (2,541,222)
Net change in unrealized appreciation (depreciation) on
investments (1,737,030) (1,420,461) (3,157,491)
----------- ----------- ----------- -----------
Net realized and unrealized gain (loss) (4,416,877) (1,281,836) (5,698,713)
----------- ----------- ----------- -----------
Net increase (decrease) in net assets resulting from
operations $ 7,709,196 $ 576,288 $ 133,415 $ 8,418,899
=========== =========== =========== ===========
(a) Reflects elimination of duplicative expenses and economies of scale as a
result of the proposed Reorganization.
(b) Pro Forma adjustment for removal of expense.
See notes to Pro Forma combining statements
NOTES TO PRO FORMA COMBINING STATEMENTS (UNAUDITED)
1. BASIS OF REORGANIZATION
Subject to approval of the proposed Agreement and Plan of Reorganization (the
"Plan") by the shareholders of the HSBC New York Tax-Free Bond Fund, the
Franklin New York Intermediate-Term Tax-Free Income Fund will acquire
substantially all the assets of the HSBC New York Tax-Free Bond Fund (subject to
the retention of certain assets to discharge liabilities) in exchange for Class
A, C and Advisor Class shares of beneficial interest of the Franklin New York
Intermediate-Term Tax-Free Income Fund and the distribution of such shares to
shareholders of the HSBC New York Tax-Free Bond Fund in connection with its
liquidation. The Reorganization will be accounted for by the method of
accounting for tax-free business combinations of investment companies. The
accompanying Pro Forma Combining Statements are presented to show the effect of
the proposed Reorganization as if such Reorganization had occurred on April 1,
2008. The Pro Forma Combining Statement of Assets and Liabilities and Statement
of Investments for the HSBC New York Tax-Free Bond Fund and the Franklin New
York Intermediate-Term Tax-Free Income Fund have been combined to reflect
balances as of March 31, 2009. The Pro Forma Combining Statement of Operations
for the HSBC New York Tax-Free Bond Fund and the Franklin New York
Intermediate-Term Tax-Free Income Fund have been combined to reflect twelve
months ended March 31, 2009. The Pro Forma Combining Statements are presented
for the information of the reader, and should be read in conjunction with the
historical financial statements of the funds.
2. SHARES OF BENEFICIAL INTEREST
The number of Class A shares issued was calculated by dividing the Class A and
Class B net assets of the HSBC New York Tax-Free Bond Fund at March 31, 2009 by
the Class A net asset value per share of the Franklin New York Intermediate-Term
Tax-Free Income Fund at March 31, 2009.
The number of Class C shares issued was calculated by dividing the Class C net
assets of the HSBC New York Tax- Free Bond Fund at March 31, 2009 by the Class C
net asset value per share of the Franklin New York Intermediate-Term Tax-Free
Income Fund at March 31, 2009.
The number of Advisor Class shares issued was calculated by dividing the Class I
net assets of the HSBC New York Tax-Free Bond Fund at March 31, 2009 by the
Advisor Class net asset value per share of the Franklin New York
Intermediate-Term Tax-Free Income Fund at March 31, 2009.
At the actual closing of the Reorganization, shareholders of the HSBC New York
Tax-Free Bond Fund will receive shares of the Franklin New York
Intermediate-Term Tax-Free Income Fund based on the relative net asset values of
the Fund as of 1:00 p.m., Pacific Time, on the Closing Date. The actual exchange
ratios may be higher or lower than those used in these pro forma statements.
3. INVESTMENT RESTRICTIONS
None of the securities held by the HSBC New York Tax-Free Bond Fund as of the
Closing Date will violate the investment restrictions of the Franklin New York
Intermediate-Term Tax-Free Income Fund.
4. ACCOUNTING ESTIMATES
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the amounts of income
and expenses during the reporting period. Actual results could differ from those
estimates.
5. SECURITY VALUATION
Municipal securities generally trade in the over-the-counter market rather than
on a securities exchange. The Franklin New York Tax-Free Trust (the "Trust") may
utilize independent pricing services, quotations from bond dealers, and
information with respect to bond and note transactions, to assist in determining
a current market value for each security. The Trust's pricing services use
valuation models or matrix pricing, which considers information with respect to
comparable bond and note transactions, quotations from bond dealers or by
reference to other securities that are considered comparable in such
characteristics as rating, interest rate and maturity date, to determine current
value.
The Trust has procedures to determine the fair value of individual securities
and other assets for which market prices are not readily available or which may
not be reliably priced. Methods for valuing these securities may include:
fundamental analysis, matrix pricing, discounts from market prices of similar
securities, or discounts applied due to the nature and duration of restrictions
on the disposition of the securities. Due to the inherent uncertainty of
valuations of such securities, the fair values may differ significantly from the
values that would have been used had a ready market for such investments
existed. Occasionally, events occur between the time at which trading in a
security is completed and the close of the NYSE that might call into question
the availability (including the reliability) of the value of a portfolio
security held by the fund. If such an event occurs, the securities may be valued
using fair value procedures, which may include the use of independent pricing
services. All security valuation procedures are approved by the Trust's Board of
Trustees.
Investments in open-end mutual funds are valued at the closing net asset value.
FRANKLIN INVESTORS SECURITIES TRUST
N-14
PART C
OTHER INFORMATION
ITEM 15. INDEMNIFICATION.
The Agreement and Declaration of Trust (the "Declaration") of Franklin
Investors Securities Trust provides that any person who is or was a Trustee,
officer, employee or other agent, including the underwriter, of such Trust
shall be liable to such Trust and its shareholders only for (1) any act or
omission that constitutes a bad faith violation of the implied contractual
covenant of good faith and fair dealing, or (2) the person's own willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of such person (such conduct referred to herein as
Disqualifying Conduct) and for nothing else. Except in these instances,
these persons shall not be responsible or liable for any act or omission of
any other agent of such Trust or its investment adviser or principal
underwriter to the fullest extent that limitations of liability are permitted
by the Delaware Statutory Trust Act (the "Delaware Act"). Moreover, except
in these instances, none of these persons, when acting in their respective
capacity as such, shall be personally liable to any other person, other than
such Trust or its shareholders, for any act, omission or obligation of such
Trust or any trustee thereof.
Franklin Investors Securities Trust shall indemnify, out of its assets, to
the fullest extent permitted under applicable law, any of these persons who
was or is a party, or is threatened to be made a party, to any Proceeding (as
defined in the Declaration) because the person is or was an agent of such
Trust. These persons shall be indemnified against any expenses, judgments,
fines, settlements and other amounts actually and reasonably incurred in
connection with the Proceeding if the person acted in good faith or, in the
case of a criminal proceeding, had no reasonable cause to believe that the
conduct was unlawful. The termination of any proceeding by judgment,
settlement or its equivalent shall not in itself create a presumption that
the person did not act in good faith or that the person had reasonable cause
to believe that the person's conduct was unlawful. There shall nonetheless
be no indemnification for a person's own Disqualifying Conduct.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to Trustees, officers and controlling
persons of the Fund pursuant to the foregoing provisions, or otherwise, the
Fund 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 Fund
of expenses incurred or paid by a Trustee, officer or controlling person of
the Fund 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 Fund may be required, 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 16. EXHIBITS.
The following exhibits are incorporated by reference to the Registrant's
previously filed registration statements on Form N-1A indicated below, except
as noted:
(1) Copies of the charter of the Registrant as now in effect.
(a) Agreement and Declaration of Trust of Franklin Investors Securities
Trust, a Delaware statutory trust dated October 18, 2006 Filing:
Post-Effective Amendment No. 43 to Registration Statement on Form N-1A
File No. 033-11444 Filing Date: February 26, 2008
(b) Certificate of Amendment of Agreement and Declaration of Trust of
Franklin Investors Securities Trust, a Delaware statutory trust, dated
October 21, 2008 Filing: Post-Effective Amendment No. 47 to Registration
Statement on Form N-1A File No. 033-11444 Filing Date: February 26, 2009
(2) Copies of the existing by-laws or corresponding instruments of the
Registrant.
(a) By-Laws of Franklin Investors Securities Trust, a Delaware statutory
trust effective as of October 18, 2006 Filing: Post-Effective Amendment
No. 43 to Registration Statement on Form N-1A File No. 033-11444 Filing
Date: February 26, 2008
(3) Copies of any voting trust agreement affecting more than 5 percent of
any class of equity securities of the Registrant.
Not Applicable.
(4) Copies of the agreement of acquisition, reorganization, merger,
liquidation and any amendments to it.
Form of Agreement and Plan of Reorganization is filed herewith as
Attachment II to Part A of this Registration Statement.
(5) Copies of all instruments defining the rights of holders of the
securities being registered, including copies, where applicable, of the
relevant portion of the articles of incorporation or by-laws of the
Registrant.
Not Applicable.
(6) Copies of all investment advisory contracts relating to the management
of the assets of the Registrant.
(a) Investment Management Agreement dated March 1, 2008 between the
Registrant on behalf of Franklin Total Return Fund and Franklin Advisers,
Inc.
Filing: Post-Effective Amendment No. 47 to Registration Statement on Form
N-1A File No. 033-11444 Filing Date: February 26, 2009
(7) 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.
(a) Distribution Agreement dated March 1, 2008 between Registrant and
Franklin/Templeton Distributors, Inc.
Filing: Post-Effective Amendment No. 47 to Registration Statement on Form
N-1A
File No. 033-11444
Filing Date: February 26, 2009
(b) Form of Selling Agreements between Franklin/Templeton Distributors,
Inc., and Securities Dealers dated November 1, 2003
Filing: Post-Effective Amendment No. 36 to Registration Statement on Form
N-1A
File No. 002-11346
Filing Date: September 3, 2004
(c) Amendment dated May 15, 2007 to form of Selling Agreement between
Franklin/Templeton Distributors, Inc., and Securities Dealers dated
November 1, 2003
Filing: Post-Effective Amendment No. 43 to Registration Statement on Form
N-1A
File No. 033-11444
Filing Date: February 26, 2008
(8) Copies of all bonus, profit sharing, pension or other similar contracts
or arrangements wholly or partly for the benefit of directors or officers
of the Registrant in their capacity as such. Furnish a reasonably
detailed description of any plan that is not set forth in a formal
document.
Not Applicable.
(9) Copies of all custodian agreements and depository contracts under
Section 17(f) of the 1940 Act [15 U.S.C. 80a-17(f)], for securities and
similar investments of the Registrant, including the schedule of
remuneration.
(a) Master Custodian Agreement between Registrant and Bank of New York dated
February 16, 1996
Filing: Post-Effective Amendment No. 11 to Registration Statement on Form
N-1A
File No. 033-31326
Filing Date: March 8, 1996
(b) Amendment dated May 7, 1997 to Master Custody Agreement between
Registrant and Bank of New York dated February 16, 1996
Filing: Post-Effective Amendment No. 17 to Registration Statement on Form
N-1A
File No. 033-31326
Filing Date: February 27, 1998
(c) Amendment dated February 27, 1998 to Master Custody Agreement between
Registrant and Bank of New York dated February 16, 1996
Filing: Post-Effective Amendment No. 21 to Registration Statement on Form
N-1A
File No. 033-31326
Filing Date: February 27, 2001
(d) Amendment dated May 16, 2001, to the Master Custody Agreement between
Registrant and Bank of New York dated February 16, 1996
Filing: Post-Effective Amendment No. 30 to Registration Statement on Form
N-1A
File No. 033-11444
Filing Date: December 19, 2001
(e) Amendment dated February 11, 2009, to Exhibit A of the Master Custody
Agreement between Registrant and Bank of New York dated February 16, 1996
Filing: Post-Effective Amendment No. 47 to Registration Statement on Form
N-1A
File No. 033-11444
Filing Date: February 26, 2009
(f) Amended and Restated Foreign Custody Manager Agreement between
Registrant and Bank of New York as of May 16, 2001
Filing: Post-Effective Amendment No. 30 to Registration Statement on Form
N-1A
File No. 033-11444
Filing Date: December 19, 2001
(g) Amendment dated February 11, 2009, to Schedule 1 of the Amended and
Restated Foreign Custody Manager Agreement between Registrant and Bank of
New York made as of May 16, 2001
Filing: Post-Effective Amendment No. 47 to Registration Statement on Form
N-1A
File No. 033-11444
Filing Date: February 26, 2009
(h) Amendment dated November 14, 2008, to Schedule 2 of the Amended and
Restated Foreign Custody Manager Agreement between Registrant and Bank of
New York made as of May 16, 2001
Filing: Post-Effective Amendment No. 47 to Registration Statement on Form
N-1A
File No. 033-11444
Filing Date: February 26, 2009
(i) Terminal Link Agreement between Registrant and Bank of New York dated
February 16, 1996
Filing: Post-Effective Amendment No. 11 to Registration Statement on Form
N-1A
File No. 033-31326
Filing Date: March 8, 1996
(10)Copies of any plan entered into by Registrant pursuant to Rule l2b-1
under the 1940 Act [17 CFR 270.12b-1] and any agreements with any person
relating to implementation of the plan, and copies of any plan entered
into by Registrant pursuant to Rule 18f-3 under the 1940 Act [17 CFR
270.18f-3], any agreement with any person relating to implementation of
the plan, any amendment to the plan, and a copy of the portion of the
minutes of the meeting of the Registrant's directors describing any
action taken to revoke the plan.
(a) Class A Distribution Plan dated March 1, 2008 pursuant to Rule 12b-1
between the Registrant, on behalf of Franklin Total Return Fund, and
Franklin/Templeton Distributors, Inc.
Filing: Post-Effective Amendment No. 47 to Registration Statement on Form
N-1A
File No. 033-11444
Filing Date: February 26, 2009
(b) Class C Distribution Plan dated March 1, 2008 pursuant to Rule 12b-1
between the Registrant, on behalf of Franklin Adjustable U.S. Government
Securities Fund, Franklin Floating Rate Daily Access Fund and Franklin
Total Return Fund, and Franklin/Templeton Distributors, Inc.
Filing: Post-Effective Amendment No. 47 to Registration Statement on Form
N-1A
File No. 033-11444
Filing Date: February 26, 2009
(c) Multiple Class Plan dated October 17, 2006 on behalf of Franklin Total
Return Fund
Filing: Post-Effective Amendment No. 47 to Registration Statement onForm
N-1A
File No. 033-11444
Filing Date: February 26, 2009
(11) 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 non-assessable.
(a) Opinion and Consent of Counsel dated June 17, 2009, filed herewith
(12) An opinion, and consent to their use, of counsel or, in lieu of an
opinion, a copy of the revenue ruling from the Internal Revenue Service,
supporting the tax matters and consequences to shareholders discussed in
the prospectus.
(a) Opinion and Consent of Counsel to be filed by Post-Effective Amendment
to this Registration Statement on Form N-14
(13) Copies of all material contracts of the Registrant not made in the
ordinary course of business which are to be performed in whole or in part
on or after the date of filing the registration statement.
(a) Fund Administration Agreement dated March 1, 2008 between Registrant, on
behalf of Franklin Total Return Fund, and Franklin Templeton Services, LLC
Filing: Post-Effective Amendment No. 47 to Registration Statement on Form
N-1A
File No. 033-11444
Filing Date: February 26, 2009
(14) Copies of any other opinions, appraisals or rulings, and consents to
their use relied on in preparing the registration statement and required
by Section 7 of the 1933 Act [15 U.S.C. 77g].
(a) Consent of Independent Registered Public Accounting Firm dated June 15,
2009 for the Target Funds filed herewith
(b) Consent of Independent Registered Public Accounting Firm dated June 18,
2009 for the Acquiring Funds filed herewith
(15) All financial statements omitted pursuant to Item 14(a)(l).
Not Applicable.
(16) anually signed copies of any power of attorney pursuant to which the
name of any person has been signed to the registration statement.
(a) Powers of Attorney dated May 19, 2009 for Franklin Investors Securities
Trust, a Delaware Statutory Trust
(17) Any additional exhibits which the registrant may wish to file.
Not Applicable.
ITEM 17. UNDERTAKINGS.
(1) The undersigned registrant agrees that prior to any public reoffering of
the securities registered through the use of a prospectus which is a part of
this registration statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) of the Securities Act, the
reoffering prospectus will contain the information called for by the
applicable registration form for reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form.
(2) The undersigned registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to the
registration statement and will not be used until the amendment is effective,
and that, in determining any liability under the 1933 Act, each
post-effective amendment shall be deemed to be a new registration statement
for the securities offered therein, and the offering of the securities at
that time shall be deemed to be the initial bona fide offering of them.
(3) The undersigned registrant agrees to file by Post-Effective Amendment
the opinions and consents of counsel regarding the tax consequences of the
proposed reorganizations required by Item 16(12) of Form N-14 within a
reasonable time after receipt of such opinions.
(4) The undersigned registrant agrees to update the Statement of Additional
Information to this registration statement by Post-Effective Amendment
promptly upon effectiveness to include the Accession Numbers of the
Semi-Annual Reports referenced therein that will be filed following the date
of filing of this registration statement but before its effective date.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement on Form N-14 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 19th day of June, 2009.
FRANKLIN INVESTORS SECURITIES TRUST
(Registrant)
By: /s/ DAVID P. GOSS
David P. Goss
Vice President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities
and on the dates indicated:
EDWARD B. JAMIESON* Chief Executive Officer-
Edward B. Jamieson Investment Management
Dated: June 19, 2009
LAURA F. FERGERSON* Chief Executive Officer-Finance
Laura F. Fergerson and Administration
Dated: June 19, 2009
GASTON GARDEY* Chief Financial Officer and
Gaston Gardey Chief Accounting Officer
Dated: June 19, 2009
HARRIS J. ASHTON* Trustee
Harris J. Ashton Dated: June 19, 2009
ROBERT F. CARLSON* Trustee
Robert F. Carlson Dated: June 19, 2009
SAM GINN* Trustee
Sam Ginn Dated: June 19, 2009
EDITH E. HOLIDAY* Trustee
Edith E. Holiday Dated: June 19, 2009
CHARLES B. JOHNSON* Trustee
Charles B. Johnson Dated: June 19, 2009
RUPERT H. JOHNSON, JR.* Trustee
Rupert H. Johnson, Jr. Dated: June 19, 2009
FRANK W.T. LAHAYE* Trustee
Frank W.T. LaHaye Dated: June 19, 2009
FRANK A. OLSON* Trustee
Frank A. Olson Dated: June 19, 2009
LARRY D. THOMPSON* Trustee
Larry D. Thompson Dated: June 19, 2009
JOHN B. WILSON* Trustee
JOHN B. WILSON Dated: June 19, 2009
*By: /s/ DAVID P. GOSS
David P. Goss
Attorney-in-Fact
(Pursuant to Powers of Attorney filed
herewith)
Exhibit Index
11(a) Opinion and Consent of Counsel dated June 17, 2009
14(a) Consent of Independent Registered Public Accounting Firm dated
June 15, 2009 for the Target Funds
14(b) Consent of Independent Registered Public Accounting Firm dated
June 18, 2009 for the Acquiring Funds
16(a) Powers of Attorney dated May 19, 2009 for Franklin Investors
Securities Trust, a Delaware Statutory Trust