SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section.240-14a-11(c) or Section.240-
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[ ] Confidential, for Use of the Commission Only(as permitted by Rule
14a-6(e)(2))
FTI Funds
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(Name of Registrant as Specified In Its Charter
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(Name of Person(s) Filing Proxy Statement, if other than Registrant)
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[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11(1)
Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies
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(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
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previously.
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4) Date Filed:
[Insert Franklin Templeton Investments logo]
FTI FUNDS
FTI LARGE CAPITALIZATION GROWTH AND INCOME FUND
FTI SMALL CAPITALIZATION EQUITY FUND
FTI EUROPEAN SMALLER COMPANIES FUND
Dear Shareholders:
Enclosed is a Notice of Meeting for a Special Joint
Shareholders' Meeting ("Meeting") of FTI Large Capitalization
Growth and Income Fund, FTI Small Capitalization Equity Fund, and
FTI European Smaller Companies Fund, each of which is a series of
the FTI Funds (the "FTI Trust"). The Meeting is scheduled for
July 15, 2003 at 10:00 a.m., Pacific time, at One Franklin
Parkway, San Mateo, CA 94403. The accompanying materials describe
an important proposal to be voted on at the Meeting, and contain
the Notice of Meeting, proxy statement and proxy card. A proxy
card is, in essence, a ballot. When you vote your proxy, it tells
us how you wish to vote on important issues relating to your FTI
Fund. If you specify a vote for the Proposal, your proxy will be
voted as you indicate. If you simply sign and date the proxy
card, but do not specify a vote for the Proposal, your proxy will
be voted FOR the Proposal.
PLEASE TAKE A MOMENT TO FILL OUT, SIGN AND
RETURN THE ENCLOSED PROXY CARD
The Board of Trustees of the FTI Trust ("FTI Board")
unanimously recommends that you consider and approve an Agreement
and Plan of Reorganization that would result in your shares of
your FTI Fund(s) being exchanged for those of corresponding and
similar funds in Franklin Global Trust (collectively, the "FGT
Funds"). Each FGT Fund has identical investment goals, policies,
risks, portfolio management and overall expense ratios, and
substantively the same fundamental investment restrictions as its
corresponding FTI Fund. The proposed transactions are intended to
be tax-free, which means that you will not have a taxable gain or
loss on the exchange of your shares.
If the shareholders of each of the FTI Funds approve the
Proposal, you will receive shares of the FGT Fund(s) equal in
number and in value to your investment in the FTI Fund(s). FTI
Funds will no longer exist after the reorganizations are
completed. You will be able to buy shares of the FGT Funds
without a sales charge.
The FTI Board recommends these transactions because it
anticipates that the reorganizations will result in operating
efficiencies that may benefit shareholders. As a general matter,
following the reorganizations, the FTI Funds would be fully
integrated with the operations of Franklin Templeton Investments.
Moreover, in the future, the FGT Funds could potentially decrease
their operating expenses by spreading certain fixed costs over a
larger pool of assets. You also may benefit from the ability to
exchange your shares of your FGT Fund(s) for other Franklin
Templeton funds.
Please take the time to review this document and vote now.
THE TRUSTEES OF YOUR FTI FUND(S) UNANIMOUSLY RECOMMEND THAT YOU
VOTE FOR THE PROPOSAL.
[ ] To ensure that your vote is counted, indicate your
position on the enclosed proxy card.
[ ] Sign and return your card promptly.
[ ] If you determine at a later date that you wish to attend
this Meeting, you may revoke your proxy and vote in person.
Thank you for your attention to this matter.
Sincerely,
/s/ Gregory E. Johnson
President
NOTICE OF SPECIAL JOINT MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that a Special Joint Meeting of
Shareholders (the "Meeting") of FTI Large Capitalization Growth
and Income Fund, FTI Small Capitalization Equity Fund, and FTI
European Smaller Companies Fund (collectively, the "FTI Funds"),
all series of FTI Funds (the "FTI Trust"), will be held at the
Trust's offices, One Franklin Parkway, San Mateo, California,
94403-1906, on July 15, 2003 at 10:00 a.m., Pacific time.
At the Meeting, you will be asked to vote on the following
Proposal:
1. To approve an Agreement and Plan of Reorganization between FTI Trust, on
behalf of each FTI Fund, and Franklin Global Trust ("FG Trust"), on behalf
of the corresponding series of the FG Trust (the "FGT Funds"), which
provides for: (i) the acquisition of all of the assets and liabilities of
each FTI Fund by the corresponding FGT Fund in exchange for shares of the
corresponding FGT Fund, (ii) the distribution of such FGT Fund shares to
the shareholders of the corresponding FTI Fund, and (iii) the complete
liquidation and dissolution of the FTI Funds.
Shareholders of each FTI Fund will vote separately on Proposal 1 for each FTI
Fund. The FTI Funds correspond to the FGT Funds as follows:
FTI FUNDS FGT FUNDS
FTI Large Capitalization Growth and Fiduciary Large Capitalization Growth
Income Fund and Income Fund
FTI Small Capitalization Equity Fiduciary Small Capitalization Equity
Fund Fund
FTI European Smaller Companies Fund Fiduciary European Smaller Companies
Fund
2. To transact any other business, not currently contemplated, that
may properly come before the Meeting.
The Board of Trustees of the FTI Trust has fixed the close of business on June
6, 2003 as the record date for determination of shareholders entitled to notice
of, and to vote at, the Meeting or any adjournment thereof. Each shareholder who
does not expect to attend the Meeting in person is requested to date, fill in,
sign and return promptly the enclosed proxy card in the envelope included, which
needs no postage if mailed in the United States.
By Order of the Board of Trustees,
Murray L. Simpson
Secretary
June 19, 2003
MANY SHAREHOLDERS HOLD SHARES IN MORE THAN ONE FTI FUND AND WILL
RECEIVE PROXY MATERIALS FOR EACH FUND OWNED. PLEASE SIGN AND
PROMPTLY RETURN EACH PROXY CARD IN THE SELF-ADDRESSED ENVELOPES
PROVIDED REGARDLESS OF THE NUMBER OF SHARES YOU OWN.
TABLE OF CONTENTS
PAGE
PROXY STATEMENT 1
INFORMATION ABOUT VOTING 1
PROPOSAL 1:
-Approval of an Agreement and Plan of Reorganization 2
-Information about the Reorganizations 2
-Comparisons of Some Important Features 6
-Reasons for the Reorganizations 8
FURTHER INFORMATION ABOUT VOTING AND THE MEETING 10
INFORMATION ABOUT THE FGT FUNDS 11
INFORMATION ABOUT THE FTI FUNDS 11
PRINCIPAL HOLDERS OF SHARES 11
EXHIBITS
EXHIBIT A: Agreement and Plan of Reorganization between FTI
Trust and FG Trust A-1
EXHIBIT B: Comparison of Governing Documents and State Law B-1
EXHIBIT C: Prospectus of Fiduciary Large Capitalization Growth
and Income Fund, Fiduciary Small Capitalization
Equity Fund, and Fiduciary European Smaller
Companies Fund - dated June 19, 2003 (enclosed)
FTI FUNDS
FTI Large Capitalization Growth and Income Fund
FTI Small Capitalization Equity Fund
FTI European Smaller Companies Fund
PROXY STATEMENT
INFORMATION ABOUT VOTING
WHO IS ASKING FOR MY VOTE?
The Board of Trustees of FTI Funds (the "FTI Trust"), in
connection with the Special Joint Meeting of Shareholders of the
FTI Large Capitalization Growth and Income Fund, FTI Small
Capitalization Equity Fund, and FTI European Smaller Companies
Fund, each a series of FTI Funds, to be held on July 15, 2003
(the "Meeting"), have requested your vote on an important matter.
WHO IS ELIGIBLE TO VOTE?
Shareholders of record at the close of business on June 6,
2003 ("Record Date") are entitled to be present and to vote at
the Meeting or any adjourned Meeting. Each shareholder of record
is entitled to one vote for each dollar (and a fractional vote
for each fractional dollar thereof) of net asset value (computed
as the number of shares owned times the net asset value per
share) of shares. The Notice of Meeting, the proxy card, and the
proxy statement were first mailed to shareholders of record on or
about June 19, 2003.
ON WHAT PROPOSAL AM I VOTING?
At a meeting held on May 19, 2003, the Board of Trustees of
the FTI Trust (the "FTI Board"), on behalf of the FTI Funds,
considered a proposal to reorganize the FTI Funds into
corresponding funds of the Franklin Global Trust (the "FG
Trust"), approved an Agreement and Plan of Reorganization (the
"Plan") substantially in the form attached to this Proxy Statement
as EXHIBIT A, and voted to recommend that shareholders of the FTI
Funds approve the Plan. If shareholders of the FTI Funds approve
the Plan, all of the assets of each FTI Fund will be acquired by
a corresponding fund of the FG Trust (an "FGT Fund"), in exchange
for shares of the FGT Fund, equal in number and value to the
shares of each FTI Fund. These shares will, in turn, be
distributed to the shareholders of the FTI Funds, and the FTI
Funds will then be completely liquidated and dissolved. These
proposed transactions are referred to in this proxy statement as
the ("Reorganization(s).") As a result of the Reorganizations,
you will cease to be a shareholder of your FTI Fund(s) and will
become a shareholder of the corresponding FGT Fund(s). The
exchanges will occur on the closing date of the Reorganizations,
which is the specific date on which the Reorganizations take
place.
No other business other than the matters described above is
expected to come before the Meeting, but should any other matter
requiring a vote of shareholders arise, including any question as
to an adjournment, the persons designated as proxies named on the
enclosed proxy card will vote on such matters in accordance with
views of management.
WHAT VOTE IS REQUIRED?
Approval of the Reorganization of each FTI Fund requires the
affirmative vote of the lesser of (i) more than 50% of the
outstanding shares of the Fund, or (ii) 67% or more of the shares
of the Fund present at the Meeting, if the holders of more than
50% of the outstanding shares are present or represented by proxy
("Affirmative Majority Vote").
HOW DO THE TRUSTEES OF THE FTI BOARD RECOMMEND THAT I VOTE?
The Trustees unanimously recommend that you vote to approve
the Plan.
HOW DO I ENSURE THAT MY VOTE IS ACCURATELY RECORDED?
You may attend the Meeting and vote in person or you may
complete and return the enclosed proxy card(s).
Proxy cards that are properly signed, dated and received at or
prior to the Meeting will be voted as specified. If you specify a
vote for the Proposal, your proxy will be voted as you indicate.
If you simply sign, date and return the proxy card, but do not
specify a vote for the Proposal, your shares will be voted FOR
the approval of the Plan.
MAY I REVOKE MY PROXY?
You may revoke your proxy at any time before it is voted by
forwarding to the FTI Fund a written revocation or a later-dated
proxy that is received by the FTI Fund at or prior to the
Meeting, or by attending the Meeting and voting in person.
PROPOSAL 1
APPROVAL OF AN AGREEMENT AND PLAN OF REORGANIZATION
Management has proposed, and the FTI Board has approved, an
Agreement and Plan of Reorganization for the FTI Funds.
Currently, the FTI Funds are each a separate series of the FTI
Trust. The proposed Reorganizations would result in the assets of
the FTI Funds being managed as separate series of the FG Trust,
without any changes to the investment goals or policies of the
FTI Funds or to the portfolio management. The overall expense
ratios are also expected to remain the same.
INFORMATION ABOUT THE REORGANIZATIONS
WHY ARE WE PROPOSING THE REORGANIZATIONS?
Fiduciary International, Inc. ("Fiduciary"), located at 600
Fifth Avenue, New York, New York 10020-2302, serves as the
investment manager for each FTI Fund. On April 10, 2001, Franklin
Resources, Inc. acquired Fiduciary Trust Company International,
the ultimate parent company of Fiduciary. At that time, Fiduciary
managed seven funds as part of the FTI Trust, including the three
FTI Funds. All of those funds, except the FTI Funds, were
reorganized into similar funds within Franklin Templeton
Investments. The operations of the FTI Funds have since been
integrated with the operations of Franklin Templeton Investments,
including generally the same service providers under generally
the same standard agreements used by other Franklin Templeton
funds.
The three remaining FTI Funds continue to have a standalone
trust structure and a separate Board structure, operations and
meetings. To eliminate these operational inefficiencies,
Management is proposing the Reorganizations.
WHAT IS HAPPENING IN THE REORGANIZATIONS?
The Reorganizations will be completed through two principal
steps -- creation of three new series within the FG Trust and the
reorganization of each FTI Fund into its corresponding FGT Fund.
The three new FGT Funds have been created with the same features
as the corresponding FTI Funds. The FG Trust has taken all
actions required by state and federal securities law and its
controlling trust documents to establish the new FGT Funds. The
new FGT Funds thus will be eligible to receive the assets of the
corresponding FTI Funds.
To accomplish the Reorganizations of the FTI Funds:
o The FTI Trust will transfer all of the assets and liabilities of each FTI
Fund to the corresponding FGT Fund within the FG Trust;
o The FG Trust will issue an equal number of shares of the FGT Funds that
correspond to the FTI Funds in exchange for each FTI Fund's assets and
liabilities;
o The FTI Trust will distribute shares of the FGT Funds to shareholders of
the FTI Funds; and
o The FTI Trust and each FTI Fund will be dissolved. Corresponding funds of
the FTI Trust and the FG Trust are set forth below.
FTI FUNDS FGT FUNDS
FTI Large Capitalization Growth and Fiduciary Large Capitalization Growth
Income Fund and Income Fund
FTI Small Capitalization Equity Fund Fiduciary Small Capitalization Equity
Fund
FTI European Smaller Companies Fiduciary European Smaller Companies
Fund Fund
The advisory agreements for the FGT Funds are identical to the
corresponding FTI Funds' agreements, other than the signatory,
and they have been approved by the Board of Trustees of the FG
Trust.
We expect the Reorganizations to be completed on or about July
24, 2003.
HOW WILL THE REORGANIZATIONS BE CARRIED OUT?
If the shareholders of each of the FTI Funds approve the Plan,
the Reorganizations will take place after various conditions are
satisfied by the FTI Trust, on behalf of the FTI Funds, and by
the FG Trust, on behalf of the FGT Funds, including the
preparation of certain documents. The FTI and FG Trusts will
determine a specific date, called the "closing date," for the
actual Reorganizations to take place. It is currently anticipated
that the Reorganizations will be completed on or about July 24,
2003, or such other later date as FTI Trust and FG Trust may
agree. If the shareholders of one of the FTI Funds do not approve
the Plan, the Reorganization for that FTI Fund will not take
place. In such case, we will consider what further action is
appropriate for that series, including liquidation.
If the shareholders of each FTI Fund approve the Plan, each
FTI Fund will transfer all of its assets on the closing date to
the corresponding FGT Fund. In exchange, FG Trust will issue
shares of each FGT Fund equal to the dollar value of the assets,
subject to the liabilities, delivered to the FGT Fund. FTI Trust
will distribute the FGT Fund shares it receives to the
shareholders of the corresponding FTI Fund. As a result,
shareholders of the FTI Funds will receive FGT Fund shares equal
in number and value to his or her shares of the corresponding FTI
Funds. The stock transfer books of the FTI Funds will be
permanently closed as of 4:00 p.m. Eastern time on the closing
date. The FTI Funds will only accept requests for redemptions
received in proper form before 4:00 p.m. Eastern time on the
closing date. Requests received after that time will be
considered requests to redeem shares of the FGT Funds. The FTI
Trust and the FTI Funds will then terminate their existence.
To the extent permitted by law, the FTI Trust and the FG Trust
may agree to amend the Plan without shareholder approval. If any
amendment is made to the Plan that would have a material adverse
effect on shareholders, such change will be submitted to affected
shareholders for their approval.
Each of the FTI Trust and the FG Trust has made
representations and warranties in the Plan that are customary in
transactions such as the Reorganizations. The obligations of the
FTI Trust and the FG Trust under the Plan with respect to the FTI
Funds or FGT Funds are subject to various conditions, including:
o The FG Trust's Registration Statement on Form N-1A under the Securities Act
of 1933, as amended, to add the FGT Funds, shall have been filed with the
Securities and Exchange Commission ("SEC") and such Registration Statement
shall have become effective;
o Shareholders of the FTI Funds shall have approved the Plan and the
Reorganizations as contemplated therein; and
o The FTI Trust and FG Trust shall have received the tax opinion described
below that the consummation of the Reorganizations will not result in the
recognition of gain or loss for federal income tax purposes for the FTI
Funds, FGT Funds or FTI Funds' shareholders.
If the FTI Trust and the FG Trust agree, the Plan may be
terminated or abandoned at any time before or, to the extent
permitted by law, after the approval of the shareholders of the
FTI Funds. The Plan also may be terminated by one Trust if any
condition to its obligations has not been fulfilled by the other
Trust and it reasonably appears that such condition or obligation
will not be met.
WHAT IS HAPPENING TO THE FUNDS AFTER THE REORGANIZATIONS?
Following the Reorganizations, your investment in your FTI
Fund will continue as an investment in the corresponding FGT
Fund, a part of the FG Trust. After the Reorganizations, FTI
Trust will be dissolved. Each FGT Fund has the same investment
goals, strategies, policies (except as described below with
respect to the fundamental investment restrictions) and fee
structures as the current corresponding FTI Fund. Each FGT Fund
also has the most updated version of the standard fundamental
restrictions used by Franklin Templeton funds. While these
restrictions are phrased slightly different than the FTI Funds'
restrictions, they are substantively the same as those
restrictions.
WHAT SHOULD I KNOW ABOUT THE SHARES OF THE FGT FUNDS?
Shares of the FGT Funds will be distributed to shareholders of
the FTI Funds and generally will have the same legal
characteristics as the shares of the FTI Funds with respect to
voting rights, accessibility, conversion rights and
transferability. Former shareholders of FTI Funds whose shares
are represented by outstanding share certificates will not be
allowed to redeem shares of the FGT Funds until the FTI Funds'
certificates have been returned.
HOW WILL THE REORGANIZATIONS AFFECT ME?
We anticipate that the Reorganizations will result in
operating efficiencies that may benefit shareholders. As a
general matter, following the Reorganizations, the FTI Funds
would be fully integrated with the operations of Franklin
Templeton Investments. We also believe that the Reorganizations
have the following additional benefits:
o Cost savings. Since, following the Reorganizations, the FG Trust will
be made up of six (6) separate series, we expect each series to
continue to gather assets over time. Therefore, the FGT Funds have the
potential to decrease their operating expenses by spreading certain
Trust-level fixed costs over a larger pool of assets.
o Exchange privilege. As shareholders of the new FGT Funds, you may
benefit from the ability to invest current account assets in
additional investment options, without a sales charge, through the
exchange privilege into other Franklin Templeton funds. You would also
have the ability in the future to purchase additional shares of many
Franklin Templeton funds without a sales charge.
WHO WILL PAY THE EXPENSES OF THE REORGANIZATIONS?
The expenses resulting from the Reorganizations, including the
proxy solicitation costs, will be borne by Fiduciary or its
affiliates.
WHAT ARE THE TAX CONSEQUENCES?
The reorganizations are intended to qualify as tax-free
reorganizations for federal income tax purposes under Section
368(a)(1) of the Internal Revenue Code of 1986, as amended (the
"Code"). Based on certain assumptions and representations received
from the FTI Trust, on behalf of the FTI Funds, and the FG Trust,
on behalf of the FGT Funds, it is the opinion of Stradley Ronon
Stevens & Young, LLP, counsel to the FGT Funds, that shareholders
of the fti funds will not recognize any gain or loss upon the FGT
Funds' receipt of the assets of the FTI Funds.
The FTI Funds have significant capital loss carryovers.
Capital losses can generally be carried forward to each of the
eight (8) taxable years succeeding the loss year. Since the
Reorganizations are intended to qualify as a "mere change in
identity, form or place of organization of one corporation" under
Section 368(a)(1)(F) of the Code, there are no material
limitations on the availability of the capital loss carryovers
during the applicable carryover period.
After the Reorganizations, you will continue to be responsible
for tracking the purchase cost and holding period of your shares
and you should consult your tax advisor regarding the effect, if
any, of the Reorganizations in light of your particular
circumstances. You should also consult your tax advisor regarding
state and local tax consequences, if any, of the Reorganizations,
because this discussion only relates to federal income tax
consequences.
COMPARISONS OF SOME IMPORTANT FEATURES
HOW DO THE INVESTMENT GOALS, POLICIES AND RISKS OF THE FUNDS
COMPARE?
The FTI Funds and their corresponding FGT Funds have identical
investment goals, investment policies and strategies, and
investment risks, and substantially similar fundamental
investment restrictions. While the fundamental investment
restrictions of the FGT Funds are phrased slightly differently
than those of the FTI Funds, they are substantively the same and
will not impact the manner in which the FGT Funds are managed.
The goals, and principal policies and risks of each FGT Fund are
described in more detail in the Prospectus of Fiduciary Large
Capitalization Growth and Income Fund, Fiduciary Small
Capitalization Equity Fund and Fiduciary European Smaller
Companies Fund, dated June 19, 2003 ("FGT Funds Prospectus"),
which is included herewith as EXHIBIT C and incorporated by
reference into this Proxy Statement. Additional information about
the FGT Funds' current fundamental investment restrictions is
contained in the Statement of Additional Information ("SAI") for
the FGT Funds, dated June 19, 2003, which is incorporated by
reference into this Proxy Statement.
HOW DOES THE MANAGEMENT OF THE FUNDS COMPARE?
The management of the business and affairs of the FTI Funds is
the responsibility of the FTI Board and, in the case of the FGT
Funds, the Board of Trustees of the FG Trust. Additional
information on the Trustees of FG Trust, none of whom serve on
the FTI Board, is contained in the SAI for the FGT Funds, which
is incorporated by reference into this Proxy Statement.
Fiduciary is the investment manager of the FTI Funds as well
as the corresponding FGT Funds. All of the portfolio managers for
the FTI Funds are also the portfolio managers for the FGT Funds.
The Trusts are both open-end, registered management investment
companies, commonly referred to as "mutual funds." FG Trust was
organized as a Delaware statutory trust (a form of entity then
known as a business trust) on September 26, 2000, and is
registered with the SEC. The FTI Trust was organized as a
Massachusetts business trust on October 18, 1995, and is also
registered with the SEC.
Reorganizing the FTI Funds from series of a Massachusetts
business trust to series of a Delaware statutory trust is
expected to provide benefits to the FTI Funds and their
shareholders. Under Delaware law, investment companies are able
to simplify their operations by reducing administrative burdens,
and there is greater certainty regarding limiting the liability
of shareholders for obligations of business trusts or its
trustees. In addition, most of the Franklin Templeton funds are
now, or are likely to become Delaware statutory trusts. To the
extent that the boards and management of Franklin Templeton funds
have to deal with the law of a single state, rather than the laws
of many states, efficiencies may be achieved, both in terms of
reduced costs in determining the requirements of law in unique
circumstances and the certainty of operating routinely in a
familiar regulatory environment.
Furthermore, in Delaware there is a well-established body of
legal precedent in the area of corporate law that may be relevant
in deciding issues pertaining to statutory trusts such as the FG
Trust. This could benefit the FGT Funds and their shareholders
by, for example, making litigation involving the interpretation
of provisions in the FG Trust's governing documents less likely
or, if litigation should be initiated, less burdensome or
expensive.
A comparison of the Delaware statutory trust law and the
Massachusetts business trust law, and a comparison of the
relevant provisions of the governing documents of the Funds, are
included as EXHIBIT B to this Proxy Statement.
How do the expense ratios for the Funds compare?
The expenses of the FGT Funds are expected to be the same as
those of the FTI Funds. The Board of Trustees of the FG Trust has
agreed to continue the waiver that has been in place for the FTI
Funds and to extend the waiver through November 30, 2003. Under
the waiver, the manager and administrator have agreed to waive or
limit their respective fees and to assume as their own expense
certain expenses otherwise payable by the FGT Funds so that total
Fund annual operating expenses do not exceed 1.03%, 1.30% and
1.20% for the Fiduciary Large Capitalization Growth and Income
Fund, the Fiduciary Small Capitalization Equity Fund and the
Fiduciary European Smaller Companies Fund, respectively.
WHAT ARE OTHER KEY FEATURES OF THE FUNDS?
CUSTODY SERVICES. Bank of New York, Mutual Funds Division, 90
Washington Street, New York, NY 10286, acts as the custodian of
the securities and other assets of the FGT Funds. JP Morgan Chase
Bank, MetroTech Center, Brooklyn, NY 11245, acts as the custodian
of the securities and other assets of the FTI Funds.
The Funds use the same service providers for the following
services:
TRANSFER AGENCY SERVICES. Franklin Templeton Investor
Services, LLC, a wholly owned subsidiary of Franklin Resources,
Inc. (Resources), is the shareholder servicing agent and acts as
the transfer agent and dividend-paying agent for the FTI Funds
and the FGT Funds.
ADMINISTRATIVE SERVICES. Franklin Templeton Services, LLC, One
Franklin Parkway, San Mateo, CA, 94403-1906, a wholly owned
subsidiary of Resources, provides certain administrative
facilities and services to the FTI Funds and the FGT Funds
generally under the same terms and conditions.
DISTRIBUTION SERVICES. Templeton/Franklin Investment Services,
Inc. (TFIS), One Franklin Parkway, San Mateo, CA, 94403-1906,
acts as the principal underwriter in the continuous offering of
the FTI Funds' and FGT Funds' shares under the same terms and
conditions for the Funds.
DISTRIBUTION AND SERVICE (12B-1) FEES. The FTI Trust and the
FG Trust have each adopted a Rule 12b-1 plan, which allows them
to pay marketing fees to the Distributor and investment
professionals for the sale, distribution and customer servicing
of Fund shares. Neither the FTI Trust nor the FG Trust presently
intend to activate the Rule 12b-1 plan and TFIS has no present
intention to collect any fees pursuant to the plan. If either
Trust were to activate the Rule 12b-1 plan, it would be permitted
to pay up to 0.25% of the average net assets of the Funds as a
distribution fee to TFIS. Because 12b-1 fees would be paid out of
the Funds' assets on an ongoing basis, over time these fees would
increase the cost of your investment and may cost you more than
paying other types of sales charges.
For more information regarding the FGT Funds' distribution
expenses, please see "The Underwriter" in the current SAI.
PURCHASES AND REDEMPTIONS. The FTI Funds and the FGT Funds do
not impose sales charges, but restrict purchases to certain
qualified investors.
Shares of the FTI Funds and the FGT Funds may be sold
(redeemed) at net asset value ("NAV"), at any time. Shares of FGT
Funds also may be exchanged at NAV for shares of many of the
other Franklin Templeton funds, subject to certain limitations,
as provided in the prospectus of the respective Franklin
Templeton fund. Because an exchange is technically a sale and a
purchase of shares, an exchange is a taxable transaction.
Additional information and specific instructions explaining
how to buy, sell, and exchange shares of the Funds are outlined
in the FTI Funds' and the FGT Funds' prospectuses under the
heading "Your Account." The accompanying FGT Funds' Prospectus
also indicates how to contact us if you have any questions about
your account under the heading "Questions." These instructions
and phone number are the same for each FGT Fund.
DIVIDENDS AND DISTRIBUTIONS. The FTI Large Capitalization
Growth and Income Fund and the corresponding Fiduciary Large
Capitalization Growth and Income Fund each typically intends to
pay an income dividend quarterly from its net investment income.
The FTI Small Capitalization Equity and FTI European Smaller
Companies Funds and the corresponding Fiduciary Small
Capitalization Equity and the Fiduciary European Smaller
Companies Funds each typically intends to pay an income dividend
annually from their net investment income. For each of the FTI
Funds and the FGT Funds, capital gains, if any, may be
distributed at least annually. The amount of any distributions
will vary, and there is no guarantee a Fund will pay either
income dividends or capital gain distributions. Neither the FTI
Funds nor the FGT Funds pay "interest" or guarantee any amount of
dividends or return on an investment in their shares.
The tax implications of an investment in each Fund are the
same. For more information about the tax implications, see the
enclosed FGT Funds' Prospectus under the heading "Distributions
and Taxes."
REASONS FOR THE REORGANIZATIONS
The FTI Board, on behalf of the FTI Funds, has recommended the
acquisition of all of the assets of the FTI Funds by the FGT
Funds in exchange for shares of the FGT Funds and the
distribution of such shares to the shareholders of FTI Funds in
complete liquidation and dissolution of the FTI Funds in order to
combine the FTI Funds with the corresponding FGT Funds, which
have the same goals and investment policies.
Meetings of the FTI Board were held on February 13, 2003 and
May 19, 2003 to consider the proposed Reorganizations. In
addition, the independent Trustees held a separate meeting on
this matter. The independent Trustees and the FTI Board have been
advised on this matter by independent counsel to the FTI Funds.
In approving the Reorganizations, the FTI Board determined
that the proposed Reorganizations would be in the best interests
of each of the FTI Funds, and that the interests of shareholders
would not be diluted as a result of the Reorganizations. In
recommending that shareholders approve the Plan, the FTI Board
considered the various factors described below including the
tax-free nature of the Reorganizations and the payment of all the
Reorganization expenses by Fiduciary and its affiliates.
The FTI Board considered the potential benefits and costs of
the Reorganizations to shareholders of the FTI Funds. The FTI
Board reviewed detailed information about (1) the investment
goals and policies of the FGT Funds and the comparability of
those goals and policies with those of the FTI Funds, (2) the
portfolio management of the FGT Funds, (3) the current and
anticipated expense ratios of the FTI Funds and the FGT Funds,
respectively, (4) the expenses related to the Reorganizations,
(5) the tax consequences of the Reorganizations, and (6) the
general characteristics of investors in the FTI Funds.
The FTI Board also considered whether there might be
significant differences between the Massachusetts business trust
form of organization and the Delaware statutory trust. They noted
that investment companies formed as Delaware statutory trusts
have certain advantages over investment companies organized as
Massachusetts business trusts. Under Delaware law, investment
companies are able to simplify their operations by reducing
administrative burdens (as more fully described above) and that
there is greater certainty regarding limiting the liability of
shareholders for obligations of the statutory trust or its
trustees. The FTI Board also considered that most of the Franklin
Templeton funds are currently or are likely to become Delaware
statutory trusts.
The FTI Board also considered that: (a) the FTI Funds'
shareholders would have the ability in the future to invest
current account assets in additional investment options, without
a sales charge, through the exchange privilege into other
Franklin Templeton funds, (b) the FTI Funds' shareholders would
have the ability in the future to purchase additional shares of
many of the Franklin Templeton funds without a sales charge, and
(c) although the FTI Board has had the right to terminate the fee
waivers at any time since November 30, 2002, the manager and
administrator of FTI Funds have continued voluntarily to waive
the fees and the manager and administrator for the FGT Funds have
agreed to extend the current fee waiver through November 30, 2003.
Based on their evaluation of the relevant information
presented to them, and in light of their fiduciary duties under
federal and state law, the FTI Board, including all Trustees who
are not interested persons of the FTI Funds (as defined in the
1940 Act), concluded that the Reorganizations are in the best
interests of the FTI Funds and their shareholders and that no
dilution of value would result to the shareholders of the FTI
Funds from the Reorganizations. The FTI Board approved the Plan
on May 19, 2003 and recommended that shareholders of the FTI
Funds vote to approve the Reorganizations.
The Board of Trustees of the FG Trust, on behalf of the FGT
Funds, has also approved the Plan.
FURTHER INFORMATION ABOUT VOTING AND THE MEETING
HOW ARE VOTES BEING SOLICITED?
The FTI Funds will request broker-dealer firms, custodians,
nominees and fiduciaries to forward proxy materials to the
beneficial owners of the shares of record. The FTI Trust may
reimburse broker-dealer firms, custodians, nominees and
fiduciaries for their reasonable expenses incurred in connection
with such proxy solicitation. The cost of soliciting proxies,
including the fees of a proxy soliciting agent, will be borne by
Fiduciary and its affiliates. The FTI Funds have engaged Alamo
Direct to assist in the solicitation of proxies at an anticipated
cost of approximately $6,000, including out-of-pocket expenses.
The FTI Funds expect that the solicitation will be primarily by
mail. In addition to solicitations by mail, officers and
employees of FTI Trust without extra pay, may conduct additional
solicitations by telephone, personal interviews and other means.
The costs of any such additional solicitation and of any
adjourned session will be borne by Fiduciary and its affiliates.
HOW MANY VOTES ARE NECESSARY TO APPROVE THE REORGANIZATIONS?
One-half of the outstanding shares entitled to vote of each
FTI Fund -- present in person or represented by proxy --
constitutes a quorum of that Fund at the Meeting. The shares
whose proxies reflect an abstention on any item will be counted
as shares present for purposes of determining whether the
required quorum of shares exists.
An Affirmative Majority Vote of each FTI Fund's shareholders
entitled to vote is necessary to approve the Reorganizations for
the FTI Funds.
Abstentions will be treated as present at the Meeting, and,
therefore, will have the same effect as a vote against the
Reorganizations. Because there is only one proposal on the
ballot, the FTI Funds do not expect to receive any broker
non-votes (i.e., shares held by brokers or nominees as to which
(i) instructions have not been received from the beneficial
owners or persons entitled to vote and (ii) the broker or nominee
does not have discretionary voting power on a particular matter).
As a result, broker non-votes will have no effect on the outcome
of the vote.
If sufficient votes to approve the Reorganizations are not
received by the date of the Meeting, the Meeting may be adjourned
to permit further solicitations of proxies.
ARE THERE DISSENTER'S RIGHTS?
Shareholders of the FTI Funds will not be entitled to any
"dissenter's rights" since the proposed Reorganizations involve
open-end investment companies registered under the 1940 Act
(mutual funds). Although no dissenter's rights may be available,
you have the right to redeem your shares at NAV until the closing
date. After the closing date, you may redeem your FGT Fund shares
or exchange them for shares of certain other Franklin Templeton
funds, subject to the terms in the prospectus of the respective
fund.
HOW DO I MAKE A PROPOSAL AT THE NEXT SHAREHOLDERS' MEETING?
Neither the FTI Funds nor the FGT Funds are required, and
neither intends, to hold regular annual shareholder meetings.
Shareholders wishing to submit proposals for consideration for
inclusion in a proxy statement for the next shareholder's meeting
should send their written proposals to the appropriate Fund's
offices, One Franklin Parkway, San Mateo, CA 94403-1906, so that
they are received in a reasonable time before any such meeting. A
shareholder proposal may be presented at a meeting of
shareholders only if such proposal concerns a matter that may be
properly brought before the meeting under applicable federal
proxy rules and state law.
Submission of a proposal by a shareholder does not guarantee
that the proposal will be included in the Fund's proxy statement
or presented at the meeting.
INFORMATION ABOUT THE FGT FUNDS
Information about the FGT Funds is included in the FGT Funds'
Prospectus, which is included herewith as EXHIBIT C and
incorporated by reference into this Proxy Statement. Additional
information about the FGT Funds is included in the SAI, dated
June 19, 2003, which is incorporated into the FGT Funds'
Prospectus and this Proxy Statement. You may request a free copy
of the SAI by calling 1-800/DIAL BEN(R) or by writing the FG Trust
at One Franklin Parkway, San Mateo, California 94403-1906.
The FG Trust files proxy materials, reports and other
information with the SEC in accordance with the informational
requirements of the Securities Exchange Act of 1934, as amended
and the Investment Company Act of 1940, as amended. These
materials can be inspected and copied at: the SEC's Public
Reference Room at 450 Fifth Street NW, Washington, DC 20549-6009,
at prescribed rates, or from the SEC's Internet address at
HTTP://WWW.SEC.GOV.
INFORMATION ABOUT THE FTI FUNDS
Information about the FTI Funds is included in the current FTI
Funds' prospectus, as well as the FTI Funds' SAI, dated April 1,
2003, and in the FTI Funds' Annual Report to Shareholders dated
November 30, 2002. These documents have been filed with the SEC.
You may request free copies of these documents by calling
1-800/DIAL BEN(R) or by writing the FTI Trust at One Franklin
Parkway, San Mateo, California 94403. Reports and other
information filed by the FTI Trust can be inspected and copied
at: the SEC's Public Reference Room at 450 Fifth Street NW,
Washington, DC 20549-6009, at prescribed rates, or from the SEC's
Internet address at HTTP://WWW.SEC.GOV.
PRINCIPAL HOLDERS OF SHARES
As of the Record Date, there were [ ] outstanding shares of
FTI Large Capitalization Growth and Income Fund, [ ] outstanding
shares of FTI Small Capitalization Equity Fund, and [ ]
outstanding shares of FTI European Smaller Companies Fund.
As of the Record Date, the officers and trustees of the FTI
Trust, as a group, owned of record and beneficially less than 1%
of the outstanding voting shares of the FTI Funds. [From time to
time, the number of fund shares held in "street name" accounts of
various securities dealers for the benefit of their clients or in
centralized securities depositories may exceed 5% of the total
shares outstanding.] Except as listed below, as of the Record
Date, no other person owned more than 5% or more of the
outstanding shares of the FTI Funds.
[note: to be filled in as of Record Date]
Dated June 19, 2003 By Order of the Board of Trustees,
Murray L. Simpson
Secretary
EXHIBITS TO THE PROXY STATEMENT
EXHIBIT
A Agreement and Plan of Reorganization between FTI Trust, on behalf of
the FTI Large Capitalization Growth and Income Fund, FTI Small
Capitalization Equity Fund and the FTI European Smaller Companies
Fund, and FG Trust, on behalf of Fiduciary Large Capitalization Growth
and Income Fund, Fiduciary Small Capitalization Equity Fund and the
Fiduciary European Smaller Companies Fund (attached)
B Comparison of Governing Documents and State Law (attached)
C Prospectus of Fiduciary Large Capitalization Growth and Income Fund,
Fiduciary Small Capitalization Equity Fund, and Fiduciary European
Smaller Companies Fund - dated June 19, 2003 (enclosed)
FORM OF
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Plan"), is made as of
this [ ] day of July, 2003, by and between FTI Funds ("FTI Trust"), a
business trust created under the laws of The Commonwealth of Massachusetts in
1995 with its principal place of business at One Franklin Parkway, San Mateo,
California 94403, on beha1f of its series, FTI Large Capitalization Growth
and Income Fund, FTI Small Capitalization Equity Fund and FTI European
Smaller Companies Fund ("FTI Funds"), and Franklin Global Trust ("FG Trust"),
a statutory trust created under the laws of the State of Delaware in 2000
with its principal place of business at One Franklin Parkway, San Mateo,
California 94403, on beha1f of its series, Fiduciary Large Capitalization
Growth and Income Fund, Fiduciary Small Capitalization Equity Fund and
Fiduciary European Smaller Companies Fund ("FGT Funds").
PLAN OF REORGANIZATION
The reorganization will consist of (i) the acquisition by FG Trust, on
behalf of the FGT Funds, of all of the property, assets and goodwill of the
FTI Funds in exchange solely for the assumption of all obligations and
liabilities of the FTI Funds by the corresponding FGT Funds and full and
fractional shares of beneficial interest, par value $0.01 per share, of the
corresponding FGT Funds; (ii) the distribution of shares of the FGT Funds to
the shareholders of the corresponding FTI Funds, according to their
respective interests in the FTI Funds, in complete liquidation of the FTI
Funds; and (iii) the dissolution of the FTI Funds as soon as is practicable
after the closing (as defined in Section 3, hereinafter called the
"Closing"), all upon and subject to the terms and conditions of the Plan
hereinafter set forth.
The FTI Funds and the FGT Funds correspond to each other as follows:
- -----------------------------------------------------------------------
FTI Large Capitalization corresponds Fiduciary Large
Growth and Income to Capitalization Growth and
Fund Income Fund
- -----------------------------------------------------------------------
FTI Small Capitalization corresponds Fiduciary Small
Equity Fund to Capitalization Equity
Fund
- -----------------------------------------------------------------------
FTI European Smaller corresponds Fiduciary European Smaller
Companies Fund to Companies Fund
- -----------------------------------------------------------------------
AGREEMENT
In order to consummate the Plan and in consideration of the premises and
of the covenants and agreements hereinafter set forth, and intending to be
legally bound, the parties hereto covenant and agree as follows:
1. SALE AND TRANSFER OF ASSETS, LIQUIDATION AND DISSOLUTION OF FTI FUNDS.
(a) Subject to the terms and conditions of the Plan, and in reliance on the
representations and warranties of FG Trust on behalf of FGT Funds herein
contained, and in consideration of the delivery by FG Trust of the number of
FGT Funds' shares hereinafter provided and the assumption of FG Trust, on
behalf of the FGT Funds, of all of the obligations and liabilities of the
corresponding FTI Funds (as hereinafter provided), FTI Trust on behalf of
each FTI Fund agrees that it will convey, transfer and deliver to FG Trust,
on behalf of each corresponding FGT Fund, at the closing date (as defined in
Section 3, hereinafter called the "Closing Date") all of FTI Fund's then
existing assets ("Assets"). The transactions contemplated hereby are intended
to qualify as reorganizations within the meaning of Section 368(a)(1) of the
Internal Revenue Code of 1986, as amended (the "Code").
(b) Subject to the terms and conditions of the Plan, and in reliance on the
representations and warranties of FTI Trust on behalf of FTI Funds herein
contained, and in consideration of such sale, conveyance, transfer, and
delivery, FG Trust, on behalf of each FGT Fund, agrees at the Closing Date to
(i) assume and pay, to the extent that they exist on or after the Closing
Date, all of the corresponding FTI Fund's obligations and liabilities,
whether absolute, accrued, known or unknown, contingent or otherwise,
including all fees and expenses in connection with the Plan ("Liabilities");
and (ii) deliver to FTI Trust the number of each FGT Fund's shares equal to
the number of outstanding shares of the corresponding FTI Fund, as of 4:00
p.m., Eastern time, on the Closing Date. The value of each FGT Fund's shares
delivered to FTI Trust shall have an aggregate net asset value equal to the
value of the corresponding FTI Fund's Assets, less Liabilities assumed, all
determined as provided in Section 2 of this Plan and as of the date and time
specified therein.
(c) Immediately following the Closing Date, FTI Trust shall dissolve itself
and the FTI Funds and distribute pro rata to their shareholders of record as
of the close of business on the Closing Date, shares of the corresponding FGT
Funds received by FTI Funds pursuant to this Section 1. Such liquidation and
distribution shall be accomplished by the establishment of accounts on the
share records of FGT Funds for the benefit of shareholders of the
corresponding FTI Funds of the type and in the amounts due such shareholders
based on their respective holdings as of the close of business on the Closing
Date. Fractional FGT Funds' shares shall be carried to the third decimal
place. As promptly as practicable after the Closing, each holder of any
outstanding certificate or certificates representing shares of beneficial
interest of the FTI Funds shall be entitled to surrender the same to the
transfer agent for FGT Funds in exchange for the number of shares of the
corresponding FGT Funds into which the FTI Funds' shares theretofore
represented by the certificate or certificates so surrendered shall have been
converted. Certificates for FGT Funds' shares shall not be issued, unless
specifically requested by the shareholders. Until so surrendered, each
outstanding certificate which, prior to the Closing, represented shares of
beneficial interest of the FTI Funds shall be deemed for all the FGT Funds'
purposes to evidence ownership of the number of FGT Funds' shares into which
the FTI Funds' shares (which prior to the Closing were represented thereby)
have been converted.
2. VALUATION.
(a) The value of the FGT Funds' shares, the FTI Funds' shares and the FTI
Funds' Assets to be acquired by FGT Funds hereunder shall in each case be
computed as of 4:00 p.m. Eastern time on the Closing Date unless on such date
(a) the New York Stock Exchange ("NYSE") is not open for unrestricted trading
or (b) the reporting of trading on the NYSE or elsewhere is disrupted or
(c) any other extraordinary financial event or market condition occurs (all
such events described in (a), (b) or (c) are each referred to as a "Market
Disruption"). The net asset value per share of the FGT Funds' shares, the
FTI Funds' shares and the value of the FTI Funds' Assets shall be computed in
accordance with the valuation procedures set forth in the respective
prospectus of the FGT Funds and the FTI Funds.
(b) In the event of a Market Disruption on the proposed Closing Date so that
accurate appraisal of the net asset value of the FGT Funds' shares, the FTI
Funds' shares or the value of the FTI Funds' Assets is impracticable, the
Closing Date shall be postponed until the first business day when regular
trading on the NYSE shall have been fully resumed and reporting shall have
been restored and other trading markets are otherwise stabilized.
(c) All computations of value regarding the net asset value of the FGT
Funds' shares, the FTI Funds' shares and the value of the FTI Funds' Assets
shall be made by the investment advisor to the FGT Funds; provided, however,
that all computations of value shall be subject to review by the FTI Funds.
3. CLOSING AND CLOSING DATE. The Closing Date shall be July [24], 2003, or
such later date as the parties may mutually agree. The Closing Date shall
take place at the principal office of FTI Trust at 5:00 p.m., Eastern time,
on the Closing Date. FTI Trust, on behalf of FTI Funds, shall have provided
for delivery as of the Closing Date of the Assets of FTI Funds to be
transferred to the account of the corresponding FGT Funds at FGT Funds'
Custodian, Bank of New York, Mutual Funds Division, 90 Washington Street, New
York, NY 10286. The FGT Funds shall assume all liabilities of the FTI Funds
in connection with the acquisition of Assets, except that recourse for
assumed liabilities relating to an FTI Fund shall be limited to the
corresponding FGT Fund. Also, FTI Trust, on behalf of FTI Funds, shall
deliver at the Closing a list of names and addresses of the shareholders of
record of the FTI Funds' shares and the number of full and fractional shares
of beneficial interest owned by each such shareholder, indicating thereon
which such shares are represented by outstanding certificates and which by
book-entry accounts, all as of 4:00 p.m., Eastern time, on the Closing Date,
certified by its transfer agent or by its President to the best of its or his
knowledge and belief. FG Trust on behalf of FGT Funds shall issue and deliver
a certificate or certificates evidencing the shares of beneficial interest of
FGT Funds to be delivered to the accounts of the FTI Funds at said transfer
agent registered in such manner as the officers of FTI Trust on behalf of FTI
Funds may request, or provide evidence satisfactory to FTI Trust that such
FGT Funds' shares have been registered in an account on the books of the FGT
Funds in such manner as the officers of FTI Trust on behalf of FTI Funds may
request.
4. REPRESENTATIONS AND WARRANTIES BY FG TRUST ON BEHALF OF FGT FUNDS.
FG Trust, on behalf of FGT Funds, represents and warrants to FTI Trust
that:
(a) FGT Funds are series of FG Trust, a business trust created under the
laws of the State of Delaware on September 26, 2000, and are validly existing
under the laws of that State. FG Trust is duly registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end,
management investment company, and that while no FGT Funds' shares have been
issued, they will be issued and sold pursuant to an effective registration
statement filed under the Securities Act of 1933, as amended (the "1933 Act").
(b) FG Trust is authorized to issue an unlimited number of shares of
beneficial interest of the FGT Funds, par value $0.01 per share, each
outstanding share of which is fully paid, non-assessable, freely transferable
and has full voting rights. The FGT Funds have one class of shares, and an
unlimited number of shares of beneficial interest, par value $0.01 per share,
has been allocated and designated to the FGT Funds' shares. No shareholder
of FG Trust shall have any option, warrant or preemptive right of
subscription or purchase with respect to the each FGT Fund.
(c) The books and records of FGT Funds accurately summarize the accounting
data represented and contain no material omissions with respect to the
business and operations of FGT Funds.
(d) FG Trust has the power to own all of its properties and assets, to
perform its obligations under the Plan and to consummate the transactions
contemplated herein. FG Trust is not required to qualify to do business in
any jurisdiction in which it is not so qualified or where failure to qualify
would not subject it to any material liability or disability. FG Trust has
all necessary federal, state and local authorizations, consents and approvals
required to own all of its properties and assets and to conduct FGT Funds'
business as such business is now being conducted and to consummate the
transactions contemplated herein.
(e) FG Trust, on behalf of FGT Funds, is not a party to or obligated under
any provision of its Declaration of Trust, as amended ("Declaration of
Trust") or Amended and Restated By-laws ("By-laws"), or any contract or any
other commitment or obligation, is not subject to any order or decree that
would be violated by its execution of or performance of its obligations under
the Plan, and no consent, approval, authorization or order of any court or
governmental authority is required for the consummation by FG Trust of the
transactions contemplated by the Plan, except for the registration of the FGT
Funds shares under the 1933 Act, the 1940 Act, or as may otherwise be
required under the federal and state securities laws or the rules and
regulations thereunder.
(f) FG Trust has elected or intends to elect to treat each of the FGT Funds
as a regulated investment company ("RIC") for federal income tax purposes
under Part I of Subchapter M of the Code, each of the FGT Funds will be a
"fund" as defined in Section 851(g)(2) of the Code, will qualify as a RIC as
of the Closing Date, and consummation of the transactions contemplated by the
Plan will not cause it to fail to be qualified as a RIC as of the Closing
Date.
(g) FGT Funds are not under jurisdiction of a Court in a Title 11 or similar
case within the meaning of Section 368(a)(3)(A) of the Code.
(h) FGT Funds do not have any unamortized or unpaid organizational fees or
expenses.
(i) All information to be furnished by FG Trust to FTI Trust for use in
preparing any prospectus, proxy materials and other documents which may be
necessary in connection with the transactions contemplated hereby shall be
accurate and complete and shall comply in all material respects with federal
securities and other laws and regulations applicable thereto.
(j) FGT Funds do not have and will not have any liabilities or assets prior
to the Closing.
(k) FG Trust has no plan or intention to issue additional shares of the FGT
Funds following the reorganization except for shares issued in the ordinary
course of business as series of an open-end investment company; nor does FG
Trust have any plan or intention to redeem or otherwise reacquire any shares
of the FGT Funds issued pursuant to the reorganization, other than in the
ordinary course of business or to the extent necessary to comply with any
legal obligation under Section 22(e) of the 1940 Act.
(l) FGT Funds will actively continue the FTI Funds' business in
substantially the same manner that the FTI Funds conducted that business
immediately before the reorganization. The FGT Funds have no plan or
intention to sell or otherwise dispose of any of the former assets of the FTI
Funds, except for dispositions made in the ordinary course of business or
dispositions necessary to maintain qualification as a RIC, although in the
ordinary course of business, the FGT Funds will continuously review their
investment portfolios (as the FTI Funds did before the reorganization) to
determine whether to retain or dispose of particular stocks or securities,
including those included among the former assets of the FTI Funds.
(m) The Proxy Statement referred to in Section 7(f) hereof (other than the
portions of such documents based on information furnished by or on behalf of
FTI Trust for inclusion or incorporation by reference therein), and any
Prospectus or Statement of Additional Information of FGT Funds accompanying
or incorporated therein by reference, and any supplement or amendment to the
Proxy Statement or any such Prospectus or Statement of Additional
Information, on the effective and clearance dates of the Proxy Statement, on
the date of the Special Meeting of the FTI Funds' shareholders, and on the
Closing Date: (a) shall comply in all material respects with the provisions
of the Securities Exchange Act of 1934, as amended (the "1934 Act"), the 1933
Act, the 1940 Act, the rules and regulations thereunder, and all applicable
state securities laws and the rules and regulations thereunder; and (b) shall
not contain 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 the statements
were made, not misleading.
5. REPRESENTATIONS AND WARRANTIES BY FTI TRUST ON BEHALF OF THE FTI FUNDS.
FTI Trust, on behalf of the FTI Funds, represents and warrants to FG
Trust that:
(a) FTI Funds are series of FTI Trust, a business trust created under the
laws of The Commonwealth of Massachusetts on October 18, 1995, and is validly
existing under the laws of that Commonwealth. FTI Trust is duly registered
under the 1940 Act as an open-end, management investment company, and all of
FTI Trust's FTI Funds' shares sold were sold pursuant to an effective
registration statement filed under the 1933 Act, except for those shares sold
pursuant to the private offering exemption for the purpose of raising the
required initial capital.
(b) FTI Trust is authorized to issue an unlimited number of shares of
beneficial interest of the FTI Funds, without par value, each outstanding
share of which is fully paid, non-assessable, freely transferable and has
full voting rights, and currently issues shares of three (3) series. The FTI
Funds have one class of shares, and an unlimited number of shares of
beneficial interest of FTI Trust, without par value, has been allocated and
designated to this class of the FTI Funds.
(c) The financial statements appearing in the FTI Trust's Annual Report to
Shareholders for the fiscal year ended November 30, 2002, audited by Ernst &
Young, LLP, copies of which have been delivered to FG Trust, and any interim
financial statements for FTI Trust which may be furnished to FG Trust, fairly
present the financial position of the FTI Funds as of such date and the
results of its operations for the period indicated in conformity with
generally accepted accounting principles applied on a consistent basis.
(d) The books and records of the FTI Funds accurately summarize the
accounting data represented and contain no material omissions with respect to
the business and operations of the FTI Funds.
(e) FTI Trust has the power to own all of its properties and assets, to
perform its obligations under the Plan and to consummate the transactions
contemplated herein. FTI Trust is not required to qualify to do business in
any jurisdiction in which it is not so qualified or where failure to qualify
would not subject it to any material liability or disability. FTI Trust has
all necessary federal, state and local authorizations, consents and approvals
required to own all of its properties and assets and to conduct the FTI
Funds' business as such business is now being conducted and to consummate the
transactions contemplated herein.
(f) FTI Trust on behalf of the FTI Funds is not a party to or obligated
under any provision of its Agreement and Declaration of Trust or By-laws, or
any contract or any other commitment or obligation, and is not subject to any
order or decree, that would be violated by its execution of or performance
under the Plan. FTI Trust has furnished FG Trust with copies or descriptions
of all material agreements or other arrangements to which the FTI Funds are a
party. The FTI Funds have no material contracts or other commitments (other
than the Plan or agreements for the purchase of securities entered into in
the ordinary course of business and consistent with its obligations under the
Plan) which will not be terminated by the FTI Funds in accordance with their
terms at or prior to the Closing Date.
(g) FTI Trust has elected to treat each of the FTI Funds as a RIC for
federal income tax purposes under Part I of Subchapter M of the Code, each of
the FTI Funds has qualified as a RIC for each taxable year since its
inception and will qualify as a RIC as of the Closing Date, and consummation
of the transactions contemplated by the Plan will not cause it to fail to be
qualified as a RIC as of the Closing Date.
(h) The FTI Funds are not under jurisdiction of a Court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
(i) The FTI Funds do not have any unamortized or unpaid organization fees or
expenses.
(j) The Prospectus of the FTI Funds, dated April 1, 2003, and the
corresponding Statement of Additional Information, dated April 1, 2003, do
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 they were made,
not misleading, and any amended, revised, or new prospectus or statement of
additional information of the FTI Funds or any supplement thereto, that is
hereafter filed with the Securities and Exchange Commission ("SEC") (copies
of which documents shall be provided to FG Trust promptly after such filing),
shall not contain any untrue statement of a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading.
(k) The FTI Funds do not have any known liabilities, costs or expenses of a
material amount, contingent or otherwise, other than those reflected in the
financial statements referred to in Section 5(c) hereof and those incurred in
the ordinary course of business as an investment company since the dates of
those financial statements. On the Closing Date, FTI Trust shall advise FG
Trust in writing of all the FTI Funds' known liabilities, contingent or
otherwise, whether or not incurred in the ordinary course of business,
existing or accrued at such time.
(l) Since November 30, 2002, there has not been any material adverse change
in the FTI Funds' financial condition, assets, liabilities, or business other
than changes occurring in the ordinary course of business.
(m) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the FTI Funds or
FTI Trust of the transactions contemplated by the Plan, except as may be
required under the federal or state securities laws or the rules and
regulations thereunder.
(n) The information to be furnished by FTI Trust or the FTI Funds for use in
preparing the Proxy Statement referred to in Section 7(f) hereof, and any
other documents which may be necessary in connection with the transactions
contemplated hereby, shall be accurate and complete and shall comply in all
material respects with federal securities and other laws and regulations
thereunder applicable thereto.
(o) There is no plan or intention of the FTI Funds' shareholders who
individually own 5% or more of shares of the FTI Funds and, to the best of
FTI Trust's knowledge, there is no plan or intention of the remaining FTI
Funds' shareholders to redeem or otherwise to dispose of any shares of FGT
Funds to be received by them in the reorganization (other than redemptions
and dispositions of shares of FGT Funds that may occur in the future as a
consequence of investment decisions unrelated to the reorganization). FTI
Trust does not anticipate dispositions of shares of the FTI Funds at the time
or soon after the reorganization to exceed the usual rate and frequency of
redemptions of shares of the FTI Funds as series of an open-end investment
company. Consequently, FTI Trust is not aware of any plan that would cause
the percentage of shareholder interests, if any, that will be disposed of as
a result of or at the time of the reorganization to be 1% or more of the
shares of the FTI Funds outstanding as of the Closing Date.
(p) The statement of assets and liabilities to be furnished by it as of 4:00
p.m. Eastern time on the Closing Date for the purpose of determining the
number of FGT Funds' shares to be issued pursuant to Section 1 of the Plan,
will accurately reflect each FTI Fund's Assets and outstanding shares of
beneficial interest, as of such date, in conformity with generally accepted
accounting principles applied on a consistent basis.
(q) At the Closing, it will have good and marketable title to all of the
Assets shown on the statement of assets and liabilities referred to in (a)
above, except such imperfections of title as do not materially detract from
the value or use of the Assets subject thereto, or materially affect title
thereto.
(r) As of the Closing Date, the FTI Funds will not have outstanding any
warrants, options, convertible securities, or any other type of rights
pursuant to which any person could acquire shares of the FTI Funds, except
for the right of investors to acquire shares at net asset value in the normal
course of business as open-end diversified management investment companies
operating under the 1940 Act.
(s) Throughout the five-year period ending on the Closing Date, the FTI
Funds will have conducted their historic business within the meaning of
Section 1.368-1(d) of the Income Tax Regulations under the Code in a
substantially unchanged manner.
6. REPRESENTATIONS AND WARRANTIES BY FTI TRUST AND FG TRUST.
FTI Trust, on behalf of the FTI Funds, and FG Trust, on behalf of the
FGT Funds, each represents and warrants to the other that:
(a) Except as disclosed in its currently effective prospectus relating to
the FTI Funds, in the case of FTI Trust, and the FGT Funds, in the case of FG
Trust, there is no material suit, judicial action, or legal or administrative
proceeding pending or threatened against it. Neither FG Trust nor FTI Trust
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 the
FGT Funds' or the FTI Funds' business or their ability to consummate the
transactions herein contemplated.
(b) There are no known actual or proposed deficiency assessments with
respect to any taxes payable by it.
(c) The execution, delivery, and performance of the Plan have been duly
authorized by all necessary action of its Board of Trustees, and the Plan,
subject to the approval of the FTI Funds' shareholders in the case of FTI
Trust, constitutes a valid and binding obligation enforceable in accordance
with its terms, subject as to enforcement to bankruptcy, insolvency,
reorganization arrangement, moratorium, and other similar laws of general
applicability relating to or affecting creditors' rights and to general
equity principles.
(d) It anticipates that consummation of the Plan will not cause the FTI
Funds, in the case of FTI Trust, and the FGT Funds, in the case of FG Trust,
to fail to conform to the requirements of Subchapter M of the Code for
federal income taxation as a RIC at the end of its fiscal year.
7. COVENANTS OF FTI TRUST AND FG TRUST.
(a) FTI Trust, on behalf of the FTI Funds, and FG Trust, on behalf of the
FGT Funds, each covenant to operate their respective businesses as presently
conducted between the date hereof and the Closing, it being understood that
such ordinary course of business will include customary dividends and
distributions and any other distribution necessary or desirable to avoid
federal income or excise taxes.
(b) FTI Trust, on behalf of the FTI Funds, undertakes that it will not
acquire the FGT Funds' shares for the purpose of making distributions thereof
to anyone other than the FTI Funds' shareholders.
(c) FTI Trust, on behalf of the FTI Funds, undertakes that, if the Plan is
consummated as to one or more FTI Funds, such FTI Funds will liquidate and
dissolve, and if the Plan is consummated for all FTI Funds, FTI Trust will
liquidate and dissolve itself and all FTI Funds.
(d) FTI Trust, on behalf of the FTI Funds, and FG Trust, on behalf of the
FGT Funds, each agree that, by the Closing, all of their Federal and other
tax returns and reports required by law to be filed on or before such date
shall have been filed, and all Federal and other taxes shown as due on said
returns shall have either been paid or adequate liability reserves shall have
been provided for the payment of such taxes, and to the best of their
knowledge no such tax return is currently under audit and no tax deficiency
or liability has been asserted with respect to such tax returns or reports by
the Internal Revenue Service or any state or local tax authority.
(e) At the Closing, FTI Trust, on behalf of the FTI Funds, will provide the
FGT Funds a copy of the shareholder ledger accounts, certified by the FTI
Funds' transfer agent or their President to the best of its or his knowledge
and belief, for all the shareholders of record of the FTI Funds' shares as of
4:00 p.m., Eastern time, on the Closing Date who are to become shareholders
of the FGT Funds as a result of the transfer of assets that is the subject of
the Plan.
(f) The Board of Trustees of FTI Trust shall call and FTI Trust shall hold,
a Special Joint Meeting of the FTI Funds' shareholders to consider and vote
upon the Plan (the "Special Meeting") and FTI Trust shall take all other
actions reasonably necessary to obtain approval of the transactions
contemplated herein. FTI Trust agrees (i) to file with the SEC, and (ii) to
mail to each shareholder of record of FTI Funds entitled to vote at the
Special Meeting at which action on the Plan is to be considered, in
sufficient time to comply with requirements as to notice thereof, a Proxy
Statement that complies in all material respects with the applicable
provisions of Section 14(a) of the 1934 Act, as amended, and Section 20(a) of
the 1940 Act, and the rules and regulations, respectively, thereunder. At the
time it becomes effective, at the time of the Special Meeting, and at the
Closing Date, the Proxy Statement will (i) comply in all material respects
with the applicable provisions of the 1934 Act, and the rules and regulations
promulgated thereunder; and (ii) not contain any untrue statement of material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading.
(g) Subject to the provisions of the Plan, FG Trust and FTI Trust each shall
take, or cause to be taken, all action, and do or cause to be done, all
things reasonably necessary, proper or advisable to consummate the
transactions contemplated by the Plan.
(h) FTI Trust shall furnish to FG Trust on the Closing Date a Statement of
Assets and Liabilities of the FTI Funds as of the Closing Date, which
statement shall be prepared in accordance with GAAP consistently applied and
shall be certified by the FTI Funds' Treasurer or Assistant Treasurer. As
promptly as practicable, but in any case, within forty-five (45) days after
the Closing Date, FTI Trust shall furnish to FG Trust, in such form as is
reasonably satisfactory to FG Trust, a statement of the earnings and profits
of the FTI Funds for federal income tax purposes, and of any capital loss
carryovers and other items that will be carried over to the FGT Funds as a
result of Section 381 of the Code, which statement shall be certified by the
FTI Funds' Treasurer or Assistant Treasurer. FTI Trust covenants that each
of the FTI Funds have no earnings and profits that were accumulated by it or
any acquired entity during a taxable year when it or such entity did not
qualify as a RIC under the Code, or, if it has such earnings and profits, it
shall distribute them to its shareholders prior to the Closing Date.
(i) FTI Trust shall deliver to FG Trust at the Closing Date confirmation or
other adequate evidence as to the tax costs and holding periods of the assets
and property of the FTI Funds transferred to FG Trust in accordance with the
terms of the Plan.
8. CONDITIONS PRECEDENT TO BE FULFILLED BY FTI TRUST AND FG TRUST.
The consummation of the Plan hereunder shall be subject to the following
respective conditions:
(a) That: (i) all the representations and warranties of the other party
contained herein shall be true and correct as of the Closing with the same
effect as though made as of and at such date; (ii) the other party shall have
performed all obligations required by the Plan to be performed by it prior to
the Closing; and (iii) the other party shall have delivered to such party a
certificate signed by the President and by the Secretary or equivalent
officer to the foregoing effect.
(b) That each party shall have delivered to the other party a copy of the
resolutions approving the Plan adopted and approved by the appropriate action
of the Board of Trustees certified by its Secretary or equivalent officer of
each of the Funds.
(c) That the SEC shall not have issued an unfavorable management report
under Section 25(b) of the 1940 Act or instituted or threatened to institute
any proceeding seeking to enjoin consummation of the Plan under Section
25(c) of the 1940 Act. And, further, no other legal, administrative or other
proceeding shall have been instituted or threatened that would materially
affect the financial condition of either party or would prohibit the
transactions contemplated hereby.
(d) That the Plan and reorganizations contemplated hereby shall have been
adopted and approved by the appropriate action of the shareholders of the FTI
Funds at an annual or special meeting or any adjournment thereof.
(e) That a distribution or distributions shall have been declared for each
of the FTI Funds prior to the Closing Date that, together with all previous
distributions, shall have the effect of distributing to its shareholders
(i) all of its ordinary income and all of its capital gain net income, 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 ordinary income and
capital gain net income from any period to the extent not otherwise declared
for distribution. Capital gain net income has the meaning given such term by
Section 1222(a) of the Code.
(f) That there shall be delivered to FTI Trust, on behalf of the FTI Funds,
and FG Trust, on behalf of the FGT Funds, an opinion from Messrs. Stradley,
Ronon, Stevens & Young, LLP, counsel to FG Trust, to the effect that,
provided the acquisition contemplated hereby is carried out in accordance
with this Plan and with the laws of the Commonwealth of Massachusetts and
State of Delaware, and based upon certificates of the officers of FTI Trust
and FG Trust with regard to matters of fact for each FTI Fund and
corresponding FGT Fund:
(1) The acquisition by the FGT Fund of all the assets of the FTI Fund as
provided for herein in exchange for the FGT Fund's shares and the
assumption by the FGT Fund of all of the liabilities of the FTI Fund,
followed by the distribution by the FTI Fund to its shareholders of the
FGT Fund's shares in complete liquidation of the FTI Fund will qualify
as a reorganization within the meaning of Section 368(a)(1) of the Code,
and the FTI Fund and the FGT Fund will each be a "party to the
reorganization" within the meaning of Section 368(b) of the Code;
(2) No gain or loss will be recognized by the FTI Fund upon the transfer of
all of its assets to, and assumption of its liabilities by, the FGT Fund
in exchange solely for voting shares of the FGT Fund (Sections 361(a)
and 357(a) of the Code);
(3) The FGT Fund will recognize no gain or loss upon the receipt of all of
the assets of the corresponding FTI Fund, in exchange solely for voting
shares of the FGT Fund (Section 1032(a) of the Code);
(4) No gain or loss will be recognized by the FTI Fund upon the distribution
of the corresponding FGT Fund's shares to its shareholders in complete
liquidation of the FTI Fund (in pursuance of the Plan) (Section
361(c)(1) of the Code);
(5) The basis of the assets of the FTI Fund received by the FGT Fund will be
the same as the basis of such assets to the FTI Fund immediately prior
to the reorganization (Section 362(b) of the Code);
(6) The holding period of the assets of the FTI Fund received by the FGT
Fund will include the period during which such assets were held by the
FTI Fund (Section 1223(2) of the Code);
(7) No gain or loss will be recognized to the shareholders of the FTI Fund
upon the exchange of their shares in the FTI Fund for voting shares of
the FGT Fund (including fractional shares to which they may be entitled)
(Section 354(a) of the Code);
(8) The basis of a FGT Fund's shares received by the shareholders of the FTI
Fund shall be the same as the basis of the FTI Fund's shares exchanged
therefor (Section 358(a)(1) of the Code);
(9) The holding period of the FGT Fund's shares received by shareholders of
the FTI Fund (including fractional shares to which they may be entitled)
will include the holding period of the FTI Fund's shares surrendered in
exchange therefor, provided that the FTI Fund's shares were held as a
capital asset on the effective date of the exchange (Section 1223(1) of
the Code); and
(10) A FGT Fund will succeed to and take into account as of the date of the
transfer (as defined in Section 1.381(b)-1(b) of the regulations issued
by the United States Treasury ("Treasury Regulations") the items of the
FTI Fund described in Section 381(c) of the Code, subject to the
conditions and limitations specified in Sections 381, 382, 383 and 384
of the Code and the Treasury Regulations.
(g) That there shall be delivered to FG Trust on behalf of the FGT Funds an
opinion in form and substance satisfactory to it from Messrs. Stradley,
Ronon, Stevens & Young, LLP, counsel to FTI Trust on behalf of the FTI Funds,
to the effect that, subject in all respects to the effects of bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance, and other laws
now or hereafter affecting generally the enforcement of creditors' rights:
(1) Each of the FTI Funds is a series of FTI Trust and the FTI Trust is a
validly existing business trust in good standing under the laws of The
Commonwealth of Massachusetts;
(2) FTI Trust is authorized to issue an unlimited number of shares of
beneficial interest, without a par value, of the FTI Funds. One class of
shares of the FTI Funds has been designated as the FTI Funds' shares,
and an unlimited number of shares of beneficial interest of FTI Trust
have been allocated to the FTI Funds' shares. Assuming that the initial
shares of beneficial interest of the FTI Funds were issued in accordance
with the 1940 Act and the Declaration of Trust, as amended, and By-laws,
as amended and restated, of FTI Trust, and that all other outstanding
shares of the FTI Funds were sold, issued and paid for in accordance
with the terms of the FTI Funds' prospectus in effect at the time of
such sales, each such outstanding share is duly authorized, fully paid,
and non-assessable;
(3) The FTI Trust is an open-end investment company of the management type
registered as such under the 1940 Act;
(4) Except as disclosed in the FTI Funds' currently effective prospectus,
such counsel does not know of any material suit, action, or legal or
administrative proceeding pending or threatened against the FTI Funds,
the unfavorable outcome of which would materially and adversely affect
FTI Trust or the FTI Funds;
(5) The execution and delivery of the Plan and the consummation of the
transactions contemplated hereby have been duly authorized by all
necessary trust action on the part of FTI Trust on behalf of the FTI
Funds; and
(6) Neither the execution, delivery, nor performance of the Plan by FTI
Trust on behalf of the FTI Funds violates any provision of its
Declaration of Trust or By-laws, or the provisions of any agreement or
other instrument filed by FTI Trust as an exhibit to its Registration
Statement on Form N-1A; the Plan is the legal, valid and binding
obligation of FTI Trust on behalf of the FTI Funds and is enforceable
against FTI Trust on behalf of the FTI Funds in accordance with its
terms.
In giving the opinions set forth above, this counsel may state that it is
relying on certificates of the officers of FTI Trust with regard to matters
of fact, and certain certifications and written statements of governmental
officials with respect to the good standing of FTI Trust.
(h) That there shall be delivered to FTI Trust on behalf of the FTI Funds an
opinion in form and substance satisfactory to it from Messrs. Stradley,
Ronon, Stevens & Young, LLP, counsel to FG Trust on behalf of the FGT Funds,
to the effect that, subject in all respects to the effects of bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance and other laws
now or hereafter affecting generally the enforcement of creditors' rights:
(1) Each of the FGT Funds is a series of FG Trust and FG Trust is a validly
existing statutory trust in good standing under the laws of the State of
Delaware;
(2) FG Trust is authorized to issue an unlimited number of shares of
beneficial interest, par value $0.01 per share of the FGT Funds. One
class of shares FGT Funds has been designated as the FGT Funds' shares,
and an unlimited number of shares of beneficial interest, par value
$0.01 per share, have been allocated to the FGT Funds' shares. Assuming
that the shares of beneficial interest of the FGT Funds to be delivered
pursuant to the Plan are sold, issued and paid for in accordance with
the terms of the FGT Funds' prospectus in effect at the time of the
Closing, each such share of the FGT Funds is validly issued, fully paid,
and non-assessable;
(3) Each of the FGT Funds is a series of the FG Trust, an open-end
investment company of the management type registered as such under the
1940 Act;
(4) Such counsel does not know of any material suit, action, or legal or
administrative proceeding pending or threatened against the FGT Funds,
the unfavorable outcome of which would materially and adversely affect
FG Trust or the FGT Funds;
(5) The execution and delivery of the Plan and the consummation of the
transactions contemplated hereby have been duly authorized by all
necessary trust action on the part of FG Trust on behalf of the FGT
Funds;
(6) Neither the execution, delivery, nor performance of the Plan by FG Trust
on behalf of the FGT Funds violates any provision of its Declaration of
Trust or By-laws, or the provisions of any agreement or other instrument
filed by FG Trust as an exhibit to its Registration Statement on
Form N-1A; the Plan is the legal, valid and binding obligation of FG
Trust on behalf of the FGT Funds and is enforceable against FG Trust on
behalf of the FGT Funds in accordance with its terms; and
(7) The Registration Statement of FG Trust, of which the prospectus dated
[June 19], 2003 of the FGT Funds is a part (the "Prospectus") is, at the
time of the signing of the Plan, effective under the 1933 Act, and, to
the best knowledge of such counsel, no stop order suspending the
effectiveness of such registration statement has been issued, and no
proceedings for such purpose have been instituted or are pending before
or threatened by the SEC under the 1933 Act, and nothing has come to
counsel's attention that causes it to believe that, at the time the
Prospectus became effective, or at the time of the signing of the Plan,
or at the Closing, such Prospectus (except for the financial statements
and other financial and statistical data included therein, as to which
counsel need not express an opinion), contained any untrue statement of
a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading; and such counsel knows of no legal or government proceedings
required to be described in the Prospectus, or of any contract or
document of a character required to be described in the Prospectus that
is not described as required.
In giving the opinions set forth above, this counsel may state that it
is relying on certificates of the officers of FG Trust with regard to matters
of fact, and certain certifications and written statements of governmental
officials with respect to the good standing of FG Trust.
(i) That the FTI Funds shall have received a certificate from the President
and Secretary of FG Trust on behalf of FGT Funds to the effect that the
statements contained in the Prospectus, at the time the Prospectus became
effective, at the date of the signing of the Plan, and at the Closing, did
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 not misleading.
(j) That FG Trust's Registration Statement with respect to FGT Funds' shares
to be delivered to FTI Funds' shareholders in accordance with the Plan shall
have become effective, and no stop order suspending the effectiveness of the
Registration Statement or any amendment or supplement thereto, shall have
been issued prior to the Closing Date or shall be in effect at Closing, and
no proceedings for the issuance of such an order shall be pending or
threatened on that date.
(k) That the FGT Funds' shares to be delivered hereunder shall be eligible
for sale with each state commission or agency with which such eligibility is
required in order to permit the FGT Funds' shares lawfully to be delivered to
each holder of FTI Funds' shares.
(l) That, at the Closing, there shall be transferred to FG Trust on behalf
of FGT Funds, aggregate Assets of the corresponding FTI Funds comprising at
least 90% in fair market value of the total net assets and 70% of the fair
market value of the total gross assets recorded on the books of each FTI Fund
on the Closing Date.
(m) That there be delivered to FG Trust on behalf of FGT Funds information
concerning the tax basis of FTI Funds in all securities transferred to the
corresponding FGT Funds, together with shareholder information including the
names, addresses, and taxpayer identification numbers of the shareholders of
FTI Funds as of the Closing Date, the number of shares 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 FTI Funds respect to each
shareholder.
9. BROKERAGE FEES AND EXPENSES.
(a) FTI Trust on behalf of FTI Funds and FG Trust on behalf of FGT Funds
each represents and warrants to the other that there are no broker or
finders' fees payable by it in connection with the transactions provided for
herein.
(b) The expenses of entering into and carrying out the provisions of the
Plan shall be borne [by Fiduciary International, Inc. and its affiliates.]
10. TERMINATION; POSTPONEMENT; WAIVER; ORDER.
(a) Anything contained in the Plan to the contrary notwithstanding, the Plan
may be terminated and the reorganization abandoned at any time (whether
before or after approval thereof by the shareholders of the FTI Funds) prior
to the Closing, or the Closing may be postponed as follows:
(1) by mutual consent of FTI Trust on behalf of FTI Funds and FG Trust on
behalf of FGT Funds;
(2) by FG Trust on behalf of FGT Funds if any condition of its obligations
set forth in Section 8 has not been fulfilled or waived and it
reasonably appears that such condition or obligation will not or cannot
be met; or
(3) by FTI Trust on behalf of FTI Funds if any condition of its obligations
set forth in Section 8 has not been fulfilled or waived and it
reasonably appears that such condition or obligation will not or cannot
be met.
An election by FG Trust or FTI Trust to terminate the Plan and to
abandon the reorganization shall be exercised, respectively, by the Board of
Trustees of either FG Trust or FTI Trust.
(b) If the transactions contemplated by the Plan have not been consummated
by [July 31,] 2003, the Plan shall automatically terminate on that date,
unless a later date is agreed to by both FG Trust and FTI Trust.
(c) In the event of termination of the Plan pursuant to the provisions
hereof, the same shall become void and have no further effect, and neither
FTI Trust, FG Trust, FTI Funds nor FGT Funds, nor their trustees, officers,
or agents or the shareholders of FTI Funds or FGT Funds shall have any
liability in respect of the Plan, but all expenses incidental to the
preparation and carrying out of the Plan shall be paid as provided in Section
9(b) hereof.
(d) At any time prior to the Closing, any of the terms or conditions of the
Plan may be waived by the party who is entitled to the benefit thereof by
action taken by that party's Board of Trustees if, in the judgment of such
Board of Trustees, such action or waiver will not have a material adverse
effect on the benefits intended under the Plan to its shareholders, on behalf
of whom such action is taken.
(e) The respective representations and warranties contained in Sections 4 to
6 hereof shall expire with and terminate on the Closing Date, and neither FTI
Trust nor FG Trust, nor any of their officers, trustees, agents or
shareholders shall have any liability with respect to such representations or
warranties after the Closing Date. This provision shall not protect any
officer, trustee, agent or shareholder of FTI Trust or FG Trust against any
liability to the entity for which that officer, trustee, agent or shareholder
so acts or to its shareholders to which that officer, trustee, agent or
shareholder would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties in the conduct
of such office.
(f) If any order or orders of the SEC with respect to the Plan shall be
issued prior to the Closing and shall impose any terms or conditions that are
determined by action of the Board of Trustees of FTI Trust, on behalf of FTI
Funds, or FG Trust, on behalf of FGT Funds, to be acceptable, such terms and
conditions shall be binding as if a part of the Plan without further vote or
approval of the shareholders of FTI Funds, unless such terms and conditions
shall result in a change in the method of computing the number of FGT Funds'
shares to be issued to FTI Funds in which event, unless such terms and
conditions shall have been included in the proxy solicitation material
furnished to the shareholders of FTI Funds prior to the meeting at which the
transactions contemplated by the Plan shall have been approved, the Plan
shall not be consummated and shall terminate unless FTI Trust shall promptly
call a special meeting of the shareholders of FTI Funds at which such
conditions so imposed shall be submitted for approval.
11. INDEMNIFICATION.
(a) FG Trust and the FGT Funds shall indemnify, defend and hold harmless
the FTI Funds, FTI Trust, its Board of Trustees, officers, employees and agents
(collectively "Acquired Fund Indemnified Parties") against all losses,
claims, demands, liabilities and expenses, including reasonable legal and
other expenses incurred in defending third party claims, actions, suits or
proceedings, whether or not resulting in any liability to such Acquired Fund
Indemnified Parties, including amounts paid by any one or more of the
Acquired Fund Indemnified Parties in a compromise or settlement of any such
claim, action, suit or proceeding, or threatened third party claim, suit,
action or proceeding made with the consent of FG Trust, arising from any
untrue statement or alleged untrue statement of a material fact contained in
the Proxy Statement, as filed and in effect with the SEC or any application
prepared by FG Trust and FGT Funds with any state regulatory agency in
connection with the transactions contemplated by the Plan under the
securities laws thereof ("Application"); or which arises out of or is based
upon any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading; provided, however, that FG Trust and FGT Funds shall only be
liable in such case to the extent that any such loss, claim, demand,
liability or expense arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission about FG Trust
and/or FGT Funds or the transactions contemplated by the Plan made in the
Proxy Statement or any Application.
(b) After the Closing Date, FG Trust, on behalf of the FGT Funds, shall
also indemnify and hold harmless FTI Funds' Board of Trustees and officers
(collectively, "Acquired Fund Covered Persons") against all losses, claims,
demands, liabilities and expenses, including reasonable legal and other
expenses incurred in defending third party claims, actions, suits or
proceedings, whether or not resulting in any liability to such Acquired Fund
Covered Person, including amounts paid by any one or more of the Acquired
Fund Covered Persons in a compromise or settlement of any such claim, suit,
action or proceeding, or threatened third party claim, suit, action or
proceeding made with the consent of FG Trust, on behalf of the FGT Funds, to
the extent such Acquired Fund Covered Person is, or would have been, entitled
to indemnification by FTI Trust prior to the Closing Date pursuant to FTI
Trust's Declaration of Trust and By-Laws.
(c) FTI Trust on behalf of FTI Funds, until the time of FTI Funds'
liquidation, shall indemnify, defend, and hold harmless FGT Funds, FG Trust,
its Board of Trustees, officers, employees and agents ("Acquiring Fund
Indemnified Parties") against all losses, claims, demands, liabilities, and
expenses, including reasonable legal and other expenses incurred in defending
third party claims, actions, suits or proceedings, whether or not resulting
in any liability to such Acquiring Fund Indemnified Parties, including
amounts paid by any one or more of the Acquiring Fund Indemnified Parties in
a compromise or settlement of any such claim, suit, action, or proceeding,
made with the consent of FTI Trust, arising from any untrue statement or
alleged untrue statement of a material fact contained in the Proxy Statement,
as filed with the SEC or any Application; or which arises out of or is based
upon any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading; provided, however, that FTI Trust and FTI Funds shall only be
liable in such case to the extent that any such loss, claim, demand,
liability or expense arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission about FTI Trust
and/or FTI Funds or the transactions contemplated by the Plan made in the
Proxy Statement or any Application.
(d) A party seeking indemnification hereunder is hereinafter called the
"Indemnified Party" and the party from whom the Indemnified Party is seeking
indemnification hereunder is hereinafter called the "Indemnifying Party."
Each Indemnified Party shall notify the Indemnifying Party in writing within
ten (10) days of the receipt by one or more of the Indemnified Parties of any
notice of legal process of any suit brought against or claim made against
such Indemnified Party as to any matters covered by this Section 11, but the
failure to notify the Indemnifying Party shall not relieve the Indemnifying
Party from any liability which it may have to any Indemnified Party otherwise
than under this Section 11. The Indemnifying Party shall be entitled to
participate at its own expense in the defense of any claim, action, suit, or
proceeding covered by this Section 11, or, if it so elects, to assume at its
own expense, the defense thereof with counsel satisfactory to the Indemnified
Parties; provided, however, if the defendants in any such action include both
the Indemnifying Party and any Indemnified Party and the Indemnified Party
shall have reasonably concluded that there may be legal defenses available to
it which are different from or additional to those available to the
Indemnifying Party, the Indemnified Party shall have the right to select
separate counsel to assume such legal defense and to otherwise participate in
the defense of such action on behalf of such Indemnified Party.
Upon receipt of notice from the Indemnifying Party to the
Indemnified Parties of the election by the Indemnifying Party to assume the
defense of such action, the Indemnifying Party shall not be liable to such
Indemnified Parties under this Section 11 for any legal or other expenses
subsequently incurred by such Indemnified Parties in connection with the
defense thereof unless (i) the Indemnified Parties shall have employed such
counsel in connection with the assumption of legal defenses in accordance
with the provision of the immediately preceding sentence (it being
understood, however, that the Indemnifying Parties shall not be liable for
the expenses of more than one separate counsel); (ii) the Indemnifying
Parties do not employ counsel reasonably satisfactory to the Indemnified
Parties to represent the Indemnified Parties within a reasonable amount of
time after notice of commencement of the action; or (iii) the Indemnifying
Parties have authorized the employment of counsel for the Indemnified Parties
at its expense.
(e) This Section 11 shall survive the termination of the Plan and for a
period of three (3) years following the Closing Date.
12. LIABILITY OF FG TRUST AND FTI TRUST.
(a) Each party acknowledges and agrees that all obligations of FG Trust
under the Plan are binding only with respect to FGT Funds; that any liability
of FG Trust under the Plan with respect to an FGT Fund, or in connection with
the transactions contemplated herein with respect to such FGT Fund, shall be
discharged only out of the assets of that FGT Fund; that no other series of
FG Trust shall be liable with respect to the Plan or in connection with the
transactions contemplated herein; and that neither FTI Trust nor FTI Funds
shall seek satisfaction of any such obligation or liability from the
shareholders of FG Trust, the trustees, officers, employees or agents of FG
Trust, or any of them.
(b) Each party acknowledges and agrees that all obligations of FTI Trust
under the Plan are binding only with respect to the respective FTI Funds;
that any liability of FTI Trust under the Plan with respect to an FTI Fund,
or in connection with the transactions contemplated herein with respect to
such FTI Fund, shall be discharged only out of the assets of that FTI Fund;
that no other series of FTI Trust shall be liable with respect to the Plan or
in connection with the transactions contemplated herein; and that neither FG
Trust nor FGT Funds shall seek satisfaction of any such obligation or
liability from the shareholders of FTI Trust, the trustees, officers,
employees or agents of FTI Trust, or any of them.
13. SEVERABILITY.
Subject to the conditions set forth in the Plan and notwithstanding
anything herein that may be construed to the contrary, the failure of one of
the FTI Funds to consummate the transactions contemplated hereby shall not,
or to comply with the conditions set forth in Section 8 of the Plan may not,
affect the consummation or validity of the reorganization with respect to any
other FTI Fund, and the provisions of this Agreement shall be construed to
effect this intent, including, without limitation, as the context requires,
construing the terms "FTI Fund" and "FGT Fund" as meaning only those series
of FTI Trust and FG Trust, respectively, that are involved in the
reorganization as of the Closing Date.
14. ENTIRE AGREEMENT AND AMENDMENTS.
The Plan embodies the entire agreement between the parties and there are
no agreements, understandings, restrictions, or warranties relating to the
transactions contemplated by the Plan other than those set forth herein or
herein provided for. The Plan may be amended only by mutual consent of the
parties in writing. Neither the Plan nor any interest herein may be assigned
without the prior written consent of the other party.
15. COUNTERPARTS.
The Plan may be executed in any number of counterparts, each of which
shall be deemed to be an original, but all such counterparts together shall
constitute but one instrument.
16. NOTICES.
Any notice, report, or demand required or permitted by any provision of
the Plan shall be in writing and shall be deemed to have been given if
delivered or mailed, first class postage prepaid, addressed to Franklin
Global Trust, at One Franklin Parkway, San Mateo, California 94403,
Attention: Secretary, or the FTI Funds, at [ ], Attention:
Secretary, as the case may be.
17. GOVERNING LAW.
The Plan shall be governed by and carried out in accordance with the
laws of The Commonwealth of [Delaware or Massachusetts?].
IN WITNESS WHEREOF, FTI Trust, on behalf of FTI Funds, and FG Trust, on
behalf of FGT Funds, have each caused the Plan to be executed on its behalf
by its duly authorized officers, all as of the date and year first-above
written.
FRANKLIN GLOBAL TRUST, ON
BEHALF OF FIDUCIARY LARGE
CAPITALIZATION GROWTH AND
INCOME FUND, FIDUCIARY SMALL
CAPITALIZATION EQUITY FUND
AND FIDUCIARY EUROPEAN
SMALLER COMPANIES FUND
Attest:
- ------------------------------- By:-----------------------------
[ ] [ ]
Secretary Vice President
FTI FUNDS, ON BEHALF OF FTI
LARGE CAPITALIZATION GROWTH
AND INCOME FUND, FTI SMALL
CAPITALIZATION EQUITY FUND
AND FTI EUROPEAN SMALLER
COMPANIES FUND
Attest:
- ------------------------------- By:--------------------------------
[ ] [ ]
Secretary Vice President
EXHIBIT B
A COMPARISON OF GOVERNING DOCUMENTS AND STATE LAW
A COMPARISON OF:
THE LAW GOVERNING DELAWARE STATUTORY TRUSTS AND
THE CHARTER DOCUMENTS OF FRANKLIN GLOBAL TRUST, A DELAWARE STATUTORY TRUST,
UNDER SUCH LAW,
THE LAW GOVERNING MASSACHUSETTS BUSINESS TRUSTS AND
THE CHARTER DOCUMENTS OF FTI FUNDS, A MASSACHUSETTS BUSINESS TRUST,
UNDER SUCH LAW
DELAWARE STATUTORY TRUST
GOVERNING DOCUMENTS/GOVERNING BODY
A Delaware statutory trust (formerly known as a Delaware business trust) (a
"DST") is formed by a governing instrument and the filing of a certificate of
trust with the Delaware Secretary of State ("Secretary of State"). The
Delaware law governing a DST is referred to in this analysis as the "Delaware
Act."
A DST is an unincorporated association organized under the Delaware Act whose
operations are governed by its governing instrument (which may consist of one
or more instruments). Its business and affairs are managed by or under the
direction of one or more trustees.
As described in this chart, DSTs are granted a significant amount of
organizational and operational flexibility. Delaware law makes it easy to
obtain needed shareholder approvals, and also permits management of a DST to
take various actions without being required to make state filings or obtain
shareholder approval.
The governing instrument for the DST, Franklin Global Trust ("Global Trust"),
is comprised of an agreement and declaration of trust, as amended
("Declaration"), and by-laws ("By-Laws"). Global Trust's governing body is a
board of trustees (the "board" or "board of trustees" or collectively, the
"trustees").
Each trustee of Global Trust shall hold office for the lifetime of Global
Trust until he or she dies, resigns, is declared bankrupt or incompetent by a
court, or is removed, or, if earlier, until the next meeting of shareholders
called for the purpose of electing trustees and until the election and
qualification of his or her successor.
MASSACHUSETTS BUSINESS TRUST
GOVERNING DOCUMENTS/GOVERNING BODY
A Massachusetts business trust (an "MBT") is created by filing a declaration
of trust with the Secretary of State of Massachusetts and with the clerk of
every city or town in Massachusetts where the trust has a usual place of
business.
An MBT is an unincorporated association organized under the Massachusetts
statute governing business trusts (the "Massachusetts Statute") and is
considered to be a hybrid, having characteristics of both corporations and
common law trusts. An MBT's operations are governed by a trust instrument
and by-laws. The business and affairs of an MBT are managed by or under the
direction of a board of trustees.
MBTs also are granted a significant amount of organizational and operational
flexibility. The Massachusetts Statute is silent on most of the salient
features of MBTs, thereby allowing the trustees of the MBT to freely
structure the MBT. The Massachusetts Statute does not specify what
information must be contained in the declaration of trust, nor does it
require a registered officer or agent for service of process.
The governing instrument for the MBT, FTI Funds, is comprised of a
declaration of trust, as amended ("MA Declaration"), and by-laws ("MA
By-Laws"). The FTI Funds' governing body is a board of trustees (the "board"
or "board of trustees" or collectively, the "trustees").
Each trustee of FTI Funds shall hold office for the lifetime of FTI Funds
until he or she dies, resigns, is removed or retired.
DELAWARE STATUTORY TRUST
OWNERSHIP SHARES OR INTERESTS
Under the Delaware Act, the ownership interests in a DST are denominated as
"beneficial interests" that are held by "beneficial owners." However, there
is flexibility as to how a governing instrument refers to "beneficial
interests" and "beneficial owners" and the governing instrument may identify
"beneficial interests" and "beneficial owners" as "shares" and
"shareholders," respectively.
Global Trust's units of beneficial interest, par value $0.01 per unit, are
designated as "shares" and its beneficial owners are designated as
"shareholders." This analysis will use the "share" and "shareholder"
terminology.
MASSACHUSETTS BUSINESS TRUST
OWNERSHIP SHARES OR INTERESTS
Under the Massachusetts Statute, the ownership interests in an MBT are
denominated as "beneficial interests" that are held by "beneficial owners."
However, there is flexibility as to how a governing instrument refers to
"beneficial interests" and "beneficial owners" and the governing instrument
may identify "beneficial interests" and "beneficial owners" as "shares" and
"shareholders," respectively.
FTI Funds' units of beneficial interest, without par value, are designated as
"shares" and its beneficial owners are designated as "shareholders." This
analysis will use the "share" and "shareholder" terminology.
DELAWARE STATUTORY TRUST
SERIES AND CLASSES
Under the Delaware Act, the governing instrument may provide for classes,
groups or series of shares, shareholders or trustees, having such relative
rights, powers and duties as set forth in the governing instrument. Such
series, classes or groups may be described in the DST's governing instrument
or in resolutions adopted by its trustees. No state filing is necessary and,
unless required by the governing instrument, shareholder approval is not
needed.
In addition, under the Delaware Act, except to the extent otherwise provided
in the governing instrument of a DST, where a DST is a registered investment
company under the Investment Company Act of 1940, as amended (the "1940
Act"), any class, group or series of shares of the DST is preferred as to
distribution of assets or payment of dividends over all other classes, groups
or series of the DST with respect to assets specifically allocated to such
class, group or series as contemplated by Section 18 (or any amendment or
successor provision) of the 1940 Act.
The Declaration authorizes an unlimited number of shares, which the trustees
may divide into separate series and may further divide the series into
separate classes of shares. Such series and classes will have the rights and
preferences as determined by the trustees.
MASSACHUSETTS BUSINESS TRUST
SERIES AND CLASSES
The Massachusetts Statute permits an MBT to issue one or more series or
classes of beneficial interest. The Massachusetts Statute is largely silent
as to any requirements for the creation of such series or classes, although
the trust documents creating an MBT may provide methods or authority to
create such series or classes without seeking shareholder approval.
The MA Declaration authorizes an unlimited number of shares, which may be
further divided into separate series and classes. Such series and classes
will have the rights and preferences as determined by the trustees.
DELAWARE STATUTORY TRUST
AMENDMENTS TO GOVERNING DOCUMENTS
The Delaware Act provides broad flexibility as to the manner of amending
and/or restating the governing instrument of a DST. Amendments to the
governing instrument that do not change the information in the DST's
certificate of trust are not required to be filed with the Secretary of State.
DECLARATION OF TRUST
Subject to the paragraph below, the Declaration may be restated and/or
amended at any time by a written instrument signed by a majority of the
trustees and, if required, by approval of such amendment by the shareholders,
by a majority of the shares voted at a shareholders' meeting at which a
quorum is present.
The board of trustees shall have the power to amend the Declaration, without
the need for shareholder action, so as to add to, delete, replace or
otherwise modify any provisions relating to the shares contained in the
Declaration, provided that before adopting any such amendment without
shareholder approval the board of trustees shall determine that it is
consistent with the fair and equitable treatment of all shareholders or that
shareholder approval is not otherwise required by the 1940 Act or other
applicable law. If shares have been issued, shareholder approval shall be
required to adopt any amendment to the Declaration which would adversely
affect to a material degree the rights and preferences of the shares of any
series (or class) or to increase or decrease the par value of the shares of
any series (or class).
BY-LAWS
The By-Laws may be amended or repealed by the affirmative vote or written
consent of a majority of the outstanding shares entitled to vote, except as
otherwise provided by applicable law, the Declaration or the By-Laws.
Subject to the right of shareholders to adopt, amend or repeal By-Laws, and
except as otherwise provided by law or the Declaration, the By-Laws may be
adopted, amended, or repealed by the board of trustees.
CERTIFICATE OF TRUST
Pursuant to the Declaration, the certificate of trust may be amended and/or
restated by a procedure similar to that used to amend and/or restate the
Declaration, as described above. Any such amendment or restatement of the
certificate of trust shall be effective immediately upon filing with the
Secretary of State or such future date as may be stated therein.
MASSACHUSETTS BUSINESS TRUST
AMENDMENTS TO GOVERNING INSTRUMENTS
The Massachusetts Statute provides broad flexibility as to the manner of
amending and/or restating the governing instrument of an MBT. The
Massachusetts Statute provides that the trustees shall, within thirty (30)
days after the adoption of any amendment to the declaration of trust, file a
copy with the Secretary of State of Massachusetts and with the clerk of every
city or town in Massachusetts where the MBT has a usual place of business.
DECLARATION OF TRUST
No amendment of the MA Declaration may repeal the limitations on personal
liability of any shareholder or trustee or repeal the prohibition of
assessment upon the shareholders without the express consent of each
shareholder or trustee involved. Subject to the foregoing, the MA
Declaration may be amended by a written instrument signed by a majority of
the trustees (or by an officer of FTI Funds pursuant to the vote of a
majority of the trustees) so long as such amendment does not (i) adversely
affect the rights of any shareholder with respect to which such amendment
applies, and (ii) contravene applicable law. Any amendment that adversely
affects the rights of shareholders may be adopted by a written instrument
signed by a majority of the trustees (or by an officer of FTI Funds pursuant
to the vote of a majority of the trustees) when authorized to do so by the
vote of the shareholders holding a majority of the shares entitled to vote.
The MA Declaration may be amended by a majority of the trustees, without
shareholder approval, to: (a) establish and designate one or more series or
classes with such rights and preferences and eligibility requirements for
investment therein as the trustees determine, and reclassify outstanding
shares as shares of a particular series or class; (b) combine two or more
series or classes into a single series or class on such terms and conditions
as the trustees determine; (c) change or eliminate any eligibility
requirements for investment in any series or class, including without
limitation, to provide for the issue of shares of any series or class in
connection with any merger or consolidation of FTI Funds with another trust
or company or any acquisition by FTI Funds of part or all of the assets of
any other trust or company; (d) change the designation of any series or
class; (e) change the method of allocating dividends among the various series
and classes; (f) allocate specific assets, liabilities, items of income or
expense of FTI Funds to one or more series and classes; and (g) specifically
allocate assets to any or all series or classes, or create one or more
additional series or classes that are preferred over all other series or
classes in respect of assets specifically allocated thereto or any dividends
paid by FTI Funds and provide for any special voting or other rights with
respect to such series or classes. In addition, unless otherwise provided by
applicable law, the trustees may amend the MA Declaration to abolish a series
or class and rescind its establishment and designation without the approval
of the shareholders of that series or class.
BY-LAWS
The MA By-Laws may be amended by a majority vote of all of the trustees.
CERTIFICATE OF TRUST
The Massachusetts Statute does not require an MBT to file a certificate of
trust.
DELAWARE STATUTORY TRUST
PREEMPTIVE RIGHTS AND REDEMPTION OF SHARES
Under the Delaware Act, a governing instrument may contain any provision
relating to the rights, duties and obligations of the shareholders. Unless
otherwise provided in the governing instrument or another agreement, a
shareholder has no preemptive right to subscribe to any additional issue of
shares or other interest in a DST.
The Declaration provides that no shareholder shall have the preemptive or
other right to subscribe to additional shares or other securities issued by
Global Trust or any series thereof.
Global Trust shall purchase the outstanding shares offered by any shareholder
for redemption upon such shareholder's compliance with the procedures set
forth in the Declaration and/or such other procedures as the board may
authorize. Global Trust shall pay the net asset value for such outstanding
shares in accordance with the Declaration, By-Laws and applicable law.
Payment may be made wholly or partly in kind at the determination of the
trustees and the fair value, selection and quantity of securities or other
property so paid may be determined by or under authority of the trustees.
Global Trust is not liable for any delay in transferring securities selected
for delivery as all or part of any payment in kind.
Global Trust's obligation to repurchase such outstanding shares may be
suspended or postponed by the trustees: (i) at any time that the New York
Stock Exchange ("NYSE") is closed for other than weekends or holidays, (ii)
if permitted by the rules of the Securities and Exchange Commission (the
"SEC") during periods when trading on the NYSE is restricted, (iii) during
any emergency that makes it impracticable for Global Trust to dispose of the
investments of the applicable series or to determine fairly the value of the
net assets held with respect to such series or (iv) during any other period
permitted by order of the SEC for the protection of investors.
In addition, Global Trust may, at its option and at any time, redeem
outstanding shares of any shareholder at the net asset value thereof to the
extent such shareholder owns outstanding shares: (i) of any series having an
aggregate net asset value of less than an amount determined from time to time
by the trustees prior to the acquisition of said shares; (ii) of a particular
series equal to or in excess of a percentage of the outstanding shares of
that series determined from time to time by the trustees; or (iii) equal to
or in excess of a percentage, determined from time to time by the trustees,
of the outstanding shares of Global Trust or of any series thereof.
MASSACHUSETTS BUSINESS TRUST
PREEMPTIVE RIGHTS AND REDEMPTION OF SHARES
Under the Massachusetts Statute, a governing instrument may contain any
provision relating to the rights, duties and obligations of the shareholders.
The MA Declaration provides that no shareholder shall have the preemptive or
other right to subscribe to any additional shares or other securities issued
by FTI Funds.
FTI Funds shall purchase the shares of any series or class offered for
redemption by any shareholder of record upon such shareholder's compliance
with the terms and conditions determined by the trustees.
Such shares shall be purchased at the net asset value thereof in accordance
with the MA Declaration, reduced by any redemption charge or deferred sales
charge as the trustees from time to time may determine. Payment may be made
in whole or in part by a distribution in kind of securities from the
portfolio of the relevant series or class, taking such securities at the same
value employed in determining net asset value, and selecting the securities
in such manner as the trustees deem fair and equitable.
FTI Funds may also purchase shares of a series or class by agreement with the
owner thereof at a purchase price not exceeding the net asset value per share
(reduced by any redemption charge or deferred sales charge).
The trustees may suspend the determination of net asset value or right of
redemption or postpone the payment date for any period in accordance with the
1940 Act.
In addition, FTI Funds has the right at any time to redeem the shares of any
series or class held of record by any shareholder at the net asset value
thereof (which may be reduced by any applicable redemption charge or deferred
sales charge), if at any time: (i) the total investment in the shareholder's
account does not have a minimum dollar value determined from time to time by
the trustees; (ii) a shareholder fails to furnish certified social security
or tax identification numbers; or (iii) the trustees determine that failure
to so redeem may have materially adverse consequences to the other
shareholders, FTI Funds or any series or class thereof.
DELAWARE STATUTORY TRUST
DISSOLUTION AND TERMINATION EVENTS
Global Trust may be dissolved by the vote of a majority of the outstanding
shares of each series entitled to vote, voting separately by series, or by
the trustees by written notice to the shareholders. Any particular series
may be dissolved (i) by vote of a majority of the shares of that series; (ii)
by the trustees by written notice to the shareholders of that series; or
(iii) by vote of a majority of the trustees at any time that there are no
shares outstanding of such series. At any time that there are no shares
outstanding of a particular class, such class may be abolished by the vote of
a majority of the trustees.
MASSACHUSETTS BUSINESS TRUST
DISSOLUTION AND TERMINATION EVENTS
The trustees may, by majority action, and with the affirmative "vote of a
majority of the outstanding voting securities" (as defined in the 1940 Act)
of each series or class entitled to vote as determined by the trustees
pursuant to the MA Declaration, sell and convey the assets of FTI Funds or
any series or class thereof to another trust or corporation. The trustees
may also sell and convert into money all the assets of FTI Funds or any
series or class thereof without shareholder approval, unless otherwise
required by applicable law. In addition, unless otherwise provided by
applicable law, the trustees may amend the MA Declaration to abolish a series
or class and rescind its establishment and designation without the approval
of the shareholders of that series or class.
DELAWARE STATUTORY TRUST
LIQUIDATION
Under the Delaware Act, a DST that has dissolved shall first pay or make
reasonable provision to pay all known claims and obligations, including those
that are contingent, conditional and unmatured, and all known claims and
obligations for which the claimant is unknown. Any remaining assets shall be
distributed to the shareholders or as otherwise provided in the governing
instrument.
Under the Delaware Act, a series that has dissolved shall first pay or make
reasonable provision to pay all known claims and obligations of the series,
including those that are contingent, conditional and unmatured, and all known
claims and obligations of the series for which the claimant is unknown. Any
remaining assets of the series shall be distributed to the shareholders of
such series or as otherwise provided in the governing instrument.
With respect to any remaining assets, the Declaration provides that Global
Trust shall, in accordance with such procedures as the trustees consider
appropriate, reduce such assets held with respect to each series (or the
applicable series, as the case may be) to any combination of cash, shares or
other securities, and distribute the proceeds held with respect to each
series (or the applicable series, as the case may be) to the shareholders of
that series, ratably according to the number of shares of that series held of
record by the several shareholders on the dissolution date. All
distributions shall be made ratably among all shareholders of a particular
(class of a) series from the assets held with respect to such series
according to the number of shares of such (class of such) series held of
record by such shareholder on the dissolution date.
MASSACHUSETTS BUSINESS TRUST
LIQUIDATION
Under the Massachusetts Statute, there are no provisions as to the
liquidation of an MBT.
Following a sale of assets as described under DISSOLUTION AND TERMINATION
EVENTS, the MA Declaration provides that upon making provision to pay all
outstanding obligations, taxes and other liabilities, accrued or contingent,
belonging to each series or class of FTI Funds, the trustees shall distribute
the remaining assets belonging to each series or class ratably among the
holders of the outstanding shares of that series or class.
DELAWARE STATUTORY TRUST
VOTING RIGHTS, MEETINGS, NOTICE, QUORUM, RECORD DATES AND PROXIES
Under the Delaware Act, the governing instrument may set forth any provision
relating to trustee and shareholder voting rights, including the withholding
of such rights from certain trustees or shareholders. If voting rights are
granted, the governing instrument may contain any provision relating to
meetings, notice requirements, written consents, record dates, quorum
requirements, voting by proxy and any other matter pertaining to the exercise
of voting rights. The governing instrument may also provide for the
establishment of record dates for allocations and distributions by the DST.
ONE VOTE PER SHARE
The Declaration provides that each whole share of Global Trust is entitled to
one vote as to any matter on which it is entitled to vote and each fractional
share is entitled to a proportionate fractional vote.
VOTING BY SERIES
The Declaration provides that all shares of Global Trust entitled to vote on
a matter shall vote separately by series and, if applicable, by class, except
if (i) the 1940 Act requires all Global Trust shares to be voted in the
aggregate without differentiation between the separate series or classes, in
which case all of Global Trust's shares may vote on a one-vote-per-share
basis; and (ii) any matter affects only the interests of some but not all
series or classes, in which case only the shareholders of such affected
series or classes may vote on the matter.
SHAREHOLDERS' MEETINGS
The Delaware Act does not mandate annual shareholders' meetings.
The Declaration provides that shareholders' meetings may be called by the
trustees: (i) to elect or remove trustees; (ii) for such other purposes as
may be prescribed by law, the Declaration or the By-Laws; and (iii) for the
purpose of taking action upon any other matter deemed by the trustees to be
necessary or desirable. In addition, a shareholders' meeting for the purpose
of electing or removing trustees may be called upon the demand of
shareholders owning 10% or more of the shares of Global Trust. The By-Laws
authorize the board of trustees, the chairman of the board or the president
to call a shareholders' meeting.
RECORD DATES
As stated above, under the Delaware Act, the governing instrument may provide
for record dates.
In order to determine the shareholders of any series (or class) entitled to
notice of, and to vote at, a shareholders' meeting or any adjournment of such
a meeting, the Declaration authorizes the trustees to fix a record date. The
record date may not be more than ninety (90) days before the date of such
shareholders' meeting. The By-Laws provide that for purposes of determining
the shareholders entitled to notice of any meeting or to vote or entitled to
give consent to action without a meeting, the trustees may fix in advance a
record date which may not be more than ninety (90) days nor less than seven
(7) days before the date of any such meeting or action by written consent.
Pursuant to the By-Laws, if the board of trustees does not fix a record
date: (a) the record date for determining shareholders entitled to notice
of, and to vote at, a meeting will be at the close of business on the
business day next preceding the date on which notice is given or, if notice
is waived, at the close of business on the business day next preceding the
day of the meeting; (b) the record date for determining shareholders entitled
to give consent to action in writing without a meeting, (i) when no prior
action by the board of trustees has been taken, shall be the day on which the
first written consent is given, or (ii) when prior action of the board of
trustees has been taken, shall be at the close of business on the day on
which the board of trustees adopts the resolution relating to such action or
the seventy-fifth day before the date of such other action, whichever is
later.
To determine the shareholders of any series or class entitled to a dividend
or any other distribution, the Declaration authorizes the trustees to fix a
record date which shall be before the date such dividend or distribution is
to be paid. Without fixing a record date the trustees may, for voting and/or
distribution purposes, close the register or transfer books for one or more
series for all or any part of the period between a record date and a
shareholders' meeting or a distribution payment. The trustees may set
different record dates for different series or classes.
The Declaration provides that written notice of any shareholders' meeting
shall be provided by the trustees by mailing such notice at least seven (7)
days before such meeting to each shareholder. The By-Laws further provide
that notice shall be given not more than seventy-five (75) days before the
date of the meeting.
QUORUM FOR SHAREHOLDERS' MEETING
Under the Declaration, except when a larger quorum is required by the
Declaration, the By-Laws or applicable law, forty percent (40%) of the shares
entitled to vote at a shareholders' meeting shall constitute a quorum at such
meeting, When any one or more series or classes is to vote as a single class
separate from any other shares, forty percent (40%) of the shares of each
such series or class entitled to vote at a shareholders' meeting of such
series or class shall constitute a quorum at such series or class meeting.
SHAREHOLDER VOTE
Subject to Article III, Section 3.06(D) of the Declaration relating to
separate voting by series and classes, when a quorum is present at any
meeting, a majority of the shares voted shall decide any questions and a
plurality shall elect a trustee, except when a larger vote is required by any
provision of the Declaration, the By-Laws or by applicable law.
SHAREHOLDER VOTE ON CERTAIN TRANSACTIONS
To the extent consistent with applicable law, the trustees may cause (i)
Global Trust to be merged into or consolidated with another trust or company,
(ii) the outstanding shares of Global Trust or any series thereof to be
converted into beneficial interests in another statutory trust (or series
thereof) created pursuant to the Declaration, or (iii) the outstanding shares
to be exchanged under or pursuant to any state or federal statute; provided
that such transaction must be authorized by vote of a majority of the
outstanding shares of Global Trust, as a whole, or any affected series, as
may be applicable. In all respects not governed by statute or applicable law,
the trustees may prescribe the procedure necessary or appropriate to
accomplish a sale of assets, merger or consolidation, and may create one or
more separate statutory trusts to which all or any part of the assets,
liabilities, profits or losses of Global Trust may be transferred and may
provide for the conversion of shares of Global Trust or any series thereof
into beneficial interests in such separate statutory trust or trusts (or
series thereof).
The trustees may, without the approval of the shareholders of any series
unless otherwise required by applicable law, combine the assets and
liabilities held with respect to any two or more series into assets and
liabilities held with respect to a single series.
CUMULATIVE VOTING
The Declaration provides that shareholders are not entitled to cumulate their
votes in the election of trustees.
PROXIES
Under the Delaware Act, unless otherwise provided in the governing instrument
of a DST, on any matter that is to be voted on by the trustees or the
shareholders, the trustees or shareholders (as applicable) may vote in person
or by proxy and such proxy may be granted in writing, by means of "electronic
transmission" (as defined in the Delaware Act) or as otherwise permitted by
applicable law.
The Declaration permits shares to be voted in person or by proxy. A proxy
with respect to shares held in the name of two or more persons may be
executed by any one of them unless at or prior to the exercise of the proxy
Global Trust receives a specific written notice to the contrary from any one
of them. A proxy purporting to be executed by or on behalf of a shareholder
will be deemed valid unless challenged at or prior to its exercise, and the
burden of proving invalidity will rest on the challenger.
The By-Laws provide that a proxy is deemed signed if the shareholder's name
is placed on the proxy (by manual signature, typewriting, telegraphic
transmission or otherwise) by the shareholder or the shareholder's
attorney-in-fact. A validly executed proxy that does not state that it is
irrevocable will continue in full force and effect unless: (i) the person
who executed the proxy delivers a written revocation to Global Trust before
the vote pursuant to that proxy; (ii) revoked by a subsequent proxy executed
by or the attendance at the meeting and voting in person by the person who
executed that proxy; or (iii) written notice of the death or incapacity of
the maker of that proxy is received by Global Trust before the vote pursuant
to that proxy is counted. Unless a proxy provides otherwise, it is not valid
for more than eleven (11) months from its date. In addition, the revocability
of a proxy that states on its face that it is irrevocable is governed by the
provisions of the General Corporation Law of the State of California.
ACTION BY WRITTEN CONSENT
Under the Delaware Act, unless otherwise provided in the governing instrument
of a DST, on any matter that is to be voted on by the trustees or the
shareholders, such action may be taken without a meeting, without prior
notice and without a vote if a written consent(s), setting forth the action
taken, is signed by the trustees or shareholders (as applicable) having the
minimum number of votes that would be necessary to take such action at a
meeting at which all trustees or interests in the DST (as applicable)
entitled to vote on such action were present and voted. Unless otherwise
provided in the governing instrument, a consent transmitted by "electronic
transmission" (as defined in the Delaware Act) by a trustee or shareholder
(as applicable) or by a person authorized to act for a trustee or shareholder
(as applicable) will be deemed to be written and signed for this purpose.
The Declaration provides that any shareholder action may be taken without a
meeting if shareholders holding a majority of the shares entitled to vote on
the matter (or such larger proportion thereof as may be required by any
express provision of the Declaration or by the By-Laws) and holding a
majority (or such larger proportion as aforesaid) of the shares of any series
(or class) entitled to vote separately on the matter consent to the action in
writing. The By-Laws authorize actions by written consent without prior
notice.
Under the By-Laws, if the consents of all shareholders entitled to vote have
not been solicited in writing and if the unanimous written consent of all
such shareholders has not been received, prompt notice of the action approved
by the shareholders without a meeting must be given in the manner set forth
in the By-Laws.
The Declaration provides that any action required or permitted to be taken at
any meeting of the board of trustees may be taken without a meeting if all
members of the board of trustees consent in writing to that action, and the
writings are filed with the minutes of the proceedings of the board of
trustees.
MASSACHUSETTS BUSINESS TRUST
VOTING RIGHTS, MEETINGS, NOTICE QUORUM, RECORD DATES AND PROXIES
There is no provision in the Massachusetts Statute addressing voting by the
shareholders of an MBT. The declaration of trust of an MBT, however, may
specify matters as to which shareholders are entitled to vote.
ONE VOTE PER DOLLAR
The MA Declaration provides that each whole dollar of net asset value of
shares owned of FTI Funds is entitled to one vote as to any matter on which
it is entitled to vote and each fractional dollar of net asset value of
shares owned is entitled to a proportionate fractional vote.
VOTING BY SERIES
The MA Declaration provides that only shareholders of a particular series or
class may vote on matters affecting such series or class. Except with
respect to matters as to which a particular series or class is affected
materially differently, or as otherwise required by applicable law, all of
the shares of each series or class shall, on matters as to which such series
or class may vote, vote with other series or classes so entitled as a single
class. Notwithstanding the foregoing, with respect to matters which would
otherwise be voted on by two or more series or classes as a single class, the
trustees may submit such matters to the shareholders of any or all such
series or classes, separately.
SHAREHOLDERS' MEETINGS
An annual shareholders' meeting is not required by the Massachusetts Statute.
The MA Declaration provides that the trustees or the chief executive officer
of FTI Funds may call a special shareholders' meeting. The trustees will
also call a special meeting upon the written request of shareholders holding
at least 10% of the outstanding shares of all series and classes entitled to
vote. In addition, the MA By-Laws provide that a special shareholders'
meeting of FTI Funds or of a series or class thereof will be called by the
secretary whenever ordered by the trustees, the chairman or requested in
writing by the holders of 10% of the outstanding shares of FTI Funds or of
the relevant series or class entitled to vote.
RECORD DATES
There is no record date provision in the Massachusetts Statute.
The MA Declaration authorizes the trustees to close the share transfer books
maintained for any series or class for a period not exceeding ninety (90)
days, or in lieu thereof to fix in advance a record date not exceeding ninety
(90) days, before: (i) the date of a shareholders' meeting of FTI Funds or
any series or class thereof; (ii) the date of any dividend payment or other
distribution to shareholders; (iii) the date for the allotment of rights;
(iv) the date when any change, conversion or exchange of shares of any series
or class goes into effect; or (v) the last day on which the consent or
dissent of shareholders of any series or class may be effectively expressed
for any purpose, for the determination of shareholders entitled to notice of,
and, to vote at, any such meeting and any adjournment thereof, or entitled to
receive payment of any such dividend or distribution, or to any such
allotment of rights, or to exercise the rights in respect of any such change,
conversion or exchange of shares, or to exercise the right to give such
consent or dissent. The trustees may set different record dates for
different series or classes.
The MA Declaration provides that shareholders are entitled to at least
fifteen days' notice of any meeting.
QUORUM FOR SHAREHOLDERS' MEETING
The MA Declaration provides that, except as otherwise provided by law, the
presence in person or by proxy of the holders of (i) one-half of the shares
of FTI Funds on all matters requiring the affirmative "vote of a majority of
the outstanding voting securities" (as defined in the 1940 Act), or (ii)
one-third of the shares of FTI Funds on all other matters permitted by law,
in each case, entitled to vote without regard to class shall constitute a
quorum at any shareholders' meeting. With respect to any matter which by law
requires the separate approval of one or more series or classes, the presence
in person or by proxy of the holders of one-half or one-third, as set forth
above, of the shares of each series or class entitled to vote separately on
the matter shall constitute a quorum.
SHAREHOLDER VOTE
The MA Declaration provides that subject to applicable law, the MA
Declaration or the MA By-Laws, a plurality of the votes cast shall elect a
trustee, and all other matters shall be decided by a majority of the votes
cast and entitled to vote thereon. However, the MA Declaration further
provides that unless otherwise required by the 1940 Act, or a court or
regulatory body, or unless the trustees determine otherwise, trustees shall
be elected by the trustees, and shareholders have no right to elect trustees.
SHAREHOLDER VOTE ON CERTAIN TRANSACTIONS
The trustees may, by majority action, and with the affirmative "vote of a
majority of the outstanding voting securities" (as defined in the 1940 Act)
of each series or class entitled to vote as determined by the trustees
pursuant to the MA Declaration, sell and convey the assets of FTI Funds or
any series or class thereof to another trust or corporation. The trustees
may also sell and convert into money all the assets of FTI Funds or any
series or class thereof without shareholder approval, unless otherwise
required by applicable law.
The trustees may, without the approval of the shareholders of any series or
class, unless otherwise required by applicable law, combine the assets and
liabilities belonging to a single series or class with the assets and
liabilities of one or more other series or classes.
CUMULATIVE VOTING
The MA Declaration provides that shareholders are not entitled to cumulate
their votes in the election of trustees.
PROXIES
There is no provision in the Massachusetts Statute addressing proxy voting by
the shareholders or trustees of an MBT.
The MA Declaration permits shares to be voted in person or by proxy. A proxy
with respect to shares held in the name of two or more persons may be
executed by any one of them unless at or prior to the exercise of the proxy
FTI Funds receives a specific written notice to the contrary from any one of
them. A proxy purporting to be executed by or on behalf of a shareholder
will be deemed valid unless challenged at or prior to its exercise and the
burden of proving invalidity rests on the challenger. Unless otherwise
specified in the proxy, the proxy will apply to all shares of FTI Funds (or
each series or class) owned by the shareholder. A proxy may be in written,
telephonic or electronic form, including facsimile, and all such forms will
be valid when in conformance with procedures established and implemented by
the officers of FTI Funds.
The MA By-Laws state that every written proxy must be subscribed by the
shareholder or his duly authorized attorney and dated, but need not be
sealed, witnessed or acknowledged. All proxies must be filed with and
verified by the secretary or an assistant secretary of FTI Funds or, the
person acting as secretary of the shareholder meeting.
ACTION BY WRITTEN CONSENT
There is no provision in the Massachusetts Statute addressing actions by
written consent.
The MA Declaration and MA By-Laws provide that, subject to applicable law,
any action taken by the shareholders may be taken without a meeting if a
majority of the shareholders entitled to vote on the matter (or such larger
proportion thereof as may be required by law, the MA Declaration or the MA
By-Laws) consent to the action in writing and such consent is filed with the
records of FTI Funds.
Under the MA By-Laws, any action required or permitted to be taken at any
meeting of the trustees may be taken without a meeting if consents in writing
setting forth such action are signed by all members of the board and such
consents are filed with the records of FTI Funds. In the event of the death,
removal, resignation or incapacity of any board member prior to that trustee
signing such consent, the remaining board members may re-constitute
themselves as the entire board until such time as the vacancy is filled in
order to fulfill the requirement that such consents be signed by all members
of the board.
DELAWARE STATUTORY TRUST
REMOVAL OF TRUSTEES
The governing instrument of a DST may contain any provision relating to the
removal of trustees; provided however, that there shall at all times be at
least one trustee of the DST.
Under the Declaration, any trustee may be removed (i) with or without cause,
by action of a majority of the then trustees or (ii) by a vote of two-thirds
of the outstanding shares of Global Trust. A shareholders' meeting for the
purpose of removing trustees may be called (i) by the trustees or (ii) upon
the demand of shareholders owning 10% or more of the shares of Global Trust.
MASSACHUSETTS BUSINESS TRUST
REMOVAL OF TRUSTEES
The governing instrument of an MBT may contain any provision relating to the
removal of trustees; provided, however, that there shall at all times be at
least one trustee of the MBT.
The MA Declaration provides that any trustee may be removed at any time by
two-thirds of the number of trustees prior to such removal or by a vote of
two-thirds of the outstanding shares at any special meeting of shareholders.
DELAWARE STATUTORY TRUST
VACANCIES ON BOARD OF TRUSTEES
The Declaration and By-Laws provide that a majority of the then trustees may
fill vacancies on the board of trustees unless the board of trustees calls a
shareholders' meeting for the purpose of electing trustees. A shareholders'
meeting will be called to elect trustees (i) if less than a majority of the
trustees holding office at such time were elected by the holders of the
outstanding voting securities of Global Trust or (ii) if required by the 1940
Act. In addition, for so long as Global Trust participates in, or has in
effect, a plan under which it may be deemed to bear expenses of distributing
its shares as that practice is described in Rule 12b-1 under the 1940 Act,
then the selection and nomination of the trustees who are not interested
persons of Global Trust (as that term is defined in the 1940 Act) will be
committed to the discretion of such disinterested trustees.
Pursuant to the Declaration, in the event of the death, declination,
resignation, retirement, removal or incapacity of all of the trustees, the
investment manager(s) of Global Trust are empowered to appoint new trustees
subject to the provisions of the 1940 Act.
MASSACHUSETTS BUSINESS TRUST
VACANCIES ON BOARD OF TRUSTEES
Under the MA Declaration, vacancies in the board of trustees shall be filled
by the remaining trustees. An appointment of a trustee may be made by the
trustees then in office in anticipation of a vacancy to occur, provided that
said appointment shall become effective only at or after the effective date
of said vacancy. No vacancy which reduces the number of trustees below three
(3) shall remain unfilled for a period longer than six (6) calendar months.
DELAWARE STATUTORY TRUST
LIMITATION ON INTERSERIES LIABILITY
The Delaware Act explicitly authorizes limitation on interseries liability so
that the debts, liabilities, obligations and expenses incurred, contracted
for or otherwise existing with respect to a particular series of a multiple
series DST will be enforceable only against the assets of such series, and
not against the general assets of the DST or any other series, and unless
otherwise provided in the governing instrument of the DST, none of the debts,
liabilities, obligations and expenses incurred, contracted for or otherwise
existing with respect to the DST generally or any other series thereof will
be enforceable against the assets of such series. This protection will be
afforded if: (i) the DST separately maintains the records and the assets of
such series; (ii) notice of the limitation on liabilities of the series is
set forth in the certificate of trust; and (iii) the governing instrument so
provides.
The Declaration and certificate of trust of Global Trust provide for
limitation on interseries liability.
MASSACHUSETTS BUSINESS TRUST
LIMITATION ON INTERSERIES LIABILITY
The Massachusetts Statute does not contain statutory provisions addressing
series or class liability with respect to a multiple series or class
investment company. Therefore, unless otherwise provided in the declaration
of trust for an MBT, the debts, liabilities, obligations and expenses
incurred, contracted for or otherwise existing with respect to a particular
series or class may be enforceable against the assets of the business trust
generally.
The MA Declaration provides that the assets of each series or class shall be
charged with the liabilities of each such series or class. It also states
that third parties extending credit to, contracting with or having any claim
against FTI Funds or a particular series or class thereof shall look only to
the assets of FTI Funds, or to the assets of such series or class, as
appropriate, for payment. Although these provisions serve to put third
parties on notice, since there is no support in the Massachusetts Statute to
limit liability, there remains the possibility that a court may not uphold
the limitations set forth in the MA Declaration.
DELAWARE STATUTORY TRUST
SHAREHOLDER LIABILITY
Under the Delaware Act, except to the extent otherwise provided in the
governing instrument of a DST, shareholders of a DST are entitled to the same
limitation of personal liability extended to shareholders of a private
corporation organized for profit under the General Corporation Law of the
State of Delaware.
Under the Declaration, neither Global Trust, nor any of its trustees,
officers, employees or agents, shall have the power to personally bind any
shareholder or call upon any shareholder for any payment or assessment other
than as such shareholder may personally agree to pay. However, the trustees
may cause each shareholder of Global Trust or of any particular series, to
pay, in advance or arrears, for charges of Global Trust's custodian or
transfer, shareholder servicing or similar agent. Additionally, the trustees
may impose a sales charge upon investments in Global Trust.
MASSACHUSETTS BUSINESS TRUST
SHAREHOLDER LIABILITY
The Massachusetts Statute does not expressly limit the liability of the
beneficial owners of a business trust. Therefore, the owners of an MBT could
potentially be liable for obligations of the MBT, notwithstanding an express
provision in the governing instrument stating that the beneficial owners are
not personally liable in connection with MBT property or the acts,
obligations or affairs of the MBT.
Pursuant to the MA Declaration, the trustees, officers, employees or agents
of FTI Funds shall have no power to bind any shareholder of any series or
class personally or to call upon such shareholder for any payment or
assessment other than as such shareholder may at any time agree to pay. No
shareholder of any series or class shall be liable solely by reason of being
a shareholder, for any liability or obligation of FTI Funds or any series or
class thereof.
DELAWARE STATUTORY TRUST
TRUSTEE LIABILITY
Subject to the provisions in the governing instrument, the Delaware Act
provides that a trustee or any other person managing the DST, when acting in
such capacity, will not be personally liable to any person other than the DST
or a shareholder of the DST for any act, omission or obligation of the DST or
any trustee. To the extent that at law or in equity, a trustee has duties
(including fiduciary duties) and liabilities to the DST and its shareholders,
such duties and liabilities may be expanded or restricted by the governing
instrument.
The Declaration provides that every note, bond, contract, certificate or
undertaking and every other act or thing whatsoever issued, executed or done
by or on behalf of Global Trust or the trustees in connection with Global
Trust shall be conclusively deemed to have been done only in such person's
capacity as trustee, and such trustee shall not be personally liable
thereon. The trustees shall not be liable for any neglect or wrongdoing of
any officer, agent, employee, manager or principal underwriter of Global
Trust, nor shall any trustee be responsible for the act or omission of any
other trustee. A trustee shall be liable to Global Trust and to any
shareholder solely for such trustee's own willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct
of such trustee's office (such conduct referred to as "Disqualifying
Conduct"), and shall not be liable for errors of judgment or mistakes of fact
or law.
MASSACHUSETTS BUSINESS TRUST
TRUSTEE LIABILITY
The Massachusetts Statute does not contain an express provision limiting the
liability of the trustees of an MBT. The trustees of an MBT could
potentially be held personally liable for the obligations of the MBT.
The MA Declaration provides that no trustee, officer, employee or agent of
FTI Funds has the power to bind personally any other trustee, officer,
employee or agent of FTI Funds. Each trustee, officer, employee or agent of
FTI Funds, in taking or omitting any actions on behalf of FTI Funds, is
deemed to be acting in his respective capacity as trustee, officer, employee
or agent of FTI Funds and not in his own individual capacity. However, a
trustee or officer will be liable for his own Disqualifying Conduct, but for
nothing else. Subject to the preceding sentence, trustees will not be liable
for errors of judgment or mistakes of fact or law.
DELAWARE STATUTORY TRUST
INDEMNIFICATION
Subject to such standards and restrictions contained in the governing
instrument of a DST, the Delaware Act authorizes a DST to indemnify and hold
harmless any trustee, shareholder or other person from and against any and
all claims and demands.
SHAREHOLDER INDEMNIFICATION
If any shareholder or former shareholder is exposed to liability by reason of
a claim or demand relating to his or her status or former status as a
shareholder, and not because of his or her acts or omissions, the shareholder
or former shareholder (or his or her heirs, executors, administrators, or
other legal representatives or in the case of a corporation or other entity,
its corporate or other general successor) will be entitled to indemnification
by Global Trust against all loss and expense arising from such claim or
demand.
TRUSTEE INDEMNIFICATION
Pursuant to the Declaration, Global Trust will indemnify any trustee from and
against any and all claims and demands related to such trustee's performance
of his or her duties as trustee. However, no trustee shall be indemnified
for any liability to Global Trust or any shareholder to which such trustee
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of
such trustee's office.
INDEMNIFICATION OF AGENTS AND OTHER PERSONS
Pursuant to the By-Laws, Global Trust will indemnify any person who is or was
a trustee, officer, employee or other agent of Global Trust or is or was
serving at the request of Global Trust in certain capacities for other
entities (an "Agent") who was or is a party or is threatened to be made a
party to any proceeding (other than an action by or in the right of Global
Trust) by reason of such Agent's capacity, against attorneys' fees and other
expenses, judgments, fines, settlements and other amounts incurred in
connection with such proceeding including expenses of establishing a right to
indemnification ("Expenses"), if such Agent acted in good faith and in a
manner that such Agent reasonably believed to be in the best interests of
Global Trust or in the case of a criminal proceeding, had no reasonable cause
to believe such Agent's conduct was unlawful.
The By-Laws also provide that Global Trust will indemnify any Agent who was
or is a party or is threatened to be made a party to any action by or in the
right of Global Trust by reason of such Agent's capacity, against Expenses
actually and reasonably incurred by the Agent in connection with the defense
or settlement of that action if such Agent acted in good faith, in a manner
such Agent believed to be in the best interests of Global Trust and with such
care, including reasonable inquiry, as an ordinarily prudent person in a like
position would use under similar circumstances.
INDEMNIFICATION WITHOUT ADJUDICATION
However, under the By-Laws there is no right to indemnification in respect of
any claim, issue, or matter as to which an Agent is adjudged to be liable on
the basis that personal benefit was received by such Agent, or for any
liability arising from the Agent's Disqualifying Conduct. Nor is there any
right to indemnification for settlement payments, with or without court
approval, or of expenses incurred in defending a settled action, unless a
determination is made that indemnification is proper by (a) a majority vote
of a quorum of trustees not party to the proceeding and not interested
persons of Global Trust (as defined in the 1940 Act); or (b) a written
opinion of independent legal counsel.
INDEMNIFICATION WITH ADJUDICATION
The By-Laws further provide that to the extent that an Agent has been
successful on the merits in defense of a proceeding or any claim, issue or
matter therein, before a court or other body, the Agent will be indemnified
against expenses incurred in connection therewith, provided that the board of
trustees, including a majority who are disinterested, non-party trustees,
also determines that the Agent was not liable by reason of Disqualifying
Conduct.
However, the By-Laws state that except as provided in the preceding
paragraph, Global Trust will only indemnify an Agent if a determination is
made that indemnification is proper by (a) a majority vote of a quorum of
trustees not party to the proceeding and not interested persons of Global
Trust (as defined in the 1940 Act); or (b) a written opinion of independent
legal counsel.
The By-Laws do not authorize any indemnification or advance, except as
provided in the preceding two paragraphs where it appears (a) that it would
be inconsistent with the Declaration, a shareholders' resolution, or an
agreement in effect at the time of accrual of the alleged cause of action
asserted in the proceeding in which the expenses were incurred or payment
made; or (b) that it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
ADVANCEMENT OF EXPENSES
Under the By-Laws, expenses incurred by an Agent in defending any proceeding
may be advanced by Global Trust before the final disposition of the
proceeding on receipt of an undertaking by or on behalf of the Agent to repay
the amount of the advance unless it is ultimately determined that the Agent
is entitled to indemnification by Global Trust, provided the Agent provides
security for his or her undertaking, or a majority of a quorum of the
disinterested, non-party trustees, or an independent legal counsel in a
written opinion, determine that there is reason to believe that the Agent
ultimately will be found entitled to indemnification.
The indemnification provisions contained in the By-Laws are subject to the
indemnification provisions set forth in the Declaration.
NOTE that the Securities Act of 1933, as amended (the "1933 Act"), in the
opinion of the SEC, and the 1940 Act also limit the ability of Global Trust
to indemnify an Agent.
MASSACHUSETTS BUSINESS TRUST
INDEMNIFICATION
Although the Massachusetts Statute is silent as to the indemnification of
trustees, officers and shareholders, indemnification is expressly provided
for in the MA Declaration.
SHAREHOLDER INDEMNIFICATION
A shareholder or former shareholder of any series or class will be
indemnified for any liability and the costs of any litigation or other
proceedings resulting in such liability if such shareholder or former
shareholder is, contrary to the MA Declaration, held personally liable.
INDEMNIFICATION OF TRUSTEES, OFFICERS AND OTHER PERSONS
FTI Funds will indemnify each of its trustees and officers (including persons
who serve at FTI Funds' request as directors, officers or trustees of another
organization in which FTI Funds has an interest as a shareholder, creditor or
otherwise), their heirs, executors and administrators (referred to as a
"Covered Person") against all liabilities and expenses of any Covered Person
in connection with the defense or disposition of any action, suit or other
proceeding, and any appeal therefrom, before any court or other body in which
such Covered Person may be or may have been a party or otherwise or with
which such person may be or may have been threatened, while in office or
thereafter, by reason of being or having been a Covered Person. However, no
Covered Person will be indemnified against any liability to FTI Funds or its
shareholders to which such Covered Person would otherwise be subject by
reason of such Covered Person's Disqualifying Conduct.
INDEMNIFICATION WITHOUT ADJUDICATION
As to any matter disposed of (whether by a compromise payment, pursuant to a
consent decree or otherwise) without an adjudication on the merits by a court
or any other body that such Covered Person is liable to FTI Funds or its
shareholders for such Covered Person's Disqualifying Conduct, indemnification
will be provided if (a) it is approved as in the best interest of FTI Funds
by a majority of non-party trustees who are not interested persons of FTI
Funds (provided that a majority of such trustees then in office act on the
matter), upon a determination that such Covered Person is not liable to FTI
Funds or its shareholders by reason of Disqualifying Conduct, or (b) there
has been obtained a written opinion of independent legal counsel that such
indemnification would not protect such Covered Person against any liability
to FTI Funds to which such Covered Person would otherwise be subject by
reason of Disqualifying Conduct.
INDEMNIFICATION WITH ADJUDICATION
Any such approval will not prevent the recovery from any Covered Person of
any indemnification so paid if such Covered Person is subsequently
adjudicated by a court of competent jurisdiction to be liable to FTI Funds or
its shareholders by reason of Disqualifying Conduct.
These provisions do not affect any right to indemnification to which such
Covered Persons and FTI Funds' personnel or other persons may otherwise be
entitled.
ADVANCEMENT OF EXPENSES
Expenses, including counsel fees incurred by any such Covered Person (but
excluding amounts paid in satisfaction of judgments, in compromise or as
fines or penalties), may be paid from time to time by FTI Funds in advance of
the final disposition of any such action, suit or proceeding upon receipt of
an undertaking by or on behalf of such Covered Person to repay the amount of
the advance if it is ultimately determined that indemnification is not
authorized, provided: (i) the Covered Person provides security for his
undertaking; (ii) the Trust is insured against losses arising from such
Covered Person's failure to fulfill his undertaking; or (iii) a majority of
the non-party trustees who are not interested persons of FTI Funds (provided
that a majority of such trustees then in office act on the matter), or
independent legal counsel in a written opinion, determine that there is
reason to believe such Covered Person ultimately will be entitled to
indemnification.
NOTE that the 1933 Act, in the opinion of the SEC, and the 1940 Act also
limit the ability of FTI Funds to indemnify such persons.
DELAWARE STATUTORY TRUST
INSURANCE
The Delaware Act is silent as to the right of a DST to purchase insurance on
behalf of its trustees or other persons.
However, as the policy of the Delaware Act is to give maximum effect to the
principle of freedom of contract and to the enforceability of governing
instruments, the Declaration, to the extent not restricted by the 1933 Act
and 1940 Act, provides the trustees with authority to purchase with Global
Trust assets such insurance as they deem appropriate for the conduct of the
business, including, without limitation, insurance policies insuring the
assets of Global Trust or payment of distributions and principal on its
portfolio investments, and insurance policies insuring shareholders,
employees, agents, investment advisers or independent contractors of Global
Trust who are not "controlling persons" (as defined in the 1933 Act),
individually against all claims and liabilities of every nature arising by
reason of holding shares, holding or having held any such office or position,
or by reason of any action alleged to have been taken or omitted by any such
person as employee, agent, investment adviser or independent contractor,
including any action taken or omitted that may be determined to constitute
negligence, whether or not Global Trust would have the power to indemnify
such person against liability.
In addition, under the Declaration, to the extent not restricted by the 1933
Act and 1940 Act, the trustees are authorized to purchase with Global Trust
assets insurance policies insuring the trustees, officers, "controlling
persons" (as defined in the 1933 Act, including, if any, certain
shareholders, employees, agents, investment advisers and independent
contractors) and principal underwriters of Global Trust, individually against
all claims and liabilities of every nature arising by reason of holding
shares, holding or having held any such office or position, or by reason of
any action alleged to have been taken or omitted by any such person as
principal underwriter. Global Trust is restricted from providing insurance
to the foregoing persons to the same extent as it is restricted from
indemnifying them.
With respect to any Agent not covered by the preceding paragraphs ("Other
Agent"), the By-Laws permit the board of trustees to cause Global Trust to
purchase insurance on behalf of any such Other Agent against any liability
asserted against or incurred by the Other Agent in such capacity or arising
out of the Other Agent's status as such, but only to the extent that Global
Trust would have the power to indemnify such Other Agent against that
liability.
MASSACHUSETTS BUSINESS TRUST
INSURANCE
There is no provision in the Massachusetts Statute relating to insurance.
The MA Declaration, to the extent not restricted by the 1933 Act and 1940
Act, authorizes the trustees to purchase insurance of any kind, including,
without limitation, insurance on behalf of any person who is or was a
trustee, officer, employee or agent of FTI Funds, or is or was serving at the
request of FTI Funds as a trustee, director, officer, agent or employee of
another corporation, partnership, joint venture, trust or other enterprise,
against any liability asserted against such person or incurred by such person
in any such capacity or arising out of such person's status as such; provided
however, that with respect to trustees, officers, "controlling persons" (as
defined in the 1933 Act) and certain underwriters, FTI Funds may purchase
insurance insuring such persons against such liability only to the extent
that FTI Funds would have the power to indemnify such person against that
liability.
DELAWARE STATUTORY TRUST
SHAREHOLDER RIGHT OF INSPECTION
Under the Delaware Act, except to the extent otherwise provided in the
governing instrument and subject to reasonable standards established by the
trustees, each shareholder has the right, upon reasonable demand for any
purpose reasonably related to the shareholder's interest as a shareholder, to
obtain from the DST certain information regarding the governance and affairs
of the DST.
The Declaration provides that Global Trust will keep at its office the
Declaration where it may be inspected by any shareholder. The By-Laws
provide that Global Trust will keep at its principal executive office the
By-Laws which may be inspected by the shareholders at all reasonable times
during office hours.
In addition, the accounting books, records and minutes of proceedings of the
shareholders and board of trustees (and any committees thereof) will be kept
at the place(s) designated by the board of trustees or the principal
executive office of Global Trust. Such accounting books, records and minutes
will be open to inspection upon the written demand of any shareholder or
holder of a voting trust certificate at any reasonable time during usual
business hours for a purpose reasonably related to the holder's interest as a
shareholder or holder of a voting trust certificate. The inspection may be
made in person or by an agent or attorney and includes the right to copy and
make extracts. Further, certain financial statements, income statements and
balance sheets prepared by Global Trust will be kept on file at its principal
executive office for a twelve (12) month period and each such statement will
be exhibited at all reasonable times to any shareholder demanding an
examination or a copy will be mailed to any such shareholder. Finally, the
share register will be kept at the principal executive office or at the
office of Global Trust's transfer agent or registrar.
MASSACHUSETTS BUSINESS TRUST
SHAREHOLDER RIGHT OF INSPECTION
There is no provision in the Massachusetts Statute relating to shareholder
inspection rights.
The MA Declaration provides that FTI Funds shall keep at its office the MA
Declaration where it may be inspected by any shareholder. The MA By-Laws
provide that the trustees shall determine whether and to what extent, and at
what times and places, and under what conditions and regulations the accounts
and books of FTI Funds maintained on behalf of each series and class shall be
open for inspection by any shareholder of any series or class. No
shareholder has the right to inspect any account or book or document of FTI
Funds except: (i) to the extent such account or book or document relates to
the series or class in which such person is a shareholder or FTI Funds
generally, (ii) as conferred by law or (iii) authorized by the trustees or by
resolution of the shareholders of the relevant series or class.
DELAWARE STATUTORY TRUST
DERIVATIVE ACTIONS
Under the Delaware Act, a shareholder may bring a derivative action if
trustees with authority to do so have refused to bring the action or if a
demand upon the trustees to bring the action is not likely to succeed. A
shareholder may bring a derivative action only if the shareholder is a
shareholder at the time the action is brought and: (i) was a shareholder at
the time of the transaction complained about or (ii) acquired the status of
shareholder by operation of law or pursuant to the governing instrument from
a person who was a shareholder at the time of the transaction. A
shareholder's right to bring a derivative action may be subject to such
additional standards and restrictions, if any, as are set forth in the
governing instrument.
The Declaration and By-Laws do not have any provisions specifically regarding
derivative actions.
MASSACHUSETTS BUSINESS TRUST
DERIVATE ACTIONS
There is no provision under the Massachusetts Statute regarding derivative
actions.
The MA Declaration states that a shareholder may not bring an action on
behalf of FTI Funds unless a prior demand regarding such matter has been made
on the trustees of FTI Funds.
DELAWARE STATUTORY TRUST
MANAGEMENT INVESTMENT COMPANY CLASSIFICATION
Global Trust is an open-end management investment company under the 1940 Act
(I.E., a management investment company whose securities are redeemable).
MASSACHUSETTS BUSINESS TRUST
MANAGEMENT INVESTMENT COMPANY CLASSIFICATION
FTI Funds is an open-end management investment company under the 1940 Act
(I.E., a management investment company whose securities are redeemable).
EXHIBIT C
JUNE 19, 2003
The SEC has not approved or disapproved these securities or passed upon the
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
PROSPECTUS
FIDUCIARY LARGE CAPITALIZATION GROWTH AND INCOME FUND
FIDUCIARY SMALL CAPITALIZATION EQUITY FUND
FIDUCIARY EUROPEAN SMALLER COMPANIES FUND
Franklin Global Trust
[FRANKLIN TEMPLETON LOGO]
- -------------------------------------------------------------------------------
Fund shares are NOT deposits or other obligations of, or endorsed or
guaranteed by any bank. Fund shares are NOT insured or guaranteed by the U.S.
government, the Federal Deposit Insurance Corporation, the Federal Reserve
Board or any other governmental agency. AN INVESTMENT IN A FUND INVOLVES
CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
- -------------------------------------------------------------------------------
CONTENTS
THE FUNDS
[Begin callout]
INFORMATION ABOUT EACH FUND YOU SHOULD KNOW BEFORE INVESTING
[End callout]
[insert page #] Fiduciary Large Capitalization Growth and Income Fund
[insert page #] Fiduciary Small Capitalization Equity Fund
[insert page #] Fiduciary European Smaller Companies Fund
[insert page #] More Information on Investment Policies, Practices and
Risks
[insert page #] Management
[insert page #] Distributions and Taxes
YOUR ACCOUNT
[Begin callout]
INFORMATION ABOUT ACCOUNT TRANSACTIONS AND SERVICES
[End callout]
[insert page #] Qualified Investors
[insert page #] Buying Shares
[insert page #] Investor Services
[insert page #] Selling Shares
[insert page #] Account Policies
[insert page #] Questions
FOR MORE INFORMATION
[Begin callout]
Where to learn more about each Fund
[End callout]
Back Cover
- -------------------------------------------------------------------------------
Fund shares are NOT deposits or other obligations of, or endorsed or
guaranteed by any bank. Fund shares are NOT insured or guaranteed by the U.S.
government, the Federal Deposit Insurance Corporation, the Federal Reserve
Board or any other governmental agency. AN INVESTMENT IN A FUND INVOLVES
CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
- -------------------------------------------------------------------------------
FIDUCIARY LARGE CAPITALIZATION GROWTH AND INCOME FUND
(LARGE CAPITALIZATION FUND)
[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES
-------------------
GOAL The Fund's goal is long-term growth of principal and income.
MAIN INVESTMENT STRATEGY Under normal market conditions, the Fund will invest
at least 80% of its net assets in investments of large capitalization
companies. Shareholders will be given 60 days' advance notice of any change
to this 80% policy.
The Fund invests mainly in dividend-paying equity securities that the manager
believes will approximate the dividend yield of the companies that comprise
the Standard & Poor's 500 Composite Stock Price Index (S&P(R) 500), while
attempting to keep taxable capital gains distributions relatively low. The
manager focuses on a company's securities' dividend paying prospects in an
effort to generate income. For this Fund, large capitalization companies are
companies with market capitalizations (the total value of a company's
outstanding stock) of more than $5 billion at the time of purchase. The Fund
may invest up to 10% of its net assets in equity securities of foreign
companies that meet the criteria applicable to U.S. securities.
A TAX-SENSITIVE APPROACH TO INVESTING In pursuing its goal, the Fund will be
managed in an attempt to keep its distributions of capital gains relatively
low. For example, it will generally buy securities that it intends to hold
for a number of years and avoid short-term trading. In deciding which
securities to sell, the manager will consider their capital gain or loss
situation, and may attempt to offset capital gains by timing its sales of
securities that have gone down in value. Also, the manager will consider
selling any security that has not met growth expectations, in which case the
capital gain, if any, would be relatively small. Successful application of
this strategy may result in shareholders incurring relatively larger amounts
of capital gains when they ultimately sell their shares.
PORTFOLIO SELECTION The manager is a research driven, fundamental investor,
pursuing a blend of growth and value strategies. The manager uses a
"top-down" analysis of macroeconomic trends, market sectors (with some
attention to the sector weightings in its comparative index) and industries
combined with a "bottom-up" analysis of individual securities. In selecting
investments for the Fund, the manager looks for companies it believes are
positioned for growth in revenues, earnings or assets, and are selling at
reasonable prices. The basic financial and operating strength and quality of
a company and company management are also considered.
[Insert graphic of chart with line going up and down] MAIN RISKS
----------
STOCKS The value of equity securities in the Fund's portfolio will rise and
fall dramatically. There is no assurance that these fluctuations would not be
a sustained trend. These price movements may result from factors affecting
individual companies, industries or securities markets, and the Fund's share
price may decline.
SECTOR RISKS Companies with similar characteristics may be grouped together
in broad categories called sectors. Sector risk is the possibility that a
certain sector may underperform other sectors or the market as a whole.
Although the manager does not expect to concentrate the Fund's investments in
any one sector or industry, it may allocate more of the Fund's portfolio
holdings to a particular sector. In such case, the Fund's performance will be
more susceptible to any economic, business or other developments that
generally affect that sector.
BLEND-STYLE INVESTING A "blend" strategy results in investments in both
growth and value stocks, or in stocks with characteristics of both. Growth
stock prices reflect projections of future earnings or revenues, and can,
therefore, fall dramatically if the company fails to meet those projections.
Value stock prices are considered "cheap" relative to the company's perceived
value and are often out of favor with other investors. However, if other
investors fail to recognize the company's value (and do not become buyers, or
become sellers), or favor investing in faster-growing companies, value stocks
may not increase in value as anticipated by the manager or may decline even
further. By combining both styles, the manager seeks to diversify the risks
and lower the volatility, but there is no assurance this strategy will have
that result.
FOREIGN SECURITIES Securities of companies located outside the U.S. may
involve risks, particularly changes in currency exchange rates, that can
increase the potential for losses in the Fund.
Please also see "More Information on Investment Policies, Practices and
Risks" on page 14.
[Insert graphic of a bull and a bear] PERFORMANCE
------------
Because this Fund is new, it has no performance history.
[Insert graphic of percentage sign] FEES AND EXPENSES
-----------------
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
- -------------------------------------------------------------------------------
Maximum sales charge (load) imposed on purchases None
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)(1),(2)
- -------------------------------------------------------------------------------
Management fees 0.75%
Distribution and service (12b-1) fees(3) None
Other expenses (including administration fees) 0.35%
-------
Total annual Fund operating expenses 1.10%
=======
1. The management fees shown are based on the Fund's maximum contractual
amount. Other expenses are estimated.
2. For the period ending November 30, 2003, the manager and administrator
have agreed in advance to waive or limit their respective fees and to
assume as their own expense certain expenses otherwise payable by the Fund
so that total Fund annual operating expenses do not exceed 1.03%. After
November 30, 2003, the manager and administrator may end this arrangement
at any time upon notice to the Fund's Board of Trustees (Board).
3. The Board has approved a rule 12b-1 plan providing for payment of
distribution fees of up to 0.25% per year of the Fund's average net
assets. The Fund, however, has no current intention to use the plan.
EXAMPLE
This example can help you compare the cost of investing in the Fund with the
cost of investing in other mutual funds. It assumes:
o You invest $10,000 for the periods shown;
o Your investment has a 5% return each year;
o The Fund's operating expenses are BEFORE WAIVER and remain the same; and
o You sell your shares at the end of the periods shown.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
1 YEAR 3 YEARS
----------------------------
$112 $350
FIDUCIARY SMALL CAPITALIZATION EQUITY FUND
(SMALL CAPITALIZATION EQUITY FUND)
[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES
-------------------
GOAL The Fund's goal is to provide growth of principal.
MAIN INVESTMENT STRATEGY Under normal market conditions, the Fund will invest
at least 80% of its net assets in marketable equity and equity-related
securities of small capitalization companies. Shareholders will be given 60
days' advance notice of any change to this 80% policy.
To seek its goal, the Fund invests in the common stocks of small cap
companies that the manager believes are undervalued in the marketplace or
have earnings that might be expected to grow faster than the U.S. economy in
general. For this Fund, small capitalization companies are companies with
market capitalizations (the total market value of a company's outstanding
stock) under $1.5 billion at the time of purchase. The Fund also may invest
up to 10% of its net assets in foreign securities traded publicly in the U. S.
PORTFOLIO SELECTION The manager invests with a growth bias. As a "bottom-up"
investor focusing primarily on individual securities, the manager typically
seeks stocks of companies with strong franchises and companies that have high
barriers of entry to competitors, strong balance sheets and cash flows. Such
companies typically possess a relatively high rate of return on invested
capital so that future growth can be internally financed. They may offer the
potential for accelerating earnings growth because they offer an opportunity
to participate in new products, services and technologies.
[Insert graphic of chart with line going up and down] MAIN RISKS
----------
STOCKS The value of equity securities in the Fund's portfolio will rise and
fall dramatically. There is no assurance that these fluctuations would not be
a sustained trend. These price movements may result from factors affecting
individual companies, industries or securities markets, and the Fund's share
price may decline.
GROWTH INVESTING Due to their relatively high valuations, growth stocks are
typically more volatile than value stocks. For instance, the price of a
growth stock may experience a larger decline on a forecast of lower earnings,
a negative fundamental development or an adverse market development. Further,
growth stocks may not pay dividends or may pay lower dividends than value
stocks. This means they depend more on price changes for returns and may be
more adversely affected in a down market compared to value stocks that pay
higher dividends.
SMALLER COMPANIES Generally, the smaller the market capitalization of a
company, the fewer the number of shares traded daily, the less liquid its
stock and the more volatile its price. Companies with smaller market
capitalizations also tend to have unproven track records, a limited product
or service base and limited access to capital. These factors also increase
risks and make these companies more likely to fail than companies with larger
market capitalizations.
SECTOR RISKS Companies with similar characteristics may be grouped together
in broad categories called sectors. Sector risk is the possibility that a
certain sector may underperform other sectors or the market as a whole.
Although the manager does not expect to concentrate the Fund's investments in
any one industry, it may allocate more of the Fund's portfolio holdings to a
particular sector. In such case, the Fund's performance will be more
susceptible to any economic, business or other developments that generally
affect that sector.
FOREIGN SECURITIES Securities of companies located outside the U.S. may
involve risks, particularly changes in currency exchange rates, that can
increase the potential for losses in the Fund.
Please also see "More Information on Investment Policies, Practices and
Risks" on page 14.
[Insert graphic of a bull and a bear] PERFORMANCE
-----------
Because this Fund is new, it has no performance history.
[Insert graphic of percentage sign] FEES AND EXPENSES
-----------------
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
- -------------------------------------------------------------------------------
Maximum sales charge (load) imposed on purchases None
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)(1),(2)
- -------------------------------------------------------------------------------
Management fees 1.00%
Distribution and service (12b-1) fees(3) None
Other expenses (including administration fees) 0.34%
---------
Total annual Fund operating expenses 1.34%
=========
1. The management fees shown are based on the Fund's maximum contractual
amount. Other expenses are estimated.
2. For the period ending November 30, 2003, the manager and administrator
have agreed in advance to waive or limit their respective fees and to
assume as their own expense certain expenses otherwise payable by the Fund
so that total Fund annual operating expenses do not exceed 1.30%. After
November 30, 2003, the manager and administrator may end this arrangement
at any time upon notice to the Board.
3. The Board has approved a rule 12b-1 plan providing for payment of
distribution fees of up to 0.25% per year of the Fund's average net
assets. The Fund, however, has no current intention to use the plan.
EXAMPLE
This example can help you compare the cost of investing in the Fund with the
cost of investing in other mutual funds. It assumes:
o You invest $10,000 for the periods shown;
o Your investment has a 5% return each year;
o The Fund's operating expenses are BEFORE WAIVER and remain the same; and
o You sell your shares at the end of the periods shown.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
1 YEAR 3 YEARS
---------------------------------
$136 $425
FIDUCIARY EUROPEAN SMALLER COMPANIES FUND
(EUROPEAN SMALLER COMPANIES FUND)
[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES
-------------------
GOAL The Fund's goal is long-term growth of principal. The Fund's investment
goal (or objective) may be changed by the Fund's Board of Trustees (Board)
without shareholder approval.
MAIN INVESTMENT STRATEGY Under normal market conditions, the Fund will invest
at least 80% of its net assets in a diversified portfolio of marketable
equity and equity-related securities of smaller European companies.
Shareholders will be given 60 days' advance notice of any change to this 80%
policy.
For this Fund, smaller European companies are companies with market
capitalizations (the total market value of a company's outstanding stock)
between $100 million and $5 billion or the equivalent in local currencies, at
the time of purchase. The Fund considers European companies to be those
organized under the laws of a country in Europe or having a principal office
in a country in Europe, or whose securities are listed or traded principally
on a recognized stock exchange or over-the-counter in Europe. The Fund will
generally invest in securities listed or traded on recognized international
markets in any of the following European countries: Austria, Belgium, the
Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Italy,
Ireland, Luxembourg, the Netherlands, Norway, Poland, Portugal, Spain,
Sweden, Switzerland, Turkey and the United Kingdom.
The benchmark of the Fund is the HSBC Smaller European Companies Index. This
index is composed of about 1,500 companies in Europe that have market
capitalizations in a similar range to that used by the Fund. The composition
of the index is updated quarterly. All of the above countries in which the
Fund may invest are presently included in the index except the Czech
Republic, Hungary, Luxembourg, Poland and Turkey. At the time of purchase, no
single issuer will account for more than 5% of the total portfolio.
PORTFOLIO SELECTION The manager will use a disciplined investment focus,
based on fundamental analysis and valuation, in selecting securities based on
their perceived potential for growth and companies with sustainable operating
margins and strong balance sheets.
The manager has identified an "emerging company" phenomenon in Europe, as new
securities listings have increased the depth and breadth of the European
equity markets. Many interesting and well-established smaller companies,
previously in the private sector, are now accessible to investors and are
still relatively undiscovered. The euro currency zone created by the European
Economic and Monetary Unit (EEMU) has also facilitated a move away from top
down country allocation to sector and stock selection as the major factor in
identifying securities that may have above average returns.
As a bottom up investor focusing primarily on individual securities, the Fund
may from time to time have significant investments in one or more countries,
particularly the United Kingdom, which represents a heavier weighting in the
HSBC Smaller European Index. The manager does not select investments for the
Fund that are merely representative of the European small cap asset class,
but instead aims to produce a portfolio of securities of dynamic companies
operating in sectors that offer attractive growth potential as a result of
secular changes. The manager has a team of research analysts dedicated to the
identification of smaller companies that have, in their opinion, the
potential to provide above average performance. While the manager seeks to
outperform the HSBC Smaller European Index, positions may be taken by the
Fund that are not represented in that index.
[Insert graphic of chart with line going up and down] MAIN RISKS
----------
STOCKS The value of equity securities in the Fund's portfolio will rise and
fall dramatically. There is no assurance that these fluctuations would not be
a sustained trend. These price movements may result from factors affecting
individual companies, industries or securities markets, and the Fund's share
price may decline.
GROWTH INVESTING Due to their relatively high valuations, growth stocks are
typically more volatile than value stocks. For instance, the price of a
growth stock may experience a larger decline on a forecast of lower earnings,
a negative fundamental development or an adverse market development. Further,
growth stocks may not pay dividends or may pay lower dividends than value
stocks. This means they depend more on price changes for returns and may be
more adversely affected in a down market compared to value stocks that pay
higher dividends.
FOREIGN SECURITIES Due to the following considerations, foreign securities
may be more volatile and less liquid than similar securities traded in
the U.S.:
o Foreign economic or political conditions may be less favorable than
those of the U.S. Securities and foreign markets may also be subject to
taxation policies that reduce returns for U.S. investors.
o Foreign countries may have restrictions on foreign ownership or may
impose exchange controls, capital flow restrictions or repatriation
restrictions that could adversely affect the liquidity of the Fund's
investments.
o Foreign financial markets may have fewer investor protections than U.S.
markets. For instance, there may be less publicly available information
about foreign companies, and the information that is available may be
difficult to obtain or may not be current. In addition, foreign countries
may lack financial controls and reporting standards or regulatory
requirements comparable to those applicable to U.S. companies.
CURRENCY RISKS Exchange rates for currencies, including the currency of the
EEMU, fluctuate daily. The combination of currency risk and market risk tends
to make securities traded in foreign markets more volatile than securities
traded exclusively in the U.S.
SMALLER COMPANIES Generally, the smaller the market capitalization of a
company, the fewer the number of shares traded daily, the less liquid its
stock and the more volatile its price. Companies with smaller market
capitalizations also tend to have unproven track records, a limited product
or service base and limited access to capital. These factors also increase
risks and make these companies more likely to fail than companies with larger
market capitalizations.
SECTOR RISKS Companies with similar characteristics may be grouped together
in broad categories called sectors. Sector risk is the possibility that a
certain sector may underperform other sectors or the market as a whole.
Although the manager does not expect to concentrate the Fund's investments in
any one industry, it may allocate more of the Fund's portfolio holdings to a
particular sector. In such case, the Fund's performance will be more
susceptible to any economic, business or other developments that generally
affect that sector.
Please also see "More Information on Investment Policies, Practices and
Risks" on page 14.
[Insert graphic of a bull and a bear] PERFORMANCE
------------
Because this Fund is new, it has no performance history.
[Insert graphic of percentage sign] FEES AND EXPENSES
-----------------
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
- -------------------------------------------------------------------------------
Maximum sales charge (load) imposed on purchases None
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)(1),(2)
- -------------------------------------------------------------------------------
Management fees 1.00%
Distribution and service (12b-1) fees(3) None
Other expenses (including administration fees) 0.61%
------
Total annual Fund operating expenses 1.61%
======
1. The management fees shown are based on the Fund's maximum contractual
amount. Other expenses are estimated.
2. For the period ending November 30, 2003, the manager and administrator
have agreed in advance to waive or limit their respective fees and to
assume as their own expense certain expenses otherwise payable by the Fund
so that total Fund annual operating expenses do not exceed 1.20%. After
November 30, 2003, the manager and administrator may end this arrangement
at any time upon notice to the Board.
3. The Board has approved a rule 12b-1 plan providing for payment of
distribution fees of up to 0.25% per year of the Fund's average net
assets. The Fund, however, has no current intention to use the plan.
EXAMPLE
This example can help you compare the cost of investing in the Fund with the
cost of investing in other mutual funds. It assumes:
o You invest $10,000 for the periods shown;
o Your investment has a 5% return each year;
o The Fund's operating expenses are BEFORE WAIVER and remain the same; and
o You sell your shares at the end of the periods shown.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
1 YEAR 3 YEARS
-------------------------------------------
$164 $508
[Insert graphic of Stocks and Bonds] MORE INFORMATION ON INVESTMENT POLICIES,
-----------------------------------------
PRACTICES AND RISKS
RISKS In addition to the risks set forth above that are specific to an
investment in a particular Fund, there are risks common to all mutual funds.
For example, a Fund's share price may decline and an investor could lose
money. Because each Fund is actively managed, it is subject to the risk of
the manager's judgment in the analysis and evaluation of securities selected
for investment. Also, there is no assurance that a Fund will achieve its
investment goal. The shares offered by this prospectus are not deposits or
obligations of any bank, are not endorsed or guaranteed by any bank and are
not insured or guaranteed by the U.S. government, the Federal Deposit
Insurance Corporation, the Federal Reserve Board or any other government
agency. An investment in any one or all of the Funds does not necessarily
constitute a balanced investment program for any one investor.
EQUITY SECURITIES Each Fund invests primarily in common stocks, the most
prevalent type of equity security. An equity security or stock, represents a
proportionate share of the ownership of a company; its value is based on the
success of the company's business, any income paid to stockholders, the value
of its assets, and general market conditions. While stocks have historically
outperformed other asset classes over the long term, their value tends to go
up and down more dramatically over the short term. These price movements may
result from factors affecting individual companies, industries or securities
markets. For example, a negative development regarding an individual
company's earnings, management, or accounting practices can cause its stock
price to decline or a broad based market drop can cause the stock prices of
many companies to decline. A Fund cannot predict the income it will receive
from equity securities because issuers generally have discretion as to the
payment of any dividends or distributions.
FOREIGN SECURITIES Investing in foreign securities 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.
CURRENCY EXCHANGE RATES. Certain of the Funds' investments may be issued
and traded in foreign currencies. Adverse changes in foreign currencies and
in currency exchange rates can dramatically decrease the value of a Fund's
foreign portfolio holdings.
POLITICAL AND ECONOMIC DEVELOPMENTS. The political, economic and social
structures of some countries the Funds invest in may be less stable and more
volatile than those in the U.S. The risks of investing in these countries
include the imposition of exchange controls, currency devaluations, foreign
ownership limitations, confiscatory taxes, restrictions on the removal of
currency or other assets, nationalization of assets, diplomatic and political
developments (including rapid and adverse political changes, social
instability, internal and regional conflicts, terrorism and war) and
expropriation. A Fund may have greater difficulty voting proxies, exercising
shareholder rights and pursuing legal remedies with respect to its foreign
investments.
TRADING PRACTICES. Brokerage commissions and other fees generally are
higher for foreign securities. There may be less effective government
supervision and regulation of foreign stock exchanges, currency markets,
trading systems and brokers than in the U.S. The procedures and rules
governing foreign transactions and custody also may involve delays in
payment, delivery or recovery of money or investments.
AVAILABILITY OF INFORMATION. Foreign companies may be subject to less
revealing disclosure, accounting, auditing and financial reporting standards
and practices than U.S. companies, and there may be less publicly available
information about them.
LIMITED MARKETS. Markets may be less liquid, and even those that are
generally considered to be liquid may become illiquid for short or extended
periods. Certain foreign securities may be less liquid and more volatile than
many U.S. securities, which could limit a Fund's ability to sell them at
favorable prices.
EMERGING MARKETS. A Fund's investments in emerging market countries are
subject to all the risks of foreign investing generally, and have additional,
heightened risks due to a lack of established legal, political, business and
social frameworks to support securities markets.
ILLIQUID SECURITIES Each Fund may invest up to 15% of its net assets in
illiquid securities, which are securities with a limited trading market.
Illiquid securities may not be readily sold or may only be resold at a price
significantly lower than if they were liquid.
PORTFOLIO TURNOVER THE LARGE CAPITALIZATION FUND APPROACH TO PORTFOLIO
TURNOVER HAS BEEN DISCUSSED ABOVE. THE FOLLOWING DISCUSSION RELATES TO SMALL
CAPITALIZATION EQUITY FUND AND EUROPEAN SMALLER COMPANIES FUND. Although the
Funds do not intend to invest for the purpose of seeking short-term profits,
securities in their portfolios will be sold whenever the manager believes it
is appropriate to do so in light of that Fund's investment goal without
regard to the length of time a particular security has been held. The rate of
portfolio turnover for the Funds may exceed that of certain other mutual
funds with the same investment objective. A higher rate of portfolio turnover
involves correspondingly greater transaction expenses that must be borne
directly by a Fund and, thus, indirectly by its shareholders. In addition, a
high rate of portfolio turnover may result in the realization of larger
amounts of capital gains which, when distributed to a Fund's shareholders,
are taxable to them. Nevertheless, transactions for each Fund's portfolio
will be based only upon investment considerations and will not be limited by
any other considerations when the manager deems it appropriate to make
changes in a Fund's portfolio. A portfolio turnover rate exceeding 100% is
considered to be high.
SMALLER COMPANIES While smaller companies may offer substantial opportunities
for capital growth, they also involve substantial risks and should be
considered speculative. Historically, smaller company securities have been
more volatile in price than larger company securities, especially over the
short term. Among the reasons for the greater price volatility are the less
certain growth prospects of smaller companies, the lower degree of liquidity
in the markets for such securities, and the greater sensitivity of smaller
companies to changing economic conditions.
In addition, smaller companies may lack depth of management, be unable to
generate funds necessary for growth or development, or be developing or
marketing new products or services for which markets are not yet established
and may never become established.
Initial public offerings (IPOs) of securities issued by unseasoned companies
with little or no operating history are risky and their prices are highly
volatile. Attractive IPOs are often oversubscribed and may not be available
to the Funds or only in very limited quantities. Thus, when a Fund's size is
smaller, any gains from IPOs will have an exaggerated impact on the Fund's
reported performance than when the Fund is larger.
TEMPORARY DEFENSIVE INVESTMENTS Each of the Funds may temporarily depart from
their principal investment strategies by investing their assets in cash and
shorter-term debt securities and similar obligations. The Funds may do this
to minimize potential losses and maintain liquidity to meet shareholder
redemptions during adverse market conditions. This may cause a Fund to give
up greater investment returns to attempt to maintain the safety of principal,
that is, the original amount invested by shareholders.
[Insert graphic of briefcase] MANAGEMENT
----------
Fiduciary International, Inc. (Fiduciary), located at 600 Fifth Avenue, New
York, New York 10020-2302, is the Funds' investment manager. Fiduciary is an
indirect wholly owned subsidiary of Fiduciary Trust Company International
(Fiduciary Trust), which is a direct wholly owned subsidiary of Franklin
Resources, Inc. Together, Fiduciary and its affiliates manage over $267
billion in assets as of April 30, 2003.
The following persons are responsible for the Funds' portfolio management:
LARGE CAPITALIZATION FUND
S. MACKINTOSH PULSIFER
VICE PRESIDENT OF FIDUCIARY & SENIOR VICE PRESIDENT OF FIDUCIARY TRUST
Mr. Pulsifer has been a manager of the Fund since inception. He joined
Fiduciary Trust in 1988.
CARL SCATURO
VICE PRESIDENT OF FIDUCIARY & SENIOR VICE PRESIDENT OF FIDUCIARY TRUST
Mr. Scaturo has been a manager of the Fund since inception. He joined
Fiduciary Trust in 1990.
SMALL CAPITALIZATION EQUITY FUND
JOHN P. CALLAGHAN
VICE PRESIDENT OF FIDUCIARY & SENIOR VICE PRESIDENT OF FIDUCIARY TRUST
Mr. Callaghan has been a manager of the Fund since inception. Prior to
joining Fiduciary Trust in 2001, he was Managing Director at Deutsche Asset
Management.
ALISON J. SCHATZ, CFA
VICE PRESIDENT OF FIDUCIARY & SENIOR VICE PRESIDENT of FIDUCIARY TRUST
Ms. Schatz has been a manager of the Fund since inception. She joined
Fiduciary Trust in 1985.
EUROPEAN SMALLER COMPANIES FUND
MARGARET S. LINDSAY
VICE PRESIDENT OF FIDUCIARY & EXECUTIVE VICE PRESIDENT OF FIDUCIARY TRUST
Ms. Lindsay has been a manager of the Fund since inception. She joined
Fiduciary Trust in 1991.
PRATIK M. PATEL
VICE PRESIDENT OF FIDUCIARY & VICE PRESIDENT OF FIDUCIARY TRUST
Mr. Patel has been a manager of the Fund since inception. He joined Fiduciary
Trust in 1998.
ALEXANDRE OLTRAMARE
VICE PRESIDENT OF FIDUCIARY & VICE PRESIDENT OF FIDUCIARY TRUST
Mr. Oltramare has been a manager of the Fund since inception. He joined
Fiduciary Trust in 1996.
Each Fund pays Fiduciary a fee for managing the Funds' assets. The management
fees, based on each Fund's average net assets, are 0.75% of the Large
Capitalization Fund and 1.00% each of the Small Capitalization Equity Fund
and European Smaller Companies Fund.
[Insert graphic of dollar signs and stacks of coins] DISTRIBUTIONS AND TAXES
2003 TAX ACT On May 28, 2003, President Bush signed into law the Jobs and
Growth Tax Relief Reconciliation Act of 2003 (JAGTRRA). This Act will have a
significant impact on how each Fund accounts for and distributes income and
capital gains, and will provide you with significant tax relief on the income
and gains distributed to you by the Fund. The provisions of this Act that
affect each Fund and the taxation of its distributions to you are discussed
below and in the Distributions and Taxes section of the Statement of
Additional Information.
INCOME AND CAPITAL GAIN DISTRIBUTIONS The Large Capitalization Fund typically
intends to pay an income dividend quarterly from its net investment income.
The Small Capitalization Equity Fund and the European Smaller Companies Fund
each typically intends to pay an income dividend annually from its net
investment income. For each Fund, capital gains, if any, may be distributed
at least annually. The amount of any distributions will vary, and there is no
guarantee a Fund will pay either income dividends or capital gain
distributions. Your dividends and capital gain distributions will be
automatically reinvested in additional shares without a sales charge, unless
you elect cash payments.
AVOID "BUYING A DIVIDEND" If you invest in a Fund shortly before it makes a
distribution, you may receive some of your investment back in the form of a
taxable distribution.
TAX CONSIDERATIONS In general, if you are a taxable investor, Fund
distributions are taxable to you as either ordinary income or capital gains.
This is true whether you reinvest your distributions in additional Fund
shares or receive them in cash. Any capital gains a Fund distributes are
taxable as long-term capital gains no matter how long you have owned your
shares.
Under JAGTRRA, certain ordinary income and capital gain distributions paid to
you by a Fund will be subject to a maximum rate of tax of 5% (for individuals
in the 10% and 15% federal rate brackets; 0% in 2008) and 15% (for
individuals in higher rate brackets). In general, only ordinary income
dividends paid to you from dividends received by the Fund after December 31,
2002 and before 2009 from domestic securities and qualified foreign
corporations will be permitted this favored federal tax treatment. Ordinary
income dividends from interest earned by a Fund on debt securities and
dividends received from unqualified foreign corporations will not qualify for
these reduced rates of taxation. Distributions of net capital gain on
portfolio securities sold after May 5, 2003 and before 2009 also qualify for
the 5% and 15% rates of taxation. Each Fund will track its portfolio
investments to determine which distributions qualify for these reduced rates
and will provide you with this information, together with other information
on the tax status of your distributions, shortly after the end of the
calendar year.
BACKUP WITHHOLDING By law, each Fund must withhold a portion of your taxable
distributions and sales proceeds unless you:
o provide your correct social security or taxpayer identification number,
o certify that this number is correct,
o certify that you are not subject to backup withholding, and
o certify that you are a U.S. person (including a U.S. resident alien).
Each Fund also must withhold if the IRS instructs it to do so. When
withholding is required, the amount will be 28% of any distributions or
proceeds paid.
When you sell your shares in a Fund, you may realize a capital gain or loss.
For tax purposes, an exchange of your Fund shares for shares of a different
Franklin Templeton fund is the same as a sale.
Fund distributions and gains from the sale of your Fund shares generally are
subject to state and local taxes. For the EUROPEAN SMALLER COMPANIES FUND,
any foreign taxes that this Fund pays on its investments may be passed
through to you as a foreign tax credit. Non-U.S. investors may be subject to
U.S. withholding or estate tax, and are subject to special U.S. tax
certification requirements. You should consult your tax advisor about the
federal, state, local or foreign tax consequences of your investment in
a Fund.
YOUR ACCOUNT
[Insert graphic of pencil marking an "X"]
[QUALIFIED INVESTORS]
The Funds are generally only available to the following:
o Individuals and institutions who have a client relationship with
Fiduciary Trust or subsidiaries of Fiduciary Trust.
o Full time employees, officers, trustees and directors of Franklin
Templeton entities, and their immediate family members.
[Insert graphic of a paper with lines and someone writing] BUYING SHARES
- -------------------------------------------------------------------
MINIMUM INVESTMENTS INITIAL ADDITIONAL
- -------------------------------------------------------------------
Regular accounts $1,000 no minimum
UGMA/UTMA accounts $100 $50
Full-time employees, officers, trustees $100 $50
and directors of Franklin Templeton
entities, and their immediate family
members
- -------------------------------------------------------------------
This prospectus should be read together with any account agreement maintained
for required minimum investment amounts imposed by Fiduciary Trust or
subsidiaries of Fiduciary Trust. Certain Franklin Templeton funds offer
multiple share classes not offered by the Funds. Please note that for
selling or exchanging your shares, or for other purposes, each Fund's shares
are considered Advisor Class shares.
DISTRIBUTION AND SERVICE (12B-1) FEES Each Fund has a distribution plan,
sometimes known as a Rule 12b-1 plan, that allows a Fund to pay distribution
and other fees of up to 0.25% per year for the sale of shares and for
services provided to shareholders. The Funds have no current intention to use
the Rule 12b-1 plan.
If you are opening a new account, please complete and sign an Account
Application.
BUYING SHARES
- ---------------------------------------------------------------------
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- ---------------------------------------------------------------------
[Insert graphic of
hands shaking]
Contact your Contact your investment
THROUGH YOUR investment representative
INVESTMENT representative
REPRESENTATIVE
- ---------------------------------------------------------------------
[Insert graphic of If you have another Before requesting a
phone] Franklin Templeton telephone purchase into
fund account with an existing account,
BY PHONE your bank account please make sure we have
information on file, your bank account
(Up to $100,000 you may open a new information on file. If
per shareholder account by phone. we do not have this
per day) information, you will
To make a same day need to send written
1-800/632-2301 investment, your instructions with your
phone order must be bank's name and address,
received and accepted a voided check or
by us by 1:00 p.m. savings account deposit
Pacific time or the slip, and a signature
close of the New York guarantee if the bank
Stock Exchange, and Fund accounts do not
whichever is earlier. have at least one common
owner.
To make a same day
investment, your phone
order must be received
and accepted by us by
1:00 p.m. Pacific time
or the close of the New
York Stock Exchange,
whichever is earlier.
- ---------------------------------------------------------------------
Make your check Make your check payable
[Insert graphic of payable to the Fund. to the Fund. Include
envelope] your account number on
Mail the check and the check.
BY MAIL your signed
application to Fill out the deposit
Investor Services. slip from your account
statement. If you do not
have a slip, include a
note with your name, the
Fund name, and your
account number.
Mail the check and
deposit slip or note to
Investor Services.
- ---------------------------------------------------------------------
[Insert graphic of Call to receive a Call to receive a wire
three lightning wire control number control number and wire
bolts] and wire instructions.
instructions.
To make a same day wire
Wire the funds and investment, please call
BY WIRE mail your signed us by 1:00 p.m. Pacific
application to time and make sure your
1-800/632-2301 Investor Services. wire arrives by 3:00
(or 1-650/312-2000 Please include the p.m.
collect) wire control number
or your new account
number on the
application.
To make a same day
wire investment,
please call us by
1:00 p.m. Pacific
time and make sure
your wire arrives by
3:00 p.m.
- ---------------------------------------------------------------------
[Insert graphic of Call Investor Call Investor Services
two Services at the at the number below, or
arrows pointing in number below, or send send signed written
opposite signed written instructions.
directions] instructions.
(Please see page 25 for
BY EXCHANGE (Please see page 25 information on
for information on exchanges.)
Our website exchanges.)
ftci.com
- ---------------------------------------------------------------------
FRANKLIN TEMPLETON INVESTOR SERVICES, LLC
P.O. BOX 33030, ST. PETERSBURG, FL 33733-8030
CALL TOLL-FREE: 1-800/632-2301
(MONDAY THROUGH FRIDAY 5:30 A.M. TO 5:00 P.M., PACIFIC TIME
SATURDAY 6:30 A.M. TO 2:30 P.M., PACIFIC TIME)
[Insert graphic of person with a headset] INVESTOR SERVICES
-----------------
DISTRIBUTION OPTIONS Your dividends and capital gain distributions will be
automatically reinvested in additional shares, unless you elect cash payments.
TELEPHONE PRIVILEGES You will automatically receive telephone privileges when
you open your account, allowing you and your investment representative to
sell or exchange your shares and make certain other changes to your account
by phone.
For accounts with more than one registered owner, telephone privileges also
allow the Funds to accept written instructions signed by only one owner for
transactions and account changes that could otherwise be made by phone. For
all other transactions and changes, all registered owners must sign the
instructions. In addition, our telephone exchange privilege allows you to
exchange shares by phone from a fund account requiring two or more signatures
into an identically registered money fund account requiring only one
signature for all transactions. This type of telephone exchange is available
as long as you have telephone exchange privileges on your account.
As long as we follow reasonable security procedures and act on instructions
we reasonably believe are genuine, we will not be responsible for any losses
that may occur from unauthorized requests. Of course, you can decline
telephone exchange or redemption privileges on your account application.
The telephone transaction options available to retirement plans are limited
to those that are provided under the plan.
EXCHANGE PRIVILEGE You can exchange shares of a Fund with those of other
Franklin Templeton funds that offer Advisor Class shares. You also may
exchange your shares for Class A shares of a fund that does not currently
offer an Advisor Class (without any sales charge)* or for Class Z shares of
Franklin Mutual Series Fund Inc.
[Begin callout]
An EXCHANGE is really two transactions: a sale of one fund and the purchase
of another. In general, the same policies that apply to purchases and sales
apply to exchanges, including minimum investment amounts. Exchanges also have
the same tax consequences as ordinary sales and purchases.
[End callout]
Generally exchanges may only be made between identically registered accounts,
unless you send written instructions with a signature guarantee.
Because excessive trading can hurt fund performance, operations and
shareholders, the Funds reserve the right to revise or terminate the exchange
privilege, limit the amount or number of exchanges, reject any exchange, or
restrict or refuse purchases if (i) the Funds or their manager believe the
Funds would be harmed or unable to invest effectively, or (ii) the Funds
receive or anticipate simultaneous orders that may significantly affect the
Funds (please see "Market Timers" on page 30).
*If you exchange into Class A shares and you later decide you would like to
exchange into a fund that offers an Advisor Class, you may exchange your
Class A shares for Advisor Class shares if you otherwise qualify to buy the
fund's Advisor Class shares.
[Insert graphic of a certificate] SELLING SHARES
--------------
You can sell your shares at any time.
SELLING SHARES IN WRITING Generally, requests to sell $100,000 or less can be
made over the phone, or with a simple letter. Sometimes, however, to protect
you and the Funds we will need written instructions signed by all registered
owners, with a signature guarantee for each owner, if:
o you are selling more than $100,000 worth of shares
o you want your proceeds paid to someone who is not a registered owner
o you want to send your proceeds somewhere other than the address of
record, or preauthorized bank or brokerage firm account
[Begin callout]
A SIGNATURE GUARANTEE helps protect your account against fraud. You can
obtain a signature guarantee at most banks and securities dealers.
A notary public CANNOT provide a signature guarantee.
[End callout]
We also may require a signature guarantee on instructions we receive from an
agent, not the registered owners, or when we believe it would protect the
Funds against potential claims based on the instructions received.
SELLING RECENTLY PURCHASED SHARES If you sell shares recently purchased, we
may delay sending you the proceeds until your check, draft or wire/electronic
funds transfer has cleared, which may take seven business days or more. A
certified or cashier's check may clear in less time.
Your redemption check will be sent within seven days after we receive your
request in proper form. We are not able to receive or pay out cash in the
form of currency. Redemption proceeds may be delayed if we have not yet
received your signed account application.
SELLING SHARES
- ----------------------------------------------------------
TO SELL SOME OR ALL OF YOUR SHARES
- ----------------------------------------------------------
[Insert graphic of
hands shaking]
Contact your investment
THROUGH YOUR representative
INVESTMENT
REPRESENTATIVE
- ----------------------------------------------------------
[Insert graphic of Send written instructions to
envelope] Investor Services. Corporate,
partnership or trust accounts may
BY MAIL need to send additional documents.
Specify the Fund, the account number
and the dollar value or number of
shares you wish to sell. Be sure to
include all necessary signatures and
any additional documents, as well as
signature guarantees if required.
A check will be mailed to the
name(s) and address on the account,
or otherwise according to your
written instructions.
- ----------------------------------------------------------
[Insert graphic of As long as your transaction is for
phone] $100,000 or less and you have not
changed your address by phone within
BY PHONE the last 15 days, you can sell your
shares by phone.
1-800/632-2301
A check will be mailed to the
name(s) and address on the account.
Written instructions, with a
signature guarantee, are required to
send the check to another address or
to make it payable to another
person.
- ----------------------------------------------------------
[Insert graphic of Obtain a current prospectus for the
two fund you are considering.
arrows pointing in
opposite Call Investor Services at the number
directions] below or send signed written
instructions. See the policies above
BY EXCHANGE for selling shares by mail or phone.
- ----------------------------------------------------------
FRANKLIN TEMPLETON INVESTOR SERVICES, LLC
P.O. BOX 33030, ST. PETERSBURG, FL 33733-8030
CALL TOLL-FREE: 1-800/632-2301
(MONDAY THROUGH FRIDAY 5:30 A.M. TO 5:00 P.M., PACIFIC TIME
SATURDAY 6:30 A.M. TO 2:30 P.M., PACIFIC TIME)
[Insert graphic of paper and pen] ACCOUNT POLICIES
----------------
CALCULATING SHARE PRICE Each Fund calculates the net asset value per share
(NAV) each business day at the close of trading on the New York Stock
Exchange (normally 1:00 p.m. Pacific time). The NAV for each Fund is
calculated by dividing its net assets by the number of its shares outstanding.
Each Fund's assets are generally valued at their market value. If market
prices are unavailable, or if an event occurs after the close of the trading
market that materially affects the values, assets may be valued at their fair
value. If a Fund holds securities listed primarily on a foreign exchange that
trades on days when the Funds are not open for business, the value of your
shares may change on days that you cannot buy or sell shares.
Requests to buy and sell shares are processed at the NAV next calculated
after we receive your request in proper form.
ACCOUNTS WITH LOW BALANCES If the value of your account falls below $1,000
($50 for employee accounts) because you sell some of your shares, we may mail
you a notice asking you to bring the account back up to its applicable
minimum investment amount. If you choose not to do so within 30 days, we may
close your account and mail the proceeds to the address of record.
STATEMENTS, REPORTS AND PROSPECTUSES You will receive quarterly account
statements that show all your account transactions during the quarter. You
also will receive written notification after each transaction affecting your
account (except for distributions, which will be reported on your quarterly
statement).
You also will receive the Funds' financial reports every six months as well
as an annual updated prospectus. To reduce Fund expenses, we try to identify
related shareholders in a household and send only one copy of the financial
reports and prospectus. This process, called "householding," will continue
indefinitely unless you instruct us otherwise. If you prefer not to have
these documents householded, please call us at 1-800/632-2301.
FINANCIAL ADVISOR ACCOUNT ACCESS If there is a financial advisor or other
investment representative of record on your account, he or she will be able
to obtain your account information, conduct transactions for your account,
and also will receive copies of all notifications and statements and other
information about your account directly from the Funds.
STREET OR NOMINEE ACCOUNTS You may transfer your shares from the street or
nominee name account of one dealer to another, as long as both dealers have
an agreement with Templeton/Franklin Investment Services, Inc. (TFIS) We will
process the transfer after we receive authorization in proper form from your
delivering securities dealer.
JOINT ACCOUNTS Unless you specify a different registration, accounts with two
or more owners are registered as "joint tenants with rights of survivorship"
(shown as "Jt Ten" on your account statement). To make any ownership changes
to a joint account, all owners must agree in writing, regardless of the law
in your state.
MARKET TIMERS Each Fund may restrict or refuse purchases or exchanges by
Market Timers. You may be considered a Market Timer if you have (i) requested
an exchange or redemption out of any of the Franklin Templeton funds within
two weeks of an earlier purchase or exchange request out of any fund, or
(ii) exchanged or redeemed shares out of any of the Franklin Templeton funds
more than twice within a rolling 90 day period. Accounts under common
ownership or control with an account that is covered by (i) or (ii) also are
subject to these limits.
Anyone, including the shareholder or the shareholder's agent, who is
considered to be a Market Timer by the Funds, their manager or shareholder
services agent, will be issued a written notice of their status and each
Fund's policies. Identified Market Timers will be required to register with
the market timing desk of Franklin Templeton Investor Services, LLC, and to
place all purchase, exchange and redemption trade requests through the desk.
Some funds do not allow investments by Market Timers.
ADDITIONAL POLICIES Please note that each Fund maintains additional policies
and reserves certain rights, including:
o The Fund may restrict or refuse any order to buy shares, including any
purchase under the exchange privilege.
o The Fund may modify, suspend, or terminate telephone privileges at
any time.
o At any time, the Fund may change its investment minimums or waive or
lower their minimums for certain purchases.
o Investors who purchase, redeem or exchange shares through a financial
intermediary may be charged a service fee by that financial intermediary.
o The Fund may modify or discontinue the exchange privilege on 60 days'
notice.
o You may only buy shares of a fund eligible for sale in your state or
jurisdiction.
o In unusual circumstances, we may temporarily suspend redemptions, or
postpone the payment of proceeds, as allowed by federal securities laws.
o For redemptions over a certain amount, the Fund reserves the right, in
the case of an emergency, to make payments in securities or other assets of
the Fund, if the payment of cash proceeds by check or wire would be harmful
to existing shareholders.
o To permit investors to obtain the current price, dealers are responsible
for transmitting all orders to the Fund promptly.
DEALER COMPENSATION Qualifying dealers who sell shares may receive up to
0.25% of the amount invested. This amount is paid by TFIS from its own
resources.
[Insert graphic of question mark] QUESTIONS
----------
If you have any questions about the Funds or your account, you can write to
us at Shareholder Services, P.O. Box 33030, St. Petersburg, FL 33733-8030.
You also can call us at 1-800/632-2301 (TDD (Hearing Impaired)
1-800/851-0637). For your protection and to help ensure we provide you with
quality service, all calls may be monitored or recorded.
FOR MORE INFORMATION
You can learn more about each Fund in the following document:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
Contains more information about each Fund, its investments and policies. It
is incorporated by reference (is legally a part of this prospectus).
For a free copy of the SAI, please contact your investment representative or
call us at the number below.
Franklin(R) Templeton(R) Investments
1-800/632-2301
TDD (Hearing Impaired) 1-800/851-0637
You also can obtain information about each Fund by visiting the SEC's Public
Reference Room in Washington, DC (phone 1-202/942-8090) or the EDGAR Database
on the SEC's Internet site at http://www.sec.gov. You can obtain copies of
this information, after paying a duplicating fee, by writing to the SEC's
Public Reference Section, Washington, DC 20549-0102 or by electronic request
at the following e-mail address: publicinfo@sec.gov.
Investment Company Act file # 811-10157 Lit Code FGT1 P 06/03
EVERY SHAREHOLDER'S VOTE IS IMPORTANT
PLEASE SIGN, DATE AND RETURN YOUR
PROXY TODAY
Please detach at perforation before mailing.
PROXY PROXY
SPECIAL SHAREHOLDERS' MEETING OF
FTI SMALL CAPITALIZATION EQUITY FUND
JULY 15, 2003
The undersigned hereby revokes all previous proxies for his or
her shares and appoints Gregory E. Johnson, Murray L. Simpson,
Barbara J. Green, David P. Goss and Steven J. Gray, and each of
them, proxies of the undersigned with full power of substitution
to vote all shares of FTI Small Capitalization Equity Fund ("FTI
Fund") that the undersigned is entitled to vote at the FTI
Fund's special shareholders' meeting (Meeting) to be held at One
Franklin Plaza, San Mateo, California 94403-1906 at 10:00 a.m.
Pacific time on July 15, 2003, including any adjournments
thereof, upon such business as may properly be brought before
the Meeting.
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.
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, each
holder must sign.
-----------------------------------
Signature
-----------------------------------
Signature
-----------------------------------
Date
(Please see reverse side)
EVERY SHAREHOLDER'S VOTE IS IMPORTANT
PLEASE SIGN, DATE AND RETURN YOUR
PROXY TODAY
Please detach at perforation before mailing.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF FTI
FUNDS, ON BEHALF OF FTI FUND. IT WILL BE VOTED AS SPECIFIED. IF
NO SPECIFICATION IS MADE, THIS PROXY SHALL BE VOTED IN FAVOR OF
PROPOSAL 1, REGARDING THE REORGANIZATION OF FTI FUND PURSUANT TO
THE AGREEMENT AND PLAN OF REORGANIZATION WITH FRANKLIN GLOBAL
TRUST ON BEHALF OF FIDUCIARY SMALL CAPITALIZATION EQUITY FUND
(FGT FUND). IF ANY OTHER MATTERS PROPERLY COME BEFORE THE MEETING
ABOUT WHICH THE PROXYHOLDERS WERE NOT AWARE PRIOR TO THE TIME OF
THE SOLICITATION, AUTHORIZATION IS GIVEN TO THE PROXYHOLDERS TO
VOTE IN ACCORDANCE WITH THE VIEWS OF MANAGEMENT ON SUCH MATTERS.
MANAGEMENT IS NOT AWARE OF ANY SUCH MATTERS.
THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN
FAVOR OF PROPOSAL 1.
FOR AGAINST ABSTAIN
1. To approve an Agreement and Plan of
Reorganization between FTI Funds, on [] [] []
behalf of FTI Fund, and Franklin Global
Trust, on behalf of FGT Fund, that
provides for (i) the acquisition of all
of the assets and liabilities of FTI
Fund by FGT Fund in exchange for shares
of FGT Fund, (ii) the distribution of
such shares to the shareholders of FTI
Fund, and (iii) the complete liquidation
and dissolution of FTI Fund.
Shareholders of FTI Fund will receive
shares of FGT Fund equal in number and
value to the shares held in FTI Fund.
GRANT WITHHOLD ABSTAIN
2. To grant the proxyholders the
authority to transact any other [] [] []
business, not currently contemplated,
that may properly come before the
Meeting.
IMPORTANT: PLEASE SIGN, DATE AND MAIL IN YOUR PROXY TODAY
PLEASE SIGN AND PROMPTLY RETURN IN THE ACCOMPANYING ENVELOPE. NO
POSTAGE REQUIRED IF MAILED IN THE U.S.
EVERY SHAREHOLDER'S VOTE IS IMPORTANT
PLEASE SIGN, DATE AND RETURN YOUR
PROXY TODAY
Please detach at perforation before mailing.
PROXY PROXY
SPECIAL SHAREHOLDERS' MEETING OF
FTI LARGE CAPITALIZATION GROWTH AND INCOME FUND
JULY 15, 2003
The undersigned hereby revokes all previous proxies for his or her shares
and appoints Gregory E. Johnson, Murray L. Simpson, Barbara J. Green,
David P. Goss and Steven J. Gray, and each of them, proxies of the
undersigned with full power of substitution to vote all shares of FTI
Large Capitalization Growth and Income Fund ("FTI Fund") that the
undersigned is entitled to vote at the FTI Fund's special shareholders'
meeting (Meeting) to be held at One Franklin Parkway, San Mateo,
California 94403-1906 at 10:00 a.m. Pacific time on July 15, 2003,
including any adjournments thereof, upon such business as may properly be
brought before the Meeting.
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.
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, each holder
must sign.
-----------------------------------
Signature
-----------------------------------
Signature
-----------------------------------
Date
(Please see reverse side)
EVERY SHAREHOLDER'S VOTE IS IMPORTANT
PLEASE SIGN, DATE AND RETURN YOUR
PROXY TODAY
Please detach at perforation before mailing.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF FTI FUNDS, ON
BEHALF OF FTI FUND. IT WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION IS
MADE, THIS PROXY SHALL BE VOTED IN FAVOR OF PROPOSAL 1, REGARDING THE
REORGANIZATION OF FTI FUND PURSUANT TO THE AGREEMENT AND PLAN OF
REORGANIZATION WITH FRANKLIN GLOBAL TRUST ON BEHALF OF FIDUCIARY LARGE
CAPITALIZATION GROWTH AND INCOME FUND (FGT FUND). IF ANY OTHER MATTERS
PROPERLY COME BEFORE THE MEETING ABOUT WHICH THE PROXYHOLDERS WERE NOT AWARE
PRIOR TO THE TIME OF THE SOLICITATION, AUTHORIZATION IS GIVEN TO THE
PROXYHOLDERS TO VOTE IN ACCORDANCE WITH THE VIEWS OF MANAGEMENT ON SUCH
MATTERS. MANAGEMENT IS NOT AWARE OF ANY SUCH MATTERS.
THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF
PROPOSAL 1.
FOR AGAINST ABSTAIN
1. To approve an Agreement and Plan of
Reorganization between FTI Funds, on [] [] []
behalf of FTI Fund, and Franklin Global
Trust, on behalf of FGT Fund, that
provides for (i) the acquisition of all
of the assets and liabilities of FTI
Fund by FGT Fund in exchange for shares
of FGT Fund, (ii) the distribution of
such shares to the shareholders of FTI
Fund, and (iii) the complete liquidation
and dissolution of FTI Fund.
Shareholders of FTI Fund will receive
shares of FGT Fund equal in number and
value to the shares held in FTI Fund.
GRANT WITHHOLD ABSTAIN
2. To grant the proxyholders the
authority to transact any other [] [] []
business, not currently contemplated,
that may properly come before the
Meeting.
IMPORTANT: PLEASE SIGN, DATE AND MAIL IN YOUR PROXY TODAY
PLEASE SIGN AND PROMPTLY RETURN IN THE ACCOMPANYING ENVELOPE. NO POSTAGE
REQUIRED IF MAILED IN THE U.S.
EVERY SHAREHOLDER'S VOTE IS IMPORTANT
PLEASE SIGN, DATE AND RETURN YOUR
PROXY TODAY
Please detach at perforation before mailing.
PROXY
PROXY
SPECIAL SHAREHOLDERS' MEETING OF
FTI EUROPEAN SMALLER COMPANIES FUND
JULY 15, 2003
The undersigned hereby revokes all previous proxies for his or her shares
and appoints Gregory E. Johnson, Murray L. Simpson, Barbara J. Green,
David P. Goss and Steven J. Gray, and each of them, proxies of the
undersigned with full power of substitution to vote all shares of FTI
European Smaller Companies Fund ("FTI Fund") that the undersigned is
entitled to vote at the FTI Fund's special shareholders' meeting (Meeting)
to be held at One Franklin Parkway, San Mateo, California 94403-1906 at
10:00 a.m. Pacific time on July 15, 2003, including any adjournments
thereof, upon such business as may properly be brought before the Meeting.
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.
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, each holder
must sign.
-----------------------------------
Signature
-----------------------------------
Signature
-----------------------------------
Date
(Please see reverse side)
EVERY SHAREHOLDER'S VOTE IS IMPORTANT
PLEASE SIGN, DATE AND RETURN YOUR
PROXY TODAY
Please detach at perforation before mailing.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF FTI FUNDS, ON
BEHALF OF FTI FUND. IT WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION IS
MADE, THIS PROXY SHALL BE VOTED IN FAVOR OF PROPOSAL 1, REGARDING THE
REORGANIZATION OF FTI FUND PURSUANT TO THE AGREEMENT AND PLAN OF
REORGANIZATION WITH FRANKLIN GLOBAL TRUST ON BEHALF OF FIDUCIARY EUROPEAN
SMALLER COMPANIES FUND (FGT FUND). IF ANY OTHER MATTERS PROPERLY COME BEFORE
THE MEETING ABOUT WHICH THE PROXYHOLDERS WERE NOT AWARE PRIOR TO THE TIME OF
THE SOLICITATION, AUTHORIZATION IS GIVEN TO THE PROXYHOLDERS TO VOTE IN
ACCORDANCE WITH THE VIEWS OF MANAGEMENT ON SUCH MATTERS. MANAGEMENT IS NOT
AWARE OF ANY SUCH MATTERS.
THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF
PROPOSAL 1.
FOR AGAINST ABSTAIN
1. To approve an Agreement and Plan of
Reorganization between FTI Funds, on [] [] []
behalf of FTI Fund, and Franklin Global
Trust, on behalf of FGT Fund, that
provides for (i) the acquisition of all
of the assets and liabilities of FTI
Fund by FGT Fund in exchange for shares
of FGT Fund, (ii) the distribution of
such shares to the shareholders of FTI
Fund, and (iii) the complete liquidation
and dissolution of FTI Fund.
Shareholders of FTI Fund will receive
shares of FGT Fund equal in number and
value to the shares held in FTI Fund.
GRANT WITHHOLD ABSTAIN
2. To grant the proxyholders the
authority to transact any other [] [] []
business, not currently contemplated,
that may properly come before the
Meeting.
IMPORTANT: PLEASE SIGN, DATE AND MAIL IN YOUR PROXY TODAY
PLEASE SIGN AND PROMPTLY RETURN IN THE ACCOMPANYING ENVELOPE. NO POSTAGE
REQUIRED IF MAILED IN THE U.S.
FRANKLIN GLOBAL TRUST
FIDUCIARY LARGE CAPITALIZATION GROWTH AND INCOME FUND
FIDUCIARY SMALL CAPITALIZATION EQUITY FUND
FIDUCIARY EUROPEAN SMALLER COMPANIES FUND
STATEMENT OF ADDITIONAL INFORMATION
JUNE 19, 2003
[Insert Franklin Templeton logo]
ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906 1-800/321-8563
This Statement of Additional Information (SAI) is not a prospectus. It
contains information in addition to the information in the Funds'
prospectus. The Funds' prospectus, dated June 19, 2003, which we may amend
from time to time, contains the basic information you should know before
investing in the Funds. You should read this SAI together with the Funds'
prospectus.
For a free copy of the current prospectus, contact your investment
representative or call 1-800/321-8563.
CONTENTS
Goals, Strategies and Risks...................................................
Officers and Trustees.........................................................
Management and Other Services.................................................
Portfolio Transactions........................................................
Distributions and Taxes.......................................................
Organization, Voting Rights...................................................
and Principal Holders........................................................
Buying and Selling Shares.....................................................
Pricing Shares................................................................
The Underwriter...............................................................
Performance...................................................................
Miscellaneous Information.....................................................
Description of Ratings........................................................
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MUTUAL FUNDS, ANNUITIES, AND OTHER INVESTMENT PRODUCTS:
- ------------------------------------------------------------------------------
o ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE U.S. GOVERNMENT;
o ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY
BANK;
o ARE SUBJECT TO INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
- ------------------------------------------------------------------------------
GOAL, STRATEGIES AND RISKS
- ------------------------------------------------------------------------------
Generally, the policies and restrictions discussed in this SAI and in the
prospectus apply when a Fund makes an investment. In most cases, the Funds
are not required to sell a security because circumstances change and the
security no longer meets one or more of a Fund's policies or restrictions.
If a percentage restriction or limitation is met at the time of investment,
a later increase or decrease in the percentage due to a change in the value
or liquidity of portfolio securities will not be considered a violation of
the restriction or limitation.
If a bankruptcy or other extraordinary event occurs concerning a particular
security a Fund owns, the Fund may receive stock, real estate or other
investments that the Fund would not, or could not, buy. If this happens, the
Fund intends to sell such investments as soon as practicable while trying to
maximize the return to shareholders.
Each Fund has adopted certain investment restrictions as fundamental and
non-fundamental policies. A fundamental policy may only be changed if the
change is approved by (i) more than 50% of a Fund's outstanding shares or
(ii) 67% or more of a Fund's shares present at a shareholder meeting if more
than 50% of a Fund's outstanding shares are represented at the meeting in
person or by proxy, whichever is less. A non-fundamental policy may be
changed by the board of trustees without the approval of shareholders.
FUNDAMENTAL INVESTMENT POLICIES
The Fiduciary Large Capitalization Growth and Income Fund's (Large
Capitalization Fund) principal investment goal is long-term growth of
principal and income.
The Fiduciary Small Capitalization Equity Fund's (Small Capitalization
Equity Fund) principal investment goal is to provide growth of principal.
Each Fund may not:
1. Borrow money, except to the extent permitted by the Investment Company
Act of 1940, as amended (1940 Act), or any rules, exemptions or
interpretations thereunder that may be adopted, granted or issued by the
Securities and Exchange Commission (SEC).
2. Act as an underwriter except to the extent the Fund may be deemed to be
an underwriter when disposing of securities it owns or when selling its
own shares.
3. Make loans to other persons except (a) through the lending of its
portfolio securities, (b) through the purchase of debt securities, loan
participations and/or engaging in direct corporate loans in accordance
with its investment goals and policies, and (c) to the extent the entry
into a repurchase agreement is deemed to be a loan. The Fund may also
make loans to affiliated investment companies to the extent permitted by
the 1940 Act or any exemptions therefrom which may be granted by the SEC.
4. Purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments and provided that this restriction
does not prevent the Fund from (i) purchasing or selling securities
secured by real estate or interest therein or securities issued by
companies that invest, deal or otherwise engage in transactions in real
estate or interests therein, and (ii) making, purchasing or selling real
estate mortgage loans.
5. Purchase or sell commodities as defined in the Commodity Exchange Act,
as amended, and the rules and regulations thereunder, unless acquired as
a result of ownership of securities or other instruments and provided
that this restriction does not prevent the Fund from engaging in
transactions involving future contracts and options thereon or investing
in securities that are secured by physical commodities.
6. Issue senior securities, except to the extent permitted by the 1940 Act
or any rules, exemptions or interpretations thereunder that may be
adopted, granted or issued by the SEC.
7. Invest more than 25% of the Fund's net assets in securities of issuers
in any one industry (other than securities issued or guaranteed by the
U.S. government or any of its agencies or instrumentalities or securities
of other investment companies).
8. Purchase the securities of any one issuer (other than the U.S.
government or any of its agencies or instrumentalities or securities of
other investment companies, whether registered or excluded from
registration under Section 3(c) of the 1940 Act) if immediately after
such investment (a) more than 5% of the value of the Fund's total assets
would be invested in such issuer or (b) more than 10% of the outstanding
voting securities of such issuer would be owned by the Fund, except that
up to 25% of the value of the Fund's total assets may be invested without
regard to such 5% and 10% limitations.
NON-FUNDAMENTAL INVESTMENT POLICIES
For purposes of each Fund's 80% investment policy, net assets include the
amount of any borrowings for investment purposes.
Fiduciary European Smaller Companies Fund's (European Smaller Companies
Fund) principal investment goal is long-term growth of principal. This goal
is not fundamental and may be changed by the Board of Trustees (board or
trustees) without shareholder approval.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES Unless permitted by
action of the SEC, each Fund will limit its investment in other investment
companies to no more than 3% of the total outstanding voting stock of any
investment company, no more than 5% of a Fund's total assets in any one
investment company, or no more than 10% of a Fund's total assets in all
investment companies. The Funds will purchase securities of closed-end
investment companies only in open market transactions involving only
customary broker's commissions. However, these limitations are not
applicable if the securities are acquired in a merger, consolidation,
reorganization, or acquisition of assets.
INVESTING IN MINERALS The Funds will not purchase interests in oil, gas, or
other mineral exploration or development programs or leases, except they may
purchase the securities of issuers that invest in or sponsor such programs.
ARBITRAGE TRANSACTIONS The Funds will not enter into transactions for the
purpose of engaging in arbitrage.
PURCHASING SECURITIES TO EXERCISE CONTROL The Funds will not purchase
securities of a company for the purpose of exercising control or management.
LEVERAGING The Funds will not engage in transactions for the purpose of
leveraging.
CONCENTRATION OF INVESTMENTS For the purposes of the Funds' fundamental
investment limitation concerning concentration (a) investments in certain
industrial development bonds funded by activities in a single industry will
be deemed to constitute investments in an industry, and (b) a Fund will
classify companies by industry based on their primary Standard Industrial
Classification (SIC Code) as listed by a company in their filings with the
SEC.
BORROWING MONEY The Funds will not borrow money or pledge securities in
excess of 5% of the value of their respective net assets. Such borrowings
shall be for temporary purposes to facilitate redemptions or to clear
purchase transactions.
BUYING SECURITIES ON MARGIN The Funds will not purchase securities on
margin, provided that a Fund may obtain short-term credits necessary for the
clearance of purchases and sales of securities, and provided that a Fund may
make margin deposits in connection with their use of financial options and
futures, forward and spot currency contracts, swap transactions and other
financial contracts or derivative instruments.
PLEDGING ASSETS The Funds will not mortgage, pledge, or hypothecate any of
their assets, provided that this shall not apply to the transfer of
securities in connection with any permissible borrowing or to collateral
arrangements in connection with permissible activities.
SELLING SHORT The Funds will not engage in short sale transactions.
HSBC SMALLER EUROPEAN COMPANIES INDEX While the European Smaller Companies
Fund seeks to outperform the HSBC Smaller European Companies Index,
positions may be taken by the Fund that are not represented in that index.
In such cases, no more than 10% of the assets of the Fund will be invested
in any one market not represented in that index.
For purposes of its policies and limitations, the Funds consider
certificates of deposit and demand and time deposits issued by a U.S. branch
of a domestic bank or savings associations having capital, surplus, and
undivided profits in excess of $100,000,000 at the time of investment to be
"cash items."
INVESTMENTS, TECHNIQUES AND STRATEGIES
Securities and techniques principally used by the Funds to meet their
respective objectives are described in the prospectus. Other securities and
techniques used by the Funds to meet their respective objectives are
described below.
The value of your shares will increase as the value of the securities owned
by a Fund increases and will decrease as the value of the Fund's investments
decrease. In this way, you participate in any change in the value of the
securities owned by a Fund. In addition to the factors that affect the value
of any particular security that a Fund owns, the value of each Fund's shares
may also change with movements in stock markets as a whole.
EQUITY SECURITIES
An equity security, or stock, represents a proportionate share of the
ownership of a company; its value is based on the success of the company's
business, any income paid to stockholders, the value of its assets, and
general market conditions. Common stocks and preferred stocks are examples
of equity securities.
PREFERRED STOCKS Preferred stocks have the right to receive specified
dividends or distributions before the issuer makes payments on its common
stock. Some preferred stocks also participate in dividends and distributions
paid on common stock. Preferred stocks may also permit the issuer to redeem
the stock. A Fund may also treat such redeemable preferred stock as a fixed
income security.
REAL ESTATE INVESTMENT TRUSTS (REITS) REITs are real estate investment
trusts that lease, operate and finance commercial real estate. REITs are
exempt from federal corporate income tax if they limit their operations and
distribute most of their income. Such tax requirements limit a REIT's
ability to respond to changes in the commercial real estate market.
WARRANTS The Funds will not invest more than 5% of their net assets in
warrants. For purposes of this investment restriction, warrants will be
valued at the lower of cost or market, except that warrants acquired by a
Fund in units with or attached to securities may be deemed to be without
value.
Warrants give a Fund the option to buy an issuer's equity securities at a
specified price (the exercise price) at a specified future date (the
expiration date). A Fund may buy the designated securities by paying the
exercise price before the expiration date. Warrants may become worthless if
the price of the stock does not rise above the exercise price by the
expiration date. This increases the market risks of warrants as compared to
the underlying security. Rights are the same as warrants, except companies
typically issue rights to existing stockholders.
FIXED INCOME SECURITIES
Fixed income securities pay interest, dividends or distributions at a
specified rate. The rate may be a fixed percentage of the principal or
adjusted periodically. In addition, the issuer of a fixed income security
must repay the principal amount of the security, normally within a specified
time. Fixed income securities provide more regular income than equity
securities. However, the returns on fixed income securities are limited and
normally do not increase with the issuer's earnings. This limits the
potential appreciation of fixed income securities as compared to equity
securities.
A security's yield measures the annual income earned on a security as a
percentage of its price. A security's yield will increase or decrease
depending upon whether it costs less (a discount) or more (a premium) than
the principal amount. If the issuer may redeem the security before its
scheduled maturity, the price and yield on a discount or premium security
may change based upon the probability of an early redemption. Securities
with higher risks generally have higher yields.
CORPORATE DEBT SECURITIES Corporate debt securities are fixed income
securities issued by businesses. Notes, bonds, debentures and commercial
paper (which are discussed more fully below) are the most prevalent types of
corporate debt securities. The Fund may also purchase interests in bank
loans to companies. The credit risks of corporate debt securities vary
widely among issuers. In addition, the credit risk of an issuer's debt
security may vary based on its priority for repayment. For example, higher
ranking (senior) debt securities have a higher priority than lower ranking
(subordinated) securities. This means that the issuer might not make
payments on subordinated securities while continuing to make payments on
senior securities. In addition, in the event of bankruptcy, holders of
senior securities may receive amounts otherwise payable to the holders of
subordinated securities. Some subordinated securities, such as trust
preferred and capital securities notes, also permit the issuer to defer
payments under certain circumstances. For example, insurance companies issue
securities known as surplus notes that permit the insurance company to defer
any payment that would reduce its capital below regulatory requirements.
Convertible Securities Convertible securities are fixed income securities
that a Fund has the option to exchange for equity securities at a specified
conversion price. The option allows a Fund to realize additional returns if
the market price of the equity securities exceeds the conversion price. For
example, a Fund may hold fixed income securities that are convertible into
shares of common stock at a conversion price of $10 per share. If the market
value of the shares of common stock reached $12, a Fund could realize an
additional $2 per share by converting its fixed income securities.
Convertible securities have lower yields than comparable fixed income
securities. In addition, at the time a convertible security is issued, the
conversion price exceeds the market value of the underlying equity
securities. Thus, convertible securities may provide lower returns than
non-convertible fixed income securities or equity securities depending upon
changes in the price of the underlying equity securities. However,
convertible securities permit a Fund to realize some of the potential
appreciation of the underlying equity securities with less risk of losing
the initial investment.
COMMERCIAL PAPER Commercial paper is an issuer's obligation with a maturity
of less than nine months. Companies typically issue commercial paper to pay
for current expenditures. Most issuers constantly reissue their commercial
paper and use the proceeds (or bank loans) to repay maturing paper. If the
issuer cannot continue to obtain liquidity in this fashion, its commercial
paper may default. The short maturity of commercial paper reduces both the
market and credit risks as compared to other debt securities of the same
issuer.
DEMAND INSTRUMENTS Demand instruments are corporate debt securities that the
issuer must repay upon demand. Other demand instruments require a third
party, such as a dealer or bank, to repurchase the security for its face
value upon demand. A Fund treats demand instruments as short-term
securities, even though their stated maturity may extend beyond one year.
FOREIGN SECURITIES
Foreign securities are securities of issuers based outside the U.S. A Fund
considers an issuer to be based outside the U.S. if:
o it is organized under the laws of, or has a principal office located
in, another country; or
o the principal trading market for its securities is in another country.
Foreign securities are primarily denominated in foreign currencies. Along
with the risks normally associated with domestic securities of the same
type, foreign securities are subject to currency risks and other risks of
foreign investing. Other risks associated with foreign investing include:
unpredictable political, social and economic developments in the foreign
country where the security is issued or where the issuer of the security is
located; and the possible imposition by a foreign government of limits on
the ability of a fund to obtain a foreign currency or to convert a foreign
currency into U.S. dollars; or the imposition of other foreign laws or
restrictions.
There may be less publicly available information about a foreign company
than about a U.S. company. Foreign issuers may not be subject to accounting,
auditing and financial reporting standards and requirements comparable to,
or as uniform as, those of U.S. issuers. The number of securities traded,
and the frequency of such trading, in non-U.S. securities markets, while
growing in volume, is for the most part, substantially less than in U.S.
markets. As a result, securities of many foreign issuers are less liquid and
their prices more volatile than securities of comparable U.S. issuers.
Transaction costs, the costs associated with buying and selling securities,
on non-U.S. securities markets are generally higher than in the U.S. There
is generally less government supervision and regulation of exchanges,
brokers and issuers than there is in the U.S. Each Fund's foreign
investments may include both voting and non-voting securities, sovereign
debt and participations in foreign government deals. The Funds may have
greater difficulty taking appropriate legal action with respect to foreign
investments in non-U.S. courts than with respect to domestic issuers in U.S.
courts.
DEPOSITARY RECEIPTS Depositary receipts represent interests in underlying
securities issued by a foreign company. Depositary receipts are not traded
in the same market as the underlying security. The foreign securities
underlying American Depositary Receipts (ADRs) are traded outside the U.S..
ADRs provide a way to buy shares of foreign-based companies in the U.S.
rather than in overseas markets. ADRs are also traded in U.S. dollars,
eliminating the need for foreign exchange transactions. The foreign
securities underlying European Depositary Receipts (EDRs), Global Depositary
Receipts (GDRs), and International Depositary Receipts (IDRs), are traded
globally or outside the U.S.. Depositary receipts involve many of the same
risks of investing directly in foreign securities, including currency risks
and risks of foreign investing.
FOREIGN EXCHANGE CONTRACTS In order to convert U.S. dollars into the
currency needed to buy a foreign security, or to convert foreign currency
received from the sale of a foreign security into U.S. dollars, a Fund may
enter into spot currency trades. In a spot trade, a Fund agrees to exchange
one currency for another at the current exchange rate. A Fund may also enter
into derivative contracts in which a foreign currency is an underlying
asset. The exchange rate for currency derivative contracts may be higher or
lower than the spot exchange rate. Use of these derivative contracts may
increase or decrease a Fund's exposure to currency risks.
FOREIGN GOVERNMENT SECURITIES Foreign government securities generally
consist of fixed income securities supported by national, state or
provincial governments or similar political subdivisions. Foreign government
securities also include debt obligations of supranational entities, such as
international organizations designed or supported by governmental entities
to promote economic reconstruction or development, international banking
institutions and related government agencies. Examples of these include, but
are not limited to, the International Bank for Reconstruction and
Development (the World Bank), the Asian Development Bank, the European
Investment Bank and the Inter-American Development Bank.
Foreign government securities also include fixed income securities of
quasi-governmental agencies that are either issued by entities owned by a
national, state or equivalent government or are obligations of a political
unit that are not backed by the national government's full faith and credit.
Further, foreign government securities include mortgage-related securities
issued or guaranteed by national, state or provincial governmental
instrumentalities, including quasi-governmental agencies.
DERIVATIVE CONTRACTS
Derivative contracts are financial instruments that require payments based
upon changes in the values of designated (or underlying) securities,
currencies, commodities, financial indices or other assets. Some derivative
contracts (such as futures, forwards and options) require payments relating
to a future trade involving the underlying asset. Other derivative contracts
(such as swaps) require payments relating to the income or returns from the
underlying asset. The other party to a derivative contract is referred to
as a counterparty.
Many derivative contracts are traded on securities or commodities exchanges.
In this case, the exchange sets all the terms of the contract except for the
price. Investors make payments due under their contracts through the
exchange. Most exchanges require investors to maintain margin accounts
through their brokers to cover their potential obligations to the exchange.
Parties to the contract make (or collect) daily payments to the margin
accounts to reflect losses (or gains) in the value of their contracts. This
protects investors against potential defaults by the counterparty. Trading
contracts on an exchange also allows investors to close out their contracts
by entering into offsetting contracts.
For example, a Fund could close out an open contract to buy an asset at a
future date by entering into an offsetting contract to sell the same asset
on the same date. If the offsetting sale price is more than the original
purchase price, the Fund realizes a gain; if it is less, the Fund realizes a
loss. Exchanges may limit the amount of open contracts permitted at any one
time. Such limits may prevent a Fund from closing out a position. If this
happens, a Fund will be required to keep the contract open (even if it is
losing money on the contract), and to make any payments required under the
contract (even if it has to sell portfolio securities at unfavorable prices
to do so). Inability to close out a contract could also harm a Fund by
preventing it from disposing of or trading any assets it has been using to
secure its obligations under the contract.
A Fund may also trade derivative contracts over-the-counter (OTC) in
transactions negotiated directly between the Fund and the counterparty. OTC
contracts do not necessarily have standard terms, so they cannot be directly
offset with other OTC contracts. In addition, OTC contracts with more
specialized terms may be more difficult to price than exchange traded
contracts. Depending upon how a Fund uses derivative contracts and the
relationships between the market value of a derivative contract and the
underlying asset, derivative contracts may increase or decrease a Fund's
exposure to market and currency risks, and may also expose a Fund to
liquidity and leverage risks. OTC contracts also expose a Fund to credit
risks in the event that a counterparty defaults on the contract.
Following are types of derivative contracts in which the Funds may invest.
FUTURES CONTRACTS Futures contracts provide for the future sale by one party
and purchase by another party of a specified amount of an underlying asset
at a specified price, date, and time. Entering into a contract to buy an
underlying asset is commonly referred to as buying a contract or holding a
long position in the asset. Entering into a contract to sell an underlying
asset is commonly referred to as selling a contract or holding a short
position in the asset. Futures contracts are considered to be commodity
contracts. Futures contracts traded OTC are frequently referred to as
forward contracts.
OPTIONS Options are rights to buy or sell an underlying asset for a
specified price (the exercise price) during, or at the end of, a specified
period. A call option gives the holder (buyer) the right to buy the
underlying asset from the seller (writer) of the option. A put option gives
the holder the right to sell the underlying asset to the writer of the
option. The writer of the option receives a payment, or premium, from the
buyer, which the writer keeps regardless of whether the buyer uses (or
exercises) the option.
To the extent that a Fund utilizes options, it would generally:
o Buy call options in anticipation of an increase in the value of the
underlying asset;
o Buy put options in anticipation of a decrease in the value of the
underlying asset; and
o Buy or write options to close out existing options positions.
A Fund may also write call options to generate income from premiums, and in
anticipation of a decrease or only limited increase in the value of the
underlying asset. If a call written by a Fund is exercised, the Fund
foregoes any possible profit from an increase in the market price of the
underlying asset over the exercise price plus the premium received.
A Fund may also write put options to generate income from premiums, and in
anticipation of an increase or only limited decrease in the value of the
underlying asset. In writing puts, there is a risk that the Fund may be
required to take delivery of the underlying asset when its current market
price is lower than the exercise price. When a Fund writes options on
futures contracts, it will be subject to margin requirements similar to
those applied to futures contracts.
INVESTING IN PUTS AND CALLS The Funds will (a) limit the aggregate value of
the assets underlying covered call options or put options written by a Fund
to not more than 25% of their net assets, (b) limit the premiums paid for
options purchased by a Fund to 5% of their net assets, and (c) limit the
margin deposits on futures contracts entered into by a Fund to 5% of their
net assets.
HEDGING Hedging transactions are intended to reduce specific risks. For
example, to protect a Fund against circumstances that would normally cause
the Fund's portfolio securities to decline in value, the Fund may buy or
sell a derivative contract that would normally increase in value under the
same circumstances. A Fund may also attempt to hedge by using combinations
of different derivatives contracts, or derivatives contracts and securities.
A Fund's ability to hedge may be limited by the costs of the derivatives
contracts. A Fund may attempt to lower the cost of hedging by entering into
transactions that provide only limited protection, including transactions
that (1) hedge only a portion of its portfolio, (2) use derivatives
contracts that cover a narrow range of circumstances or (3) involve the sale
of derivatives contracts with different terms. Consequently, hedging
transactions will not eliminate risk even if they work as intended. In
addition, hedging strategies are not always successful, and could result in
increased expenses and losses to a Fund.
TEMPORARY INVESTMENTS
When the manager believes market or economic conditions are unfavorable for
investors, the manager may invest up to 100% of a Fund's assets in a
temporary defensive manner by holding all or a substantial portion of its
assets in cash, cash equivalents or other high quality short-term
investments. Unfavorable market or economic conditions may include excessive
volatility or a prolonged general decline in the securities markets, the
securities in which the Fund normally invests, or the economies of the
countries where the Fund invests.
Temporary defensive investments generally may include U.S. government
securities, high grade commercial paper, bankers' acceptances, and variable
interest rate corporate or bank notes. To the extent allowed by exemptions
granted under the 1940 Act and the Fund's other investment policies and
restrictions, the manager also may invest the Fund's assets in shares of one
or more money market funds managed by the manager or its affiliates. The
manager also may invest in these types of securities or hold cash while
looking for suitable investment opportunities or to maintain liquidity.
SPECIAL TRANSACTIONS
REPURCHASE AGREEMENTS Repurchase agreements are transactions in which a Fund
buys a security from a dealer or bank and agrees to sell the security back
at a mutually agreed upon time and price. The repurchase price exceeds the
sale price, reflecting the Fund's return on the transaction. This return is
unrelated to the interest rate on the underlying security. A Fund will enter
into repurchase agreements only with banks and other recognized financial
institutions, such as securities dealers, deemed creditworthy by the manager.
A Fund's custodian or subcustodian will take possession of the securities
subject to repurchase agreements. The manager or subcustodian will monitor
the value of the underlying security each day to ensure that the value of
the security always equals or exceeds the repurchase price. Repurchase
agreements are subject to credit risks.
REVERSE REPURCHASE AGREEMENTS Reverse repurchase agreements are repurchase
agreements in which a Fund is the seller (rather than the buyer) of the
securities, and agrees to repurchase them at an agreed upon time and price.
A reverse repurchase agreement may be viewed as a type of borrowing by a
Fund. Reverse repurchase agreements are subject to credit risks. In
addition, reverse repurchase agreements create leverage risks because a Fund
must repurchase the underlying security at a higher price, regardless of the
market value of the security at the time of repurchase.
DELAYED DELIVERY TRANSACTIONS Delayed delivery transactions, including when
issued transactions, are arrangements in which a Fund buys securities for a
set price, with payment and delivery of the securities scheduled for a
future time. During the period between purchase and settlement, no payment
is made by a Fund to the issuer and no interest accrues to a Fund. A Fund
records the transaction when it agrees to buy the securities and reflects
their value in determining the price of its shares. Settlement dates may be
a month or more after entering into these transactions so that the market
values of the securities bought may vary from the purchase prices.
Therefore, delayed delivery transactions create market risks for a Fund.
Delayed delivery transactions also involve credit risks in the event of a
counterparty default.
SECURITIES LENDING A Fund may lend portfolio securities to borrowers that
the manager deems creditworthy. In return, the Fund receives cash or liquid
securities from the borrower as collateral. The borrower must furnish
additional collateral if the market value of the loaned securities
increases. Also, the borrower must pay the Fund the equivalent of any
dividends or interest received on the loaned securities.
The Fund will reinvest cash collateral in securities that qualify as an
acceptable investment for the Fund. However, the Fund must pay interest to
the borrower for the use of cash collateral. Loans are subject to
termination at the option of the Fund or the borrower. The Fund will not
have the right to vote on securities while they are on loan, but it will
terminate a loan in anticipation of any important vote. The Fund may pay
administrative and custodial fees in connection with a loan and may pay a
negotiated portion of the interest earned on the cash collateral to a
securities lending agent or broker. Securities lending activities are
subject to market risks and credit risks.
ASSET COVERAGE In order to secure its obligations in connection with
derivatives contracts or special transactions, a Fund will either own the
underlying assets, enter into an offsetting transaction, or set aside
readily marketable securities with a value that equals or exceeds the Fund's
obligations. Unless a Fund has other readily marketable assets to set aside,
it cannot trade assets used to secure such obligations entering into an
offsetting derivative contract or terminating a special transaction. This
may cause the Fund to miss favorable trading opportunities or to realize
losses on derivative contracts or special transactions.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES A Fund may invest its
assets in securities of other investment companies, including the securities
of affiliated money market funds, as an efficient means of carrying out its
investment policies and managing its uninvested cash. Any such investment by
a Fund may be subject to duplicate expenses. However, the manager believes
that the benefits and efficiencies of this approach should outweigh the
potential additional expenses.
RESTRICTED AND ILLIQUID SECURITIES The Funds will not invest more than 15%
of the value of their net assets in illiquid securities which may include:
repurchase agreements providing for settlement more than seven days after
notice; over-the-counter options; and certain restricted securities not
determined by the Trustees to be liquid.
The ability of the Trustees to determine the liquidity of certain restricted
securities is permitted under a SEC Staff position set forth in the adopting
release for Rule 144A under the Securities Act of 1933 (Rule). The Rule is a
non-exclusive, safe-harbor for certain secondary market transactions
involving securities subject to restrictions on resale under federal
securities laws. The Rule provides an exemption from registration for
resales of otherwise restricted securities to qualified institutional
buyers. The Rule was expected to further enhance the liquidity of the
secondary market for securities eligible for resale under the Rule. The
Trust, on behalf of the Funds, believes that the Staff of the SEC has left
the question of determining the liquidity of all restricted securities
(eligible for resale under Rule 144A) for determination to the Trustees. The
Trustees consider the following criteria in determining the liquidity of
certain restricted securities:
o the frequency of trades and quotes for the security;
o the number of dealers willing to purchase or sell the security and the
number of other potential buyers;
o dealer undertakings to make a market in the security; and
o the nature of the security and the nature of the marketplace trades.
Notwithstanding the foregoing, securities of foreign issuers which are not
listed on a recognized domestic or foreign exchange or for which a bona fide
market does not exist at the time of purchase or subsequent transaction
shall be treated as illiquid securities by the Trustees.
When a Fund invests in certain restricted securities determined by the
Trustees to be liquid, such investments could have the effect of increasing
the level of Fund illiquidity to the extent that the buyers in the secondary
market for such securities (whether in Rule 144A resales or other exempt
transactions) become, for a time, uninterested in purchasing these
securities.
INVESTMENT RISKS
Principal risk factors associated with an investment in each Fund are
described in the prospectus. While not an exhaustive list, other risk
factors include the following:
ACCOUNTING IRREGULARITIES AND CORPORATE GOVERNANCE. The discovery and
disclosure of accounting irregularities may result in changes to a company's
past or current reported earnings, and impairment of its credit rating and
financial stability. These changes may result in a sudden and significant
drop in the price of the company's equity and debt securities and, in some
cases, can result in bankruptcy or the threat of bankruptcy, because the
company's true financial condition after the correction of accounting
irregularities may violate covenants to which the company is subject under
the terms of its credit arrangements. Actual perceived weaknesses in
corporate governance practices of a company's board of directors and senior
management, and changes in corporate management resulting from discovery of
irregularities, also can have an adverse effect on the price of a company's
securities.
INTEREST RATE RISKS
o Prices of fixed income securities rise and fall in response to changes
in the interest rate paid by similar securities. Generally, when interest
rates rise, prices of fixed income securities fall. However, market
factors, such as the demand for particular fixed income securities, may
cause the price of certain fixed income securities to fall while the
prices of other securities rise or remain unchanged. (If the bond were
held to maturity, no loss or gain normally would be realized.)
o Interest rate changes have a greater effect on the price of fixed
income securities with longer durations. Duration measures the price
sensitivity of a fixed income security to changes in interest rates.
CREDIT RISKS
o Credit risk is the possibility that an issuer will default on a
security by failing to pay interest or principal when due. If an issuer
defaults, the Fund will lose money.
o Many fixed income securities receive credit ratings from services such
as Standard & Poor's Ratings Group and Moody's Investors Service. These
services assign ratings to securities by assessing the likelihood of
issuer default. Lower credit ratings correspond to higher credit risk. If
a security has not received a rating, the Fund must rely entirely upon
the manager's credit assessment.
o Fixed income securities generally compensate for greater credit risk by
paying interest at a higher rate. The difference between the yield of a
fixed income security and the yield of a U.S. Treasury security with a
comparable maturity (the spread) measures the additional interest paid
for risk. Spreads may increase generally in response to adverse economic
or market conditions. A security's spread may also increase if the
security's rating is lowered or the security is perceived to have an
increased credit risk. An increase in the spread will cause the price of
the security to decline.
o Credit risk includes the possibility that a party to a transaction
involving the Fund will fail to meet its obligations. This could cause a
Fund to lose the benefit of the transaction or prevent the Fund from
selling or buying other securities to implement its investment strategy.
CALL RISKS
o Call risk is the possibility that an issuer may redeem a fixed income
security before maturity (a call) at a price below its current market
price. An increase in the likelihood of a call may reduce the security's
price.
o If a fixed income security is called, a Fund may have to reinvest the
proceeds in other fixed income securities with lower interest rates,
higher credit risks, or other less favorable characteristics.
RISKS ASSOCIATED WITH NONINVESTMENT GRADE SECURITIES
o Securities rated below investment grade, also known as junk bonds,
generally entail greater market, credit and liquidity risks than
investment grade securities. For example, their prices are more
volatile, economic downturns and financial setbacks may affect their
prices more negatively, and their trading market may be more limited.
LIQUIDITY RISKS
o Trading opportunities are more limited for equity securities and fixed
income securities that are not widely held. They are also more limited
for fixed income securities that have not received any credit ratings or
have received ratings below investment grade. These features may make it
more difficult to sell or buy a security at a favorable price or time.
Consequently, the Fund may have to accept a lower price to sell a
security, sell other securities to raise cash or give up an investment
opportunity, any of which could have a negative effect on the Fund's
performance. Infrequent trading of securities may also lead to an
increase in their price volatility.
o Liquidity risk also refers to the possibility that the Fund may not be
able to sell a security or close out a derivative contract when it wants
to. If this happens, the Fund will be required to continue to hold the
security or keep the position open, and the Fund could incur losses.
o OTC derivative contracts generally carry greater liquidity risk than
exchange-traded contracts.
FOREIGN MARKET RISKS The European Smaller Companies Fund intends to invest
in the securities of issuers domiciled in the Czech Republic, Hungary,
Poland and Turkey (Eastern European countries). Investments in the
securities of issuers in these countries involves certain additional risks
not involved in investments in securities of issuers in more developed
markets, such as (i) low or non-existent trading volume, resulting in a lack
of liquidity and increased volatility in prices for such securities, as
compared to securities of comparable issuers in more developed capital
markets, (ii) uncertain national policies and social, political and economic
instability (including the possibility that such countries could revert to
a centralist planned government), increasing the potential for expropriation
of assets, confiscatory taxation, high rates of inflation or unfavorable
diplomatic developments, (iii) possible fluctuations in exchange rates,
differing legal systems and the existence or possible imposition of exchange
controls, custodial restrictions or other foreign or U.S. governmental laws
or restrictions applicable to such investments, (iv) national policies
which may limit the Fund's investment opportunities such as restrictions on
investment in issuers or industries deemed sensitive to national interests,
and (v) the lack of developed legal structures governing private and foreign
investment and private property.
Eastern European capital markets are emerging in a dynamic political and
economic environment brought about by the recent events there that have
reshaped political boundaries and traditional ideologies. In such a dynamic
environment, there can be no assurance that the Eastern Europe capital
markets will continue to present viable investment opportunities of the
Fund. There can be no assurance that expropriations of private property will
not occur. In such an event, it is possible that the Fund could lose the
entire value of its investments in the affected Eastern European markets.
OFFICERS AND TRUSTEES
- ------------------------------------------------------------------------------
The Trust has a board of trustees. Each trustee will serve until that
person's successor is elected and qualified. The board is responsible for
the overall management of the Trust, including general supervision and
review of the Fund's investment activities. The board, in turn, elects the
officers of the Trust who are responsible for administering the Trust's
day-to-day operations.
The name, age and address of the officers and board members, as well as
their affiliations, positions held with the Trust, principal occupations
during the past five years and number of portfolios overseen in the Franklin
Templeton fund complex are shown below.
INDEPENDENT BOARD MEMBERS
- -----------------------------------------------------------------
NUMBER
OF
PORTFOLIOS
IN FUND
COMPLEX
LENGTH OVERSEEN OTHER
NAME, AGE OF TIME BY BOARD DIRECTORSHIPS
AND ADDRESS POSITION SERVED MEMBER* HELD
- -----------------------------------------------------------------
FRANK H. Trustee Since 106 None
ABBOTT, III 2000
(81)
One Franklin
Parkway
San Mateo,
CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President and Director, Abbott Corporation (an investment
company); and FORMERLY, Director, MotherLode Gold Mines
Consolidated (gold mining) (until 1996) and Vacu-Dry Co. (food
processing) (until 1996).
- -----------------------------------------------------------------
HARRIS J. Trustee Since 133 Director, Bar-S
ASHTON (70) 2000 Foods (meat
One Franklin packing company).
Parkway
San Mateo,
CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director of various companies; and FORMERLY, Director, RBC
Holdings, Inc. (bank holding company) (until 2002); and
President, Chief Executive Officer and Chairman of the Board,
General Host Corporation (nursery and craft centers) (until
1998).
- -----------------------------------------------------------------
ROBERT F. Trustee Since 42 None
CARLSON (74) 2000
One Franklin
Parkway
San Mateo,
CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President and past President, Board of Administration,
California Public Employees Retirement Systems (CALPERS); and
FORMERLY, member and Chairman of the Board, Sutter Community
Hospitals; member, Corporate Board, Blue Shield of California;
and Chief Counsel, California Department of Transportation.
- -----------------------------------------------------------------
S. JOSEPH Trustee Since 134 None
FORTUNATO 2000
(70)
One Franklin
Parkway
San Mateo,
CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Member of the law firm of Pitney, Hardin, Kipp & Szuch.
- -----------------------------------------------------------------
EDITH E. Trustee Since 82 Director,
HOLIDAY (50) 2000 Amerada Hess
One Franklin Corporation
Parkway (exploration and
San Mateo, refining of oil
CA 94403-1906 and gas);
Hercules
Incorporated
(chemicals,
fibers and
resins); Beverly
Enterprises,
Inc. (health
care); H.J.
Heinz Company
(processed foods
and allied
products); RTI
International
Metals, Inc.
(manufacture and
distribution of
titanium); and
Canadian
National Railway
(railroad).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director of various companies; and FORMERLY, Assistant to the
President of the United States and Secretary of the Cabinet
(1990-1993); General Counsel to the United States Treasury
Department (1989-1990); and Counselor to the Secretary and
Assistant Secretary for Public Affairs and Public
Liaison-United States Treasury Department (1988-1989).
- -----------------------------------------------------------------
FRANK W.T. Trustee Since 106 Director, The
LAHAYE (73) 2000 California
One Franklin Center for Land
Parkway Recycling
San Mateo, (redevelopment).
CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
General Partner, Las Olas L.P. (Asset Management); and
formerly, Chairman, Peregrine Venture Management Company
(venture capital).
- -----------------------------------------------------------------
GORDON S. Trustee Since 133 Director, White
MACKLIN (74) 2000 Mountains
One Franklin Insurance Group,
Parkway Ltd. (holding
San Mateo, company); Martek
CA 94403-1906 Biosciences
Corporation;
WorldCom, Inc.
(communications
services);
MedImmune, Inc.
(biotechnology);
Overstock.com
(Internet
services); and
Spacehab, Inc.
(aerospace
services).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Deputy Chairman, White Mountains Insurance Group, Ltd. (holding
company); and FORMERLY, Chairman, White River Corporation
(financial services) (until 1998) and Hambrecht & Quist Group
(investment banking) (until 1992); and President, National
Association of Securities Dealers, Inc. (until 1987).
- -----------------------------------------------------------------
INTERESTED BOARD MEMBERS AND OFFICERS
- -----------------------------------------------------------------
NUMBER OF
PORTFOLIOS
IN FUND
COMPLEX
POSITION LENGTH OVERSEEN OTHER
NAME, AGE OF TIME BY BOARD DIRECTORSHIPS
AND ADDRESS SERVED MEMBER* HELD
- -----------------------------------------------------------------
**HARMON E. Trustee and Since 34 None
BURNS (57) Vice 2000
One Franklin President
Parkway
San Mateo,
CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Member - Office of the Chairman and Director,
Franklin Resources, Inc.; Vice President and Director, Franklin
Templeton Distributors, Inc.; Executive Vice President,
Franklin Advisers, Inc.; Director, Franklin Investment Advisory
Services, Inc.; officer and/or director or trustee, as the case
may be, of some of the other subsidiaries of Franklin
Resources, Inc.; and officer of 48 of the investment companies
in Franklin Templeton Investments.
- -----------------------------------------------------------------
**CHARLES B. Trustee and Since 133 None
JOHNSON (69) Chairman of 2000
One Franklin the Board
Parkway
San Mateo,
CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman of the Board, Chief Executive Officer, Member - Office
of the Chairman and Director, Franklin Resources, Inc.; Vice
President, Franklin Templeton Distributors, Inc.; Director,
Fiduciary Trust Company International; officer and/or director
or trustee, as the case may be, of some of the other
subsidiaries of Franklin Resources, Inc.; and officer of 45 of
the investment companies in Franklin Templeton Investments.
- -----------------------------------------------------------------
**RUPERT H. Trustee and Trustee 116 None
JOHNSON, JR. President and
(62) and Chief President
One Franklin Executive since
Parkway Officer - 2000 and
San Mateo, Investment Chief
CA 94403-1906 Management Executive
Officer-
Investment
Management
since
October
2002
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Member - Office of the Chairman and Director,
Franklin Resources, Inc.; Vice President and Director, Franklin
Templeton Distributors, Inc.; Director, Franklin Advisers, Inc.
and Franklin Investment Advisory Services, Inc.; Senior Vice
President, Franklin Advisory Services, LLC; officer and/or
director or trustee, as the case may be, of some of the other
subsidiaries of Franklin Resources, Inc.; and officer of 48 of
the investment companies in Franklin Templeton Investments.
- -----------------------------------------------------------------
MARTIN L. Vice Since Not None
FLANAGAN (42) President 2000 Applicable
One Franklin
Parkway
San Mateo,
CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President, Member - Office of the President, Chief Financial
Officer and Chief Operating Officer, Franklin Resources, Inc.;
Senior Vice President and Chief Financial Officer, Franklin
Mutual Advisers, LLC; Executive Vice President, Chief Financial
Officer and Director, Templeton Worldwide, Inc.; Executive Vice
President and Chief Operating Officer, Templeton Investment
Counsel, LLC; Executive Vice President and Director, Franklin
Advisers, Inc.; Executive Vice President, Franklin Investment
Advisory Services, Inc. and Franklin Templeton Investor
Services, LLC; Chief Financial Officer, Franklin Advisory
Services, LLC; Chairman, Franklin Templeton Services, LLC; and
officer and/or director of some of the other subsidiaries of
Franklin Resources, Inc. and of 49 of the investment companies
in Franklin Templeton Investments.
- -----------------------------------------------------------------
JIMMY D. Senior Vice Since Not None
GAMBILL (55) President October Applicable
500 East and Chief 2002
Broward Executive
Blvd. Officer -
Suite 2100 Finance and
Fort Administration
Lauderdale,
FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President, Franklin Templeton Services, LLC, and officer of
some of the investment companies in Franklin Templeton
Investments.
- -----------------------------------------------------------------
DAVID P. Vice Since Not None
GOSS (56) President 2000 Applicable
One Franklin
Parkway
San Mateo,
CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Associate General Counsel, Franklin Resources, Inc.; officer
and/or director of some of the other subsidiaries of Franklin
Resources, Inc.; officer of 50 of the investment companies in
Franklin Templeton Investments; and FORMERLY, President, Chief
Executive Officer and Director, Property Resources Equity Trust
(until 1999) and Franklin Select Realty Trust (until 2000).
- -----------------------------------------------------------------
BARBARA J. Vice Since Not None
GREEN (55) President 2000 Applicable
One Franklin
Parkway
San Mateo,
CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President and Deputy General Counsel, Franklin Resources,
Inc.; and Senior Vice President, Templeton Worldwide, Inc. and
officer of one of the other subsidiaries of Franklin Resources,
Inc., and of 50 of the investment companies in Franklin
Templeton Investments; and FORMERLY, Deputy Director, Division
of Investment Management, Executive Assistant and Senior
Advisor to the Chairman, Counselor to the Chairman, Special
Counsel and Attorney Fellow, Securities and Exchange Commission
(1986-1995); Attorney, Rogers & Wells (until 1986); and
Judicial Clerk, U.S. District Court (District of Massachusetts)
(until 1979).
- -----------------------------------------------------------------
EDWARD B. Vice Since Not None
JAMIESON (54) President 2000 Applicable
One Franklin
Parkway
San Mateo,
CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Executive Vice President and Portfolio Manager, Franklin
Advisers, Inc.; officer of other subsidiaries of Franklin
Resources, Inc.; and officer and trustee of five of the
investment companies in Franklin Templeton Investments.
- -----------------------------------------------------------------
MICHAEL O. Vice Since Not Director, FTI
MAGDOL (65) President - May 2002 ApplicableBanque, Arch
600 5th AML Chemicals, Inc.
Avenue Compliance and Lingnan
Rockefeller Foundation.
Center
New York, NY
10048-0772
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Chief Banking Officer and Director, Fiduciary
Trust Company International; officer and/or director, as the
case may be, of some of the other subsidiaries of Franklin
Resources, Inc.; and officer of 47 of the investment companies
in Franklin Templeton Investments.
- -----------------------------------------------------------------
CHRISTOPHER Vice Since Not None
J. MOLUMPHY President 2000 Applicable
(40)
One Franklin
Parkway
San Mateo,
CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Executive Vice President, Franklin Advisers, Inc.; and officer
of five of the investment companies in Franklin Templeton
Investments.
- -----------------------------------------------------------------
KIMBERLEY H. Treasurer Treasurer Not None
MONASTERIO and Chief since Applicable
(39) Financial 2000 and
One Franklin Officer Chief
Parkway Financial
San Mateo, Officer
CA 94403-1906 since
September
2002
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President, Franklin Templeton Services, LLC; and
officer of 34 of the investment companies in Franklin Templeton
Investments.
- -----------------------------------------------------------------
MURRAY L. Vice Since Not None
SIMPSON (65) President 2000 Applicable
One Franklin and
Parkway Secretary
San Mateo,
CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Executive Vice President and General Counsel, Franklin
Resources, Inc.; officer and/or director of some of the
subsidiaries of Franklin Resources, Inc.; officer of 50 of the
investment companies in Franklin Templeton Investments; and
FORMERLY, Chief Executive Officer and Managing Director,
Templeton Franklin Investment Services (Asia) Limited (until
2000); and Director, Templeton Asset Management Ltd. (until
1999).
- -----------------------------------------------------------------
*We base the number of portfolios on each separate series of the U.S.
registered investment companies within the Franklin Templeton Investments
fund complex. These portfolios have a common investment adviser or
affiliated investment advisers.
**Charles B. Johnson and Rupert H. Johnson, Jr. are considered interested
persons of the Trust under the federal securities laws due to their
positions as officers and directors and major shareholders of Franklin
Resources, Inc., which is the parent company of the Trust's adviser and
distributor. Harmon E. Burns is considered an interested person of the Trust
under the federal securities laws due to his position as officer and
director of Franklin Resources, Inc., which is the parent company of the
Trust's adviser and distributor.
Note: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers.
The Trust currently does not pay fees to noninterested board members. Board
members who serve on the Audit Committee of the Trust and other funds in
Franklin Templeton Investments receive a flat fee of $2,000 per committee
meeting attended, a portion of which is allocated to the Trust. Members of a
committee are not separately compensated for any committee meeting held on
the day of a board meeting. Noninterested board members also may serve as
directors or trustees of other funds in Franklin Templeton Investments and
may receive fees from these funds for their services. The following table
provides the total fees paid to noninterested board members by Franklin
Templeton Investments.
TOTAL FEES
RECEIVED FROM NUMBER OF BOARDS
FRANKLIN IN FRANKLIN
TEMPLETON TEMPLETON
NAME INVESTMENTS/1 INVESTMENTS ON
($) WHICH EACH SERVES/2
- ---------------------------------------------------------
Frank H. Abbott, III 164,214 28
Harris J. Ashton 372,100 45
Robert F. Carlson 95,070 12
S. Joseph Fortunato 372,941 46
Edith E. Holiday 273,635 25
Frank W.T. LaHaye 164,214 28
Gordon S. Macklin 363,512 45
1. For the calendar year ended December 31, 2002.
2. We base the number of boards on the number of registered investment
companies in Franklin Templeton Investments. This number does not include
the total number of series or portfolios within each investment company for
which the board members are responsible.
Noninterested board members are reimbursed for expenses incurred in
connection with attending board meetings, paid pro rata by each fund in
Franklin Templeton Investments for which they serve as director or trustee.
No officer or board member received any other compensation, including
pension or retirement benefits, directly or indirectly from the Funds or
other funds in Franklin Templeton Investments. Certain officers or board
members who are shareholders of Franklin Resources, Inc. (Resources) may be
deemed to receive indirect remuneration by virtue of their participation, if
any, in the fees paid to its subsidiaries.
Board members historically have followed a policy of having substantial
investments in one or more of the funds in Franklin Templeton Investments,
as is consistent with their individual financial goals. In February 1998,
this policy was formalized through adoption of a requirement that each board
member invest one-third of fees received for serving as a director or
trustee of a Templeton fund in shares of one or more Templeton funds and
one-third of fees received for serving as a director or trustee of a
Franklin fund in shares of one or more Franklin funds until the value of
such investments equals or exceeds five times the annual fees paid such
board member. Investments in the name of family members or entities
controlled by a board member constitute fund holdings of such board member
for purposes of this policy, and a three-year phase-in period applies to
such investment requirements for newly elected board members. In
implementing such policy, a board member's fund holdings existing on
February 27, 1998, are valued as of such date with subsequent investments
valued at cost.
The following tables provide the dollar range of equity securities
beneficially owned by the board members of the Trust on December 31, 2002.
INDEPENDENT BOARD MEMBERS
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AGGREGATE DOLLAR RANGE
OF EQUITY SECURITIES
DOLLAR RANGE OF IN ALL FUNDS OVERSEEN
EQUITY SECURITIES BY THE BOARD MEMBER IN
NAME OF BOARD IN EACH SERIES OF THE FRANKLIN TEMPLETON
MEMBER THE TRUST FUND COMPLEX
Frank H. Abbott,III None Over $100,000
Harris J. Ashton None Over $100,000
Robert F. Carlson None Over $100,000
S. Joseph Fortunato None Over $100,000
Edith E. Holiday None Over $100,000
Frank W.T. LaHaye None Over $100,000
Gordon S. Macklin None Over $100,000
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INTERESTED BOARD MEMBERS
- -----------------------------------------------------------------
AGGREGATE DOLLAR RANGE
OF EQUITY SECURITIES
IN ALL FUNDS OVERSEEN
DOLLAR RANGE OF BY THE BOARD MEMBER IN
NAME OF BOARD EQUITY SECURITIES THE FRANKLIN TEMPLETON
MEMBER IN THE FUNDS FUND COMPLEX
- -----------------------------------------------------------------
Harmon E. Burns None Over $100,000
Charles B. Johnson None Over $100,000
Rupert H. Johnson, Jr. None Over $100,000
- -----------------------------------------------------------------
BOARD COMMITTEES The board maintains two standing committees: the Audit
Committee and the Nominating Committee. The Audit Committee is generally
responsible for recommending the selection of the Trust's independent
auditors, including evaluating their independence and meeting with such
auditors to consider and review matters relating to the Trust's financial
reports and internal accounting. The Audit Committee is comprised of the
following Independent Trustees of the Trust: Frank H. Abbott, III, Robert F.
Carlson and Frank W.T. LaHaye. The Nominating Committee is comprised of the
following Independent Trustees of the Trust: Frank H. Abbott, III, Harris J.
Ashton, Robert F. Carlson, S. Joseph Fortunato, Edith E. Holiday, Frank W.T.
LaHaye and Gordon S. Macklin.
The Trust's Nominating Committee sets trustees' fees and is responsible for
the nomination of trustees to the board. When vacancies arise or elections
are held, the Committee considers qualified nominees, including those
recommended by shareholders who provide a written request to the board, care
of the Trust's address at:
P.O. Box 997151
Sacramento, CA 95899-9983
During the Trust's fiscal year ended July 31, 2002, the Audit Committee met
twice and the Nominating Committee did not meet.
MANAGEMENT AND OTHER SERVICES
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MANAGER AND SERVICES PROVIDED The Funds' manager is Fiduciary
International, Inc. The manager is an indirect wholly owned subsidiary of
Fiduciary Trust Company International (Fiduciary Trust) which is a direct
wholly owned subsidiary of Resources, a publicly owned company engaged in
the financial services industry through its subsidiaries. Charles B. Johnson
and Rupert H. Johnson, Jr. are the principal shareholders of Resources.
The manager provides investment research and portfolio management services,
and selects the securities for each Fund to buy, hold or sell. The manager
also selects the brokers who execute the Funds' portfolio transactions. The
manager provides periodic reports to the board, which reviews and supervises
the manager's investment activities. To protect the Funds, the manager and
its officers, directors and employees are covered by fidelity insurance.
The manager and its affiliates manage numerous other investment companies
and accounts. The manager may give advice and take action with respect to
any of the other funds it manages, or for its own account, that may differ
from action taken by the manager on behalf of the Funds. Similarly, with
respect to the Funds, the manager is not obligated to recommend, buy or
sell, or to refrain from recommending, buying or selling any security that
the manager and access persons, as defined by applicable federal securities
laws, may buy or sell for its or their own account or for the accounts of
any other fund. The manager is not obligated to refrain from investing in
securities held by a Fund or other funds it manages. Because the manager is
a subsidiary of a financial holding company (FHC) under the
Gramm-Leach-Bliley Act of 1999, Federal regulations applicable to FHCs may
limit or restrict the Fund's ability to acquire or hold a position in a
given security when it might otherwise be advantageous for the Fund to
acquire or hold that security.
The Funds, their manager and principal underwriter have each adopted a code
of ethics, as required by federal securities laws. Under the code of ethics,
employees who are designated as access persons may engage in personal
securities transactions, including transactions involving securities that
are being considered for a Fund or that are currently held by a Fund,
subject to certain general restrictions and procedures. The personal
securities transactions of access persons of the Funds, their manager and
principal underwriter will be governed by the code of ethics. The code of
ethics is on file with, and available from, the SEC.
MANAGEMENT FEES Large Capitalization Fund pays the manager a fee equal to
an annual rate of 0.75% of the Fund's average daily net assets, and Small
Capitalization Equity Fund and European Smaller Companies Fund each pays the
manager a fee equal to an annual rate of 1.00% of each Fund's daily net
assets. The fees are computed at the close of business on the last business
day of each month according to the terms of the management agreement.
ADMINISTRATOR AND SERVICES PROVIDED Franklin Templeton Services, LLC (FT
Services) has an agreement with the Funds to provide certain administrative
services and facilities for the Funds. FT Services is an indirect wholly
owned subsidiary of Resources and is an affiliate of the Funds' manager and
principal underwriter.
The administrative services FT Services provides include preparing and
maintaining books, records, and tax and financial reports, and monitoring
compliance with regulatory requirements.
ADMINISTRATION FEES Each Fund pays FT Services a monthly fee equal to an
annual rate of 0.20% of the Fund's average daily net assets.
SHAREHOLDER SERVICING AND TRANSFER AGENT Franklin Templeton Investor
Services, LLC (Investor Services) is the Funds' shareholder servicing agent
and acts as the Funds' transfer agent and dividend-paying agent. Investor
Services is located at One Franklin Parkway, San Mateo, CA 94403-1906.
Please send all correspondence to Investor Services at P.O. Box 997151,
Sacramento, CA 95899-9983.
Investor Services receives a fee for servicing Fund shareholder accounts.
The Funds also will reimburse Investor Services for certain out-of-pocket
expenses necessarily incurred in servicing the shareholder accounts in
accordance with the terms of its servicing contract with the Funds.
The Funds may also pay servicing fees to certain financial institutions that
(i) maintain omnibus accounts with the Funds in the institution's name on
behalf of numerous beneficial owners of Fund shares who are either direct
clients of the institution or are participants in an employer sponsored
retirement plan for which the institution, or its affiliate, provides
participant level record keeping services (called "Beneficial Owners"); or
(ii) provide support for Fund shareholder accounts by sharing account data
with Investor Services through the National Securities Clearing Corporation
(NSCC) networking system. In addition to servicing fees received from the
Funds, these financial institutions also may charge a fee for their services
directly to their clients. Investor Services will also receive a fee from
the Fund for services provided in support of Beneficial Owners and NSCC
networking system accounts.
CUSTODIAN Bank of New York, Mutual Funds Division, 100 Church Street, New
York, NY 10286, acts as custodian of the Funds' securities and other assets.
AUDITOR PricewaterhouseCoopers LLP, 333 Market Street, San Francisco,
California 94105, is the Funds' independent auditor. The auditor gives an
opinion on the financial statements included in the Trust's Annual Report to
Shareholders and reviews the Trust's registration statement filed with the
SEC.
PORTFOLIO TRANSACTIONS
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The manager selects brokers and dealers to execute the Funds' portfolio
transactions in accordance with criteria set forth in the management
agreement and any directions that the board may give.
When placing a portfolio transaction, the manager seeks to obtain prompt
execution of orders at the most favorable net price. For portfolio
transactions on a securities exchange, the amount of commission paid is
negotiated between the manager and the broker executing the transaction. The
determination and evaluation of the reasonableness of the brokerage
commissions paid are based to a large degree on the professional opinions of
the persons responsible for placement and review of the transactions. These
opinions are based on the experience of these individuals in the securities
industry and information available to them about the level of commissions
being paid by other institutional investors of comparable size. The manager
will ordinarily place orders to buy and sell over-the-counter securities on
a principal rather than agency basis with a principal market maker unless
the manager believes that trading on a principal basis will not provide best
execution. Purchases of portfolio securities from underwriters will include
a commission or concession paid by the issuer to the underwriter, and
purchases from dealers will include a spread between the bid and ask price.
The manager may pay certain brokers commissions that are higher than those
another broker may charge, if the manager determines in good faith that the
amount paid is reasonable in relation to the value of the brokerage and
research services it receives. This may be viewed in terms of either the
particular transaction or the manager's overall responsibilities to client
accounts over which it exercises investment discretion. The services that
brokers may provide to the manager include, among others, supplying
information about particular companies, markets, countries, or local,
regional, national or transnational economies, statistical data, quotations
and other securities pricing information, and other information that
provides lawful and appropriate assistance to the manager in carrying out
its investment advisory responsibilities. These services may not always
directly benefit a Fund. They must, however, be of value to the manager in
carrying out its overall responsibilities to its clients.
Because Templeton/Franklin Investment Services, Inc. (TFIS) is a member of
the National Association of Securities Dealers, Inc., it may sometimes
receive certain fees when the Funds tender portfolio securities pursuant to
a tender-offer solicitation. To recapture brokerage for the benefit of the
Funds, any portfolio securities tendered by a Fund will be tendered through
TFIS if it is legally permissible to do so. In turn, the next management fee
payable to the manager will be reduced by the amount of any fees received by
Distributors in cash, less any costs and expenses incurred in connection
with the tender.
If purchases or sales of securities of the Funds and one or more other
investment companies or clients supervised by the manager are considered at
or about the same time, transactions in these securities will be allocated
among the several investment companies and clients in a manner deemed
equitable to all by the manager, taking into account the respective sizes of
the funds and the amount of securities to be purchased or sold. In some
cases this procedure could have a detrimental effect on the price or volume
of the security so far as the Funds are concerned. In other cases it is
possible that the ability to participate in volume transactions may improve
execution and reduce transaction costs to the Funds.
DISTRIBUTIONS AND TAXES
2003 TAX ACT On May 28, 2003, President Bush signed into law the Jobs and
Growth Tax Relief Reconciliation Act of 2003 (JAGTRRA). This Act will have
a significant impact on how each Fund accounts for and distributes income
and capital gains, and will provide you with significant tax relief on the
income and gains distributed to you by the Fund. The provisions of this Act
that impact the taxation of mutual funds and their investors are discussed
in the materials below. For more information about JAGTRRA, please contact
your professional tax advisor.
DISTRIBUTIONS OF NET INVESTMENT INCOME Each Fund receives income generally
in the form of dividends and interest on its investments. This income, less
expenses incurred in the operation of the Fund, constitutes the Fund's net
investment income from which dividends may be paid to you. If you are a
taxable investor, any income dividends a Fund pays are taxable to you as
ordinary income.
Under JAGTRRA, dividends earned on the following income sources will be
subject to a maximum rate of tax of 5% (for individuals in the 10 and 15%
federal rate brackets; 0% in 2008) and 15% (for individuals in higher rate
brackets):
o dividends paid by domestic corporations,
o dividends paid by qualifed foreign corporations, including:
o corporations incorporated in a possession of the U.S.,
o corporations eligible for income tax treaty benefits with the U.S.
under treaties determined by the Treasury Department to be
qualified, and
o corporations whose stock is traded on domestic securities exchange.
Dividends earned on stock in the following corporations will not qualify:
o dividends from corporations exempt from tax,
o dividends from foreign personal holding companies, foreign investment
companies and passive foreign investment companies (PFICs).
Dividends received by a Fund after December 31, 2002 and before 2009, will
be permitted this favored federal tax treatment. These rate reduction
provisions only apply to individuals; they do not apply to corporate or
other entity taxpayers.
Each Fund must meet certain holding period requirements to qualify its
dividends for this treatment. Specifically, the Fund must hold the stock for
at least 60 days during the 120-day period beginning 60 days before the
stock became ex-dividend (or 90-days and 180-days, respectively, for
preferred stock). Each Fund will track its portfolio investments to
determine which distributions qualify for the reduced rates of taxation
under this new law.
DISTRIBUTIONS OF CAPITAL GAINS
CAPITAL GAIN DISTRIBUTIONS. A Fund may realize capital gains and losses on
the sale of its portfolio securities. Distributions from net short-term
capital gains are taxable to you as ordinary income. Distributions from net
long-term capital gains are taxable to you as long-term capital gains,
regardless of how long you have owned your shares in the Fund. Any net
capital gains realized by a Fund generally are distributed once each year,
and may be distributed more frequently, if necessary, to reduce or eliminate
excise or income taxes on the Fund.
TAXATION OF FIVE YEAR GAINS. THESE RULES APPLY ONLY TO SALES OF PORTFOLIO
SECURITIES OCCURRING ON OR BEFORE MAY 5, 2003.
o SHAREHOLDERS IN THE 10% AND 15% FEDERAL BRACKETS. If you are in the
10% or 15% individual income tax bracket, and you receive distributions
from a Fund's sale of securities that were sold on or before May 5,
2003 that it owned for more than five years, these gains are subject to
a maximum rate of tax of 8%. Each Fund will inform you in January of
2004 of the portion of any capital gain distributions you received for
calendar year 2003 that were five year gains qualifying for this
reduced tax rate.
o SHAREHOLDERS IN HIGHER FEDERAL BRACKETS. If you are in a higher
individual income tax bracket, changes in the five year gain rules made
by JAGTRRA will cause these provisions to no longer be applicable to
you.
For all sales of portfolio securities occurring after May 5, 2003 and before
2009, the net capital gain on these sales, when distributed to you as a
capital gain dividend, is subject to a maximum rate of tax of 5% (for
individuals in the 10% and 15% federal income tax brackets; 0% in 2008) or
15% (for individuals in higher federal income tax brackets). Qualified
5-year gains have been expressly repealed by JAGTRRA.
The special provisions of JAGTRRA dealing with reduced rates of taxation for
dividends and capital gain distributions are scheduled to sunset on December
31, 2008, unless extended or made permanent before that date. If these
rules do sunset, the prior rates of taxation of dividends and capital gains
under the Economic Growth and Tax Relief Reconciliation Act of 2001
(EGTRRA), including special rules for the taxation of qualified 5-year
gains, will again be enforced for 2009 and 2010, and will then sunset and be
replaced (unless these provisions are extended or made permanent) with
income tax rates and provisions in effect prior to the effective date of
EGTRRA.
INVESTMENTS IN FOREIGN SECURITIES The next three paragraphs describe tax
considerations that are APPLICABLE TO ALL THREE FUNDS (EXCEPT AS NOTED), TO
THE EXTENT THAT EACH FUND INVESTS IN FOREIGN SECURITIES.
EFFECT OF FOREIGN WITHHOLDING TAXES. A Fund may be subject to foreign
withholding taxes on income from certain foreign securities. This, in turn,
could reduce the Fund's income dividends paid to you.
PASS-THROUGH OF FOREIGN TAX CREDITS (EUROPEAN SMALLER COMPANIES FUND ONLY).
If more than 50% of this Fund's total assets at the end of a fiscal year is
invested in foreign securities, the Fund may elect to pass through to you
your pro rata share of foreign taxes paid by the Fund. If this election is
made, the Fund may report more taxable income to you than it actually
distributes. You will then be entitled either to deduct your share of these
taxes in computing your taxable income, or to claim a foreign tax credit for
these taxes against your U.S. federal income tax (subject to limitations for
certain shareholders). The Fund will provide you with the information
necessary to complete your personal income tax return if it makes this
election. You should be aware that under the provisions of JAGTRRA, your use
of foreign dividends, designated by the Fund as dividends from qualifying
foreign corporations and subject to reduced rates of taxation on dividend
income, may reduce the otherwise available foreign tax credit on your
federal income tax return. Shareholders in these circumstances should talk
with their personal tax advisors about their foreign tax credits and the
procedures that they should follow to claim these credits on their personal
income tax returns.
EFFECT OF FOREIGN DEBT INVESTMENTS AND HEDGING ON DISTRIBUTIONS. Most
foreign exchange gains realized on the sale of debt securities are treated
as ordinary income by a Fund. Similarly, foreign exchange losses realized on
the sale of debt securities generally are treated as ordinary losses. These
gains when distributed are taxable to you as ordinary income, and any losses
reduce the Fund's ordinary income otherwise available for distribution to
you. This treatment could increase or decrease the Fund's ordinary income
distributions to you, and may cause some or all of the Fund's previously
distributed income to be classified as a return of capital. A return of
capital generally is not taxable to you, but reduces the tax basis of your
shares in the Fund. Any return of capital in excess of your basis, however,
is taxable as a capital gain.
PFIC SECURITIES. A Fund may invest in securities of foreign entities that
could be deemed for tax purposes to be passive foreign investment companies
(PFICs). When investing in PFIC securities, each Fund intends to
mark-to-market these securities and recognize any gains at the end of its
fiscal and excise (described below) tax years. Deductions for losses are
allowable only to the extent of any current or previously recognized gains.
These gains (reduced by allowable losses) are treated as ordinary income
that a Fund is required to distribute, even though it has not sold the
securities.
INFORMATION ON THE AMOUNT AND TAX CHARACTER OF DISTRIBUTIONS Each Fund will
inform you of the amount of your income dividends and capital gain
distributions at the time they are paid, and will advise you of their tax
status for federal income tax purposes shortly after the close of each
calendar year. If you have not owned your Fund shares for a full year, the
Fund may designate and distribute to you, as ordinary income or capital
gains, a percentage of income that may not be equal to the actual amount of
each type of income earned during the period of your investment in the Fund.
Distributions declared in December but paid in January are taxable to you as
if paid in December. You should also be aware that the designation of a
foreign security as a PFIC security will cause its income dividends to fall
outside of the definition of qualified foreign corporation dividends. These
dividends will NOT qualify for the reduced rate of taxation on dividends
when distributed to you by a Fund.
For calendar year 2003, each Fund will begin designating the portion of its
ordinary dividend income that meets the definition of qualified dividend
income (subject to reduced rates of taxation, as discussed above). If 95%
or more of its income is from qualified sources, it will be allowed to
designate 100% of the Fund's distributions as qualified dividend income.
For calendar year 2003, each Fund will also designate its capital gain
dividends as either pre-May 6 dividends (not qualifying for reduced rates of
taxation on capital gains) or post-May 5 dividends (qualifying for reduced
rates of taxation).
ELECTION TO BE TAXED AS A REGULATED INVESTMENT COMPANY Each Fund intends to
qualify and elect to be treated as a regulated investment company under
Subchapter M of the Internal Revenue Code (Code). As a regulated investment
company, the Funds generally pay no federal income tax on the income and
gains they distribute to you. The board reserves the right not to maintain
the qualification of a Fund as a regulated investment company if it
determines this course of action to be beneficial to shareholders. In that
case, the Fund would be subject to federal, and possibly state, corporate
taxes on its taxable income and gains, and distributions to you would be
taxed as ordinary income dividends to the extent of the Fund's earnings and
profits.
EXCISE TAX DISTRIBUTION REQUIREMENTS To avoid federal excise taxes, the
Code requires a Fund to distribute to you by December 31 of each year, at a
minimum, the following amounts:
o 98% of its taxable ordinary income earned during the calendar year;
o 98% of its capital gain net income earned during the twelve month period
ending October 31; and
o 100% of any undistributed amounts of these categories of income or gain
from the prior year.
Each Fund intends to declare and pay these distributions in December (or to
pay them in January, in which case you must treat them as received in
December), but can give no assurances that its distributions will be
sufficient to eliminate all taxes.
SALES OF FUND SHARES Sales and exchanges of Fund shares are taxable
transactions for federal and state income tax purposes. If you sell your
Fund shares, or exchange them for shares of a different fund in the Trust or
the Franklin Money Fund, the IRS requires you to report any gain or loss on
your sale or exchange. If you owned your shares as a capital asset, any gain
or loss that you realize generally is a capital gain or loss, and is
long-term or short-term, depending on how long you owned your shares.
TAXATION OF FIVE YEAR GAINS. THESE RULES APPLY ONLY TO SALES OF FUND SHARES
OCCURRING ON OR BEFORE MAY 5, 2003.
o SHAREHOLDERS IN THE 10% AND 15% FEDERAL BRACKETS. If you are in the 10%
or 15% individual income tax bracket, you sell Fund shares on or before
May 5, 2003, and you owned your shares for more than five years, gains
from the sale of your shares are subject to a maximum rate of tax of 8%.
o SHAREHOLDERS IN HIGHER FEDERAL BRACKETS. If you are in a higher
individual income tax bracket, changes in the five year gain rules made
by JAGTRRA will cause these provisions to no longer be applicable to
you.
Under JAGTRRA, sales of Fund shares occurring after May 5, 2003 and held for
more than one year will also qualify for reduced rates of taxation for
capital gain. For shareholders in the 10% and 15% federal income tax
brackets, these gains will be subject to a maximum rate of tax of 5% (0% in
2008); for shareholders in a higher federal income tax bracket, these gains
will be subject to a maximum rate of tax of 15%. These favorable rates are
due to sunset on January 1, 2009.
SALES AT A LOSS WITHIN SIX MONTHS OF PURCHASE. Any loss incurred on the sale
or exchange of Fund shares owned for six months or less is treated as a
long-term capital loss to the extent of any long-term capital gains
distributed to you by a Fund on those shares.
DEFERRAL OF BASIS. In reporting gain or loss on the sale of your Fund
shares, you may be required to adjust your basis in the shares you sell
under the following circumstances:
IF:
o In your original purchase of Fund shares, you received a reinvestment
right (the right to reinvest your sales proceeds at a reduced or with
no sales charge), and
o You sell some or all of your original shares within 90 days of their
purchase, and
o You reinvest the sales proceeds in the Fund or in another fund of the
Trust or the Franklin Money Fund, and the sales charge that would
otherwise apply is reduced or eliminated;
THEN: In reporting any gain or loss on your sale, all or a portion of the
sales charge that you paid for your original shares is excluded from your
tax basis in the shares sold and added to your tax basis in the new shares.
WASH SALES. All or a portion of any loss that you realize on the sale of
your Fund shares is disallowed to the extent that you buy other shares in
the Fund within 30 days before or after your sale. Any loss disallowed under
these rules is added to your tax basis in the new shares.
U.S. GOVERNMENT SECURITIES The income earned on certain U.S. government
securities is exempt from state and local personal income taxes if earned
directly by you. States also grant tax-free status to mutual fund dividends
paid to you from interest earned on these securities, subject in some states
to minimum investment or reporting requirements that must be met by a fund.
The income on Fund investments in certain securities, such as repurchase
agreements, commercial paper and federal agency-backed obligations (e.g.,
Ginnie Mae or Fannie Mae securities), generally does not qualify for
tax-free treatment. The rules on exclusion of this income are different for
corporations.
DIVIDENDS-RECEIVED DEDUCTION FOR CORPORATIONS For corporate shareholders, a
portion of the dividends paid by a fund may qualify for the
dividends-received deduction. This deduction generally is available to
corporations for dividends paid by a fund out of income earned on its
investments in domestic corporations.
o LARGE CAPITALIZATION FUND AND SMALL CAPITALIZATION EQUITY FUND. Because
most of the income of each Fund is generally derived from investments
in domestic securities, it is anticipated that a portion of the
dividends paid by a Fund will qualify for this deduction. You may be
allowed to deduct these qualified dividends, thereby reducing the tax
that you would otherwise be required to pay. All dividends (including
the deducted portion) are included in your calculation of alternative
minimum taxable income.
o EUROPEAN SMALLER COMPANIES FUND. Because the income of this Fund is
derived primarily from investments in foreign rather than domestic
securities, generally none or only a small percentage of its income
dividends will be eligible for the corporate dividends-received
deduction.
INVESTMENT IN COMPLEX SECURITIES Each Fund may invest in complex securities
that could require it to adjust the amount, timing and/or tax character
(ordinary or capital) of gains and losses it recognizes on these
investments. This, in turn, could affect the amount, timing and/or tax
character of income distributed to you. For example:
DERIVATIVES. Each Fund may invest in certain derivative contracts, including
options, futures, forwards or foreign currency contracts. If a Fund makes
these investments, it could be required to mark-to-market these contracts
and realize any unrealized gains and losses at its fiscal year end even
though it continues to hold the contracts. Under these rules, gains or
losses on the contracts generally would be treated as 60% long-term and 40%
short-term gains or losses, but gains or losses on certain foreign currency
contracts would be treated as ordinary income or losses. In determining its
net income for excise tax purposes, the Fund would also be required to
mark-to-market these contracts annually as of October 31 (for capital gain
net income) and December 31 (for taxable ordinary income), and to realize
and distribute any resulting income and gains.
CONSTRUCTIVE SALES. A Fund's entry into an option or other contract could be
treated as the "constructive sale" of an "appreciated financial position,"
causing it to realize gain, but not loss, on the position.
TAX STRADDLES. A Fund's investment in options, futures, forwards, or foreign
currency contracts in connection with certain hedging transactions could
cause it to hold offsetting positions in securities. If the Fund's risk of
loss with respect to specific securities in its portfolio is substantially
diminished by the fact that it holds other securities, the Fund could be
deemed to have entered into a tax "straddle" or to hold a "successor
position" that would require any loss realized by it to be deferred for tax
purposes.
SECURITIES PURCHASED AT DISCOUNT. Each Fund is permitted to invest in
securities issued or purchased at a discount, such as zero coupon, step-up
or payment-in-kind (PIK) bonds, that could require it to accrue and
distribute income not yet received. If a Fund invests in these securities,
it could be required to sell securities in its portfolio that it otherwise
might have continued to hold in order to generate sufficient cash to make
these distributions.
EACH OF THESE INVESTMENTS BY A FUND IN COMPLEX SECURITIES IS SUBJECT TO
SPECIAL TAX RULES THAT COULD AFFECT THE AMOUNT, TIMING AND/OR TAX CHARACTER
OF INCOME REALIZED BY A FUND AND DISTRIBUTED TO YOU.
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ORGANIZATION, VOTING RIGHTS AND PRINCIPAL HOLDERS
The Funds are diversified series of Franklin Global Trust, an open-end
management investment company, commonly called a mutual fund. The Trust was
organized as a Delaware statutory trust (a form of entity then known as a
business trust) on September 26, 2000 and is registered with the SEC.
The Funds currently offer only one class of shares. Additional classes may,
however, be offered in the future. The full title of each series is:
Fiduciary Large Capitalization Growth and Income Fund
Fiduciary Small Capitalization Equity Fund
Fiduciary European Smaller Companies Fund
Certain Franklin Templeton funds offer multiple share classes. Please note
that for selling or exchanging your shares, or for other purposes, the
Funds' shares are considered Advisor Class shares.
The Trust has noncumulative voting rights. For board member elections, this
gives holders of more than 50% of the shares voting the ability to elect all
of the members of the board. If this happens, holders of the remaining
shares voting will not be able to elect anyone to the board.
The Trust does not intend to hold annual shareholder meetings. The Trust or
a series of the Trust may hold special meetings, however, for matters
requiring shareholder approval. A meeting may be called by the board to
consider the removal of a board member if requested in writing by
shareholders holding at least 10% of the outstanding shares. In certain
circumstances, we are required to help you communicate with other
shareholders about the removal of a board member. A special meeting also may
be called by the board in its discretion.
From time to time, the number of Fund shares held in the "street name"
accounts of various securities dealers for the benefit of their clients or
in centralized securities depositories may exceed 5% of the total shares
outstanding.
As of June 6, 2003, the officers and board members, as a group, owned of
record and beneficially less than 1% of the outstanding shares of each Fund.
The board members may own shares in other funds in Franklin Templeton
Investments.
BUYING AND SELLING SHARES
The Funds are generally only available to:
o Individuals and institutions who have a client relationship with either
Fiduciary Trust or with direct or indirect wholly-owned subsidiaries of
Fiduciary Trust (which currently include Fiduciary Tax Services, Inc.,
Fiduciary Investment Corporation, Fiduciary International, Inc.,
Fiduciary International Holding, Inc., Fiduciary Financial Services
Corp., Fiduciary Trust International of California, Fiduciary Trust
International of Delaware, Fiduciary Investment Management
International, Inc., Fiduciary Trust International of the South,
Fiduciary Trust (International) S.A., FTCI (Cayman) Ltd., Fiduciary
International Ireland Limited, FTI - Banque Fiduciary Trust, Fiduciary
Trust International Investment Management, Inc., Fiduciary Trust
International Asia Limited, Fiduciary Trust International Australia
Limited, and Fiduciary Trust International Limited); and
o Full time employees, officers, trustees and directors of Franklin
Templeton entities, and their immediate family members.
The Funds continuously offer their shares through securities dealers who
have an agreement with TFIS. A securities dealer includes any financial
institution that, either directly or through affiliates, has an agreement
with TFIS to handle customer orders and accounts with the Fund. This
reference is for convenience only and does not indicate a legal conclusion
of capacity. Banks and financial institutions that sell shares of the Fund
may be required by state law to register as securities dealers.
For investors outside the U.S., the offering of Fund shares may be limited
in many jurisdictions. An investor who wishes to buy shares of a Fund should
determine, or have a broker-dealer determine, the applicable laws and
regulations of the relevant jurisdiction. Investors are responsible for
compliance with tax, currency exchange or other regulations applicable to
redemption and purchase transactions in any jurisdiction to which they may
be subject. Investors should consult appropriate tax and legal advisors to
obtain information on the rules applicable to these transactions.
All checks, drafts, wires and other payment mediums used to buy or sell
shares of a Fund must be denominated in U.S. dollars. We may, in our sole
discretion, either (a) reject any order to buy or sell shares denominated in
any other currency or (b) honor the transaction or make adjustments to your
account for the transaction as of a date and with a foreign currency
exchange factor determined by the drawee bank. We may deduct any applicable
banking charges imposed by the bank from your account.
When you buy shares, if you submit a check or a draft that is returned
unpaid to a Fund we may impose a $10 charge against your account for each
returned item.
DEALER COMPENSATION Franklin Templeton Distributors, Inc. (Distributors) ,
and/or its affiliates, including TFIS, may provide financial support to
securities dealers that sell shares of Franklin Templeton funds. This
support is based primarily on the amount of sales of fund shares and/or
total assets with Franklin Templeton funds. The amount of support may be
affected by: total sales; net sales; levels of redemptions; the proportion
of a securities dealer's sales and marketing efforts in Franklin Templeton
funds; a securities dealer's support of, and participation in, Distributors'
marketing programs; a securities dealer's compensation programs for its
registered representatives; and the extent of a securities dealer's
marketing programs relating to Franklin Templeton funds. Financial support
to securities dealers may be made by payments from Distributors' resources,
from Distributors' retention of underwriting concessions and, in the case of
funds that have Rule 12b-1 plans, from payments to Distributors under such
plans. In addition, certain securities dealers may receive brokerage
commissions generated by fund portfolio transactions in accordance with the
rules of the National Association of Securities Dealers, Inc.
Distributors routinely sponsors due diligence meetings for registered
representatives during which they receive updates on various Franklin
Templeton funds and are afforded the opportunity to speak with portfolio
managers. Invitation to these meetings is not conditioned on selling a
specific number of shares. Those who have shown an interest in Franklin
Templeton funds, however, are more likely to be considered. To the extent
permitted by their firm's policies and procedures, registered
representatives' expenses in attending these meetings may be covered by
Distributors.
EXCHANGE PRIVILEGE If you request the exchange of the total value of your
account, declared but unpaid income dividends and capital gain distributions
will be reinvested in the Fund and exchanged into the new fund at net asset
value when paid. Backup withholding and information reporting may apply.
If a substantial number of shareholders should, within a short period, sell
their Fund shares under the exchange privilege, the Fund might have to sell
portfolio securities it might otherwise hold and incur the additional costs
related to such transactions. On the other hand, increased use of the
exchange privilege may result in periodic large inflows of money. If this
occurs, it is the Fund's general policy to initially invest this money in
short-term, interest-bearing money market instruments, unless it is believed
that attractive investment opportunities consistent with that Fund's
investment goal exist immediately. This money will then be withdrawn from
the short-term, interest-bearing money market instruments and invested in
portfolio securities in as orderly a manner as is possible when attractive
investment opportunities arise.
The proceeds from the sale of shares of an investment company generally are
not available until the seventh day following the sale. The funds you are
seeking to exchange into may delay issuing shares pursuant to an exchange
until that seventh day. The sale of Fund shares to complete an exchange will
be effected at net asset value at the close of business on the day the
request for exchange is received in proper form.
REDEMPTIONS IN KIND In the case of redemption requests the board reserves
the right to make payments in whole or in part in securities or other assets
of the Fund, in case of an emergency, or if the payment of such a redemption
in cash would be detrimental to the existing shareholders of the Fund. In
these circumstances, the securities distributed would be valued at the price
used to compute the Fund's net assets and you may incur brokerage fees in
converting the securities to cash. The Fund does not intend to redeem
illiquid securities in kind. If this happens, however, you may not be able
to recover your investment in a timely manner.
SHARE CERTIFICATES We will credit your shares to your Fund account. We do
not issue share certificates. This eliminates the costly problem of
replacing lost, stolen or destroyed certificates.
GENERAL INFORMATION If dividend checks are returned to a Fund marked "unable
to forward" by the postal service, we will consider this a request by you to
change your dividend option to reinvest all distributions. The proceeds will
be reinvested in additional shares at net asset value until we receive new
instructions.
Distribution or redemption checks sent to you do not earn interest or any
other income during the time the checks remain uncashed. Neither the Funds
nor their affiliates will be liable for any loss caused by your failure to
cash such checks. The Funds are not responsible for tracking down uncashed
checks, unless a check is returned as undeliverable.
In most cases, if mail is returned as undeliverable we are required to take
certain steps to try to find you free of charge. If these attempts are
unsuccessful, however, we may deduct the costs of any additional efforts to
find you from your account. These costs may include a percentage of the
account when a search company charges a percentage fee in exchange for its
location services.
Sending redemption proceeds by wire or electronic funds transfer (ACH) is a
special service that we make available whenever possible. By offering this
service to you, the Funds are not bound to meet any redemption request in
less than the seven-day period prescribed by law. Neither the Funds nor
their agents shall be liable to you or any other person if, for any reason,
a redemption request by wire or ACH is not processed as described in the
prospectus.
Investor Services may pay certain financial institutions that maintain
omnibus accounts with the Fund on behalf of numerous beneficial owners for
recordkeeping operations performed with respect to such owners. For each
beneficial owner in the omnibus account, the Fund may reimburse Investor
Services an amount not to exceed the per account fee that the Fund normally
pays Investor Services. These financial institutions also may charge a fee
for their services directly to their clients.
There are special procedures for banks and other institutions that wish to
open multiple accounts. An institution may open a single master account by
filing one application form with the Funds, signed by personnel authorized
to act for the institution. Individual sub-accounts may be opened when the
master account is opened by listing them on the application, or by providing
instructions to the Funds at a later date. These sub-accounts may be
registered either by name or number. The Funds' investment minimums apply to
each sub-account. The Funds will send confirmation and account statements
for the sub-accounts to the institution.
If you buy or sell shares through your securities dealer, we use the net
asset value next calculated after your securities dealer receives your
request, which is promptly transmitted to the Funds. If you sell shares
through your securities dealer, it is your dealer's responsibility to
transmit the order to the Funds in a timely fashion. Your redemption
proceeds will not earn interest between the time we receive the order from
your dealer and the time we receive any required documents. Any loss to you
resulting from your dealer's failure to transmit your redemption order to
the Funds in a timely fashion must be settled between you and your
securities dealer.
Certain shareholder servicing agents may be authorized to accept your
transaction request.
For institutional accounts, there may be additional methods of buying or
selling Fund shares than those described in this SAI or in the prospectus.
In the event of disputes involving multiple claims of ownership or authority
to control your account, each Fund has the right (but has no obligation) to:
(a) freeze the account and require the written agreement of all persons
deemed by a Fund to have a potential property interest in the account,
before executing instructions regarding the account; (b) interplead disputed
funds or accounts with a court of competent jurisdiction; or (c) surrender
ownership of all or a portion of the account to the IRS in response to a
notice of levy.
PRICING SHARES
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When you buy and sell shares, you pay and receive the net asset value (NAV)
per share.
The value of a mutual fund is determined by deducting the fund's liabilities
from the total assets of the portfolio. The net asset value per share is
determined by dividing the net asset value of the fund by the number of
shares outstanding.
Each Fund calculates the NAV per share each business day at the close of
trading on the New York Stock Exchange (NYSE) (normally 1:00 p.m. Pacific
time). The Funds do not calculate the NAV on days the NYSE is closed for
trading, which include New Year's Day, Martin Luther King Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
When determining its NAV, each Fund values cash and receivables at their
realizable amounts, and records interest as accrued and dividends on the
ex-dividend date. If market quotations are readily available for portfolio
securities listed on a securities exchange or on the Nasdaq National Market
System, the Fund values those securities at the last quoted sale price of
the day or, if there is no reported sale, within the range of the most
recent quoted bid and ask prices. The Fund values over-the-counter portfolio
securities within the range of the most recent quoted bid and ask prices. If
portfolio securities trade both in the over-the-counter market and on a
stock exchange, the Fund values them according to the broadest and most
representative market as determined by the manager.
Each Fund values portfolio securities underlying actively traded call
options at their market price as determined above. The current market value
of any option a Fund holds is its last sale price on the relevant exchange
before the Fund values its assets. If there are no sales that day or if the
last sale price is outside the bid and ask prices, the Fund values options
within the range of the current closing bid and ask prices if the Fund
believes the valuation fairly reflects the contract's market value
Trading in securities on European securities exchanges and over-the-counter
markets is normally completed well before the close of business on the NYSE
on each day that the NYSE is open. Trading in European securities generally,
or in particular country or countries, may not take place on every NYSE
business day. Furthermore, trading takes place in various foreign markets on
days that are not busienss days for the NYSE and on which a Fund's NAV is
not calculated. Thus, the calculation of a Fund's NAV does not take place
contemporaneously with the determination of the prices of many of the
portfolio securities used in the calculation and, if events materially
affecting the values of these foreign securities occur during this period,
the securities will be valued at fair value in accordance with procedures
established by the board.
Generally, trading in corporate bonds, U.S. government securities and money
market instruments is substantially completed each day at various times
before the close of the NYSE. The value of these securities used in
computing the NAV is determined as of such times. Occasionally, events
affecting the values of these securities may occur between the times at
which they are determined and the close of the NYSE that will not be
reflected in the computation of the NAV. If events materially affecting the
values of these securities occur during this period, the securities will be
valued at their fair value as determined in good faith by the board.
Other securities for which market quotations are readily available are
valued at the current market price, which may be obtained from a pricing
service, based on a variety of factors including recent trades,
institutional size trading in similar types of securities (considering
yield, risk and maturity) and/or developments related to specific issues.
Securities and other assets for which market prices are not readily
available are valued at fair value as determined following procedures
approved by the board. With the approval of the board, each Fund may use a
pricing service, bank or securities dealer to perform any of the above
described functions.
THE UNDERWRITER
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TFIS acts as the principal underwriter in the continuous public offering of
the Funds' shares. TFIS is located at One Franklin Parkway, San Mateo, CA
94403-1906.
TFIS pays the expenses of the distribution of Fund shares, including
advertising expenses and the costs of printing sales material and
prospectuses used to offer shares to the public. The Funds pay the expenses
of preparing and printing amendments to its registration statements and
prospectuses (other than those necessitated by the activities of TFIS) and
of sending prospectuses to existing shareholders.
TFIS may be entitled to payments from the Funds under the Rule 12b-1 plans,
as discussed below.
DISTRIBUTION AND SERVICE (12B-1) FEES The board has adopted a plan pursuant
to Rule 12b-1 for each Fund's shares, although the Funds do not currently
intend to use it. Each plan is designed to benefit the Funds and their
shareholders. Such plans are expected to, among other things, increase
advertising of the Funds, encourage sales of the Funds and service to their
shareholders, and increase or maintain assets of the Funds so that certain
fixed expenses may be spread over a broader asset base, resulting in lower
per share expense ratios. In addition, a positive cash flow into the Funds
is useful in managing the Funds because the manager has more flexibility in
taking advantage of new investment opportunities and handling shareholder
redemptions.
Under the plan adopted by the Board, each Fund may pay up to 0.25% per year
of the Fund's average daily net assets.
In addition to the payments that TFIS or others are entitled to under each
plan, each plan also provides that to the extent the Funds, the manager or
TFIS or other parties on behalf of a Fund, the manager or TFIS make payments
that are deemed to be for the financing of any activity primarily intended
to result in the sale of Fund shares within the context of Rule 12b-1 under
1940 Act, then such payments shall be deemed to have been made pursuant to
the plan.
To the extent fees are for distribution or marketing functions, as
distinguished from administrative servicing or agency transactions, certain
banks may not participate in the plan because of applicable federal law
prohibiting certain banks from engaging in the distribution of mutual fund
shares. These banks, however, are allowed to receive fees under the plan for
administrative servicing or for agency transactions.
Under each plan, the Fund would pay TFIS or others for the expenses of
activities that are primarily intended to sell shares of the Fund. These
expenses also may include service fees paid to securities dealers or others
who have executed a servicing agreement with a Fund, TFIS or its affiliates
and who provide service or account maintenance to shareholders (service
fees); the expenses of printing prospectuses and reports used for sales
purposes, and of preparing and distributing sales literature and
advertisements; and a prorated portion of TFIS' overhead expenses related to
these activities. Together, these expenses, including the service fees, are
"eligible expenses."
Each plan is a compensation plan, which means it would allow each Fund to
pay a fee to TFIS that may be more than the eligible expenses TFIS has
incurred at the time of the payment. TFIS must, however, demonstrate to the
Board that it has spent or has near-term plans to spend the amount received
on eligible expenses. A Fund will not pay more than the maximum amount
allowed under the plans.
If the plans are activated, TFIS must provide written reports to the Board
at least quarterly on the amounts and purpose of any payment made under the
plans and any related agreements, and furnish the Board with such other
information as the Board may reasonably request to enable it to make an
informed determination of whether the plans should be continued.
The plan has been approved according to the provisions of Rule 12b-1. The
terms and provisions of the plan also are consistent with Rule 12b-1.
PERFORMANCE
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Performance quotations are subject to SEC rules. These rules require the use
of standardized performance quotations or, alternatively, that every
non-standardized performance quotation furnished by a Fund be accompanied by
certain standardized performance information computed as required by the
SEC. Average annual total return before taxes, average annual total return
after taxes on distributions and average annual total return after taxes on
distributions and sale of shares quotations used by the Fund are based on
the standardized methods of computing performance mandated by the SEC. An
explanation of these and other methods to be used by the Funds to compute or
express performance follows. Regardless of the method used, past performance
does not guarantee future results, and is an indication of the return to
shareholders only for the limited historical period used.
Because the Funds are new, they have no performance history and thus no
performance quotations have been provided.
AVERAGE ANNUAL TOTAL RETURN BEFORE TAXES Average annual total return before
taxes is determined by finding the average annual rates of return over
certain periods that would equate an initial hypothetical $1,000 investment
to its ending redeemable value. The calculation assumes income dividends and
capital gain distributions are reinvested at net asset value. The quotation
assumes the account was completely redeemed at the end of each period and
the deduction of all applicable charges and fees.
The following SEC formula will be used to calculate these figures:
n
P(1+T) = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at
the beginning of each period at the end of each period
AVERAGE ANNUAL TOTAL RETURN AFTER TAXES ON DISTRIBUTIONS Average annual
total return after taxes on distributions is determined by finding the
average annual rates of return over certain periods that would equate an
initial hypothetical $1,000 investment to its ending redeemable value, after
taxes on distributions. The calculation assumes that income dividends and
capital gain distributions, less the taxes due on such distributions, are
reinvested at net asset value. The quotation assumes the account was
completely redeemed at the end of each period and the deduction of all
applicable charges and fees, but assumes that the redemption itself had no
tax consequences.
Taxes due on distributions are calculated by applying the highest individual
marginal federal income tax rates in effect on the reinvestment date, using
the rates that correspond to the tax character of each component of the
distributions (e.g., the ordinary income rate for distributions of ordinary
income and net short-term capital gains, and the long-term capital gain rate
for distributions of net long-term capital gains). The taxable amount and
tax character of a distribution may be adjusted to reflect any
recharacterization of the distribution since its original date.
Distributions are adjusted to reflect the federal tax impact the
distribution would have on an individual taxpayer on the reinvestment date;
for example, no taxes are assumed to be due on the portion of any
distribution that would not result in federal income tax on an individual
(e.g., tax-exempt interest or non-taxable returns of capital). The effect
of applicable tax credits, such as the foreign tax credit, is taken into
account in accordance with federal tax law. Any potential tax liabilities
other than federal tax liabilities (e.g., state and local taxes) are
disregarded, as are the effects of phaseouts of certain exemptions,
deductions, and credits at various income levels, and the impact of the
federal alternative minimum tax. Any redemptions of shares required to pay
recurring fees charged to shareholder accounts are assumed to result in no
additional taxes or tax credits.
The Funds' sales literature and advertising commonly refer to this
calculation as the Funds' after-tax average annual total return
(pre-liquidation).
The following SEC formula will be used to calculate these figures:
n
P(1+T) = ATV/D
where:
P = a hypothetical initial payment of $1,000
T = average annual total return (after taxes on distributions)
n = number of years
ATV/D = ending value of a hypothetical $1,000 payment made at the
beginning of each period at the end of each period, after taxes
on fund distributions but not after taxes on redemption
AVERAGE ANNUAL TOTAL RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND
SHARES Average annual total return after taxes on distributions and sale of
fund shares is determined by finding the average annual rates of return over
certain periods that would equate an initial hypothetical $1,000 investment
to its ending redeemable value, after taxes on distributions and sale of
fund shares. The calculation assumes that income dividends and capital gain
distributions are reinvested at net asset value. The quotation assumes the
account was completely redeemed at the end of each period and the deduction
of all applicable charges and fees, including taxes upon sale of fund
shares.
Taxes due on distributions are calculated by applying the highest individual
marginal federal income tax rates in effect on the reinvestment date, using
the rates that correspond to the tax character of each component of the
distributions (e.g., the ordinary income rate for distributions of ordinary
income and net short-term capital gains, and the long-term capital gain rate
for distributions of net long-term capital gains). The taxable amount and
tax character of a distribution may be adjusted to reflect any
recharacterization of the distribution since its original date.
Distributions are adjusted to reflect the federal tax impact the
distribution would have on an individual taxpayer on the reinvestment date;
for example, no taxes are assumed to be due on the portion of any
distribution that would not result in federal income tax on an individual
(e.g., tax-exempt interest or non-taxable returns of capital). The effect
of applicable tax credits, such as the foreign tax credit, is taken into
account in accordance with federal tax law. Any potential tax liabilities
other than federal tax liabilities (e.g., state and local taxes) are
disregarded, as are the effects of phaseouts of certain exemptions,
deductions, and credits at various income levels, and the impact of the
federal alternative minimum tax. Any redemptions of shares required to pay
recurring fees charged to shareholder accounts are assumed to result in no
additional taxes or tax credits.
The capital gain or loss upon redemption is calculated by subtracting the
tax basis from the redemption proceeds, after deducting any nonrecurring
charges assessed at the end of the period, subtracting capital gains taxes
resulting from the redemption, or adding the tax benefit from capital losses
resulting from the redemption. In determining the basis for a reinvested
distribution, the distribution is included net of taxes assumed paid from
the distribution, but not net of any sales loads imposed upon reinvestment.
Tax basis is adjusted for any distributions representing returns of capital
and any other tax basis adjustments that would apply to an individual
taxpayer, as permitted by applicable federal law. The amount and character
(e.g., short-term or long-term) of capital gain or loss upon redemption is
separately determined for shares acquired through the initial investment and
each subsequent purchase through reinvested distributions. Shares acquired
through reinvestment of distributions are not assumed to have the same
holding period as the initial investment. The tax character of such
reinvestments is determined by the length of the period between reinvestment
and the end of the measurement period in the case of reinvested
distributions. Capital gains taxes (or the benefit resulting from tax
losses) is calculated using the highest federal individual capital gains tax
rate for gains of the appropriate character in effect on the redemption date
and in accordance with federal law applicable on the redemption date.
Shareholders are assumed to have sufficient capital gains of the same
character from other investments to offset any capital losses from the
redemption, so that the taxpayer may deduct the capital losses in full.
The Funds' sales literature and advertising commonly refer to this
calculation as the Funds' after-tax average annual total return
(post-liquidation).
The following SEC formula will be used to calculate these figures:
n
P(1+T) = ATV/DR
where:
P = a hypothetical initial payment of $1,000
T = average annual total return (after taxes on distributions and
redemptions)
n = number of years
ATV/DR= ending value of a hypothetical $1,000 payment made at the
beginning of each period at the end of each period, after taxes
on fund distributions and redemption
CUMULATIVE TOTAL RETURN Like average annual total return, cumulative total
return assumes income dividends and capital gain distributions are
reinvested at net asset value, the account was completely redeemed at the
end of each period and the deduction of all applicable charges and fees.
Cumulative total return, however, is based on the actual return for a
specified period rather than on the average return over indicated periods.
VOLATILITY Occasionally statistics may be used to show a Fund's volatility
or risk. Measures of volatility or risk are generally used to compare a
Fund's net asset value or performance to a market index. One measure of
volatility is beta. Beta is the volatility of a fund relative to the total
market, as represented by an index considered representative of the types of
securities in which the fund invests. A beta of more than 1.00 indicates
volatility greater than the market and a beta of less than 1.00 indicates
volatility less than the market. Another measure of volatility or risk is
standard deviation. Standard deviation is used to measure variability of net
asset value or total return around an average over a specified period of
time. The idea is that greater volatility means greater risk undertaken in
achieving performance.
OTHER PERFORMANCE QUOTATIONS Sales literature referring to the use of the
Funds as a potential investment for IRAs, business retirement plans, and
other tax-advantaged retirement plans may quote a total return based upon
compounding of dividends on which it is presumed no federal income tax
applies.
The Funds may include in their advertising or sales material information
relating to investment goals and performance results of funds belonging to
Franklin Templeton Investments. Resources is the parent company of the
advisors and underwriter of Franklin Templeton funds.
COMPARISONS To help you better evaluate how an investment in the Funds may
satisfy your investment goal, advertisements and other materials about a
Fund may discuss certain measures of Fund performance as reported by various
financial publications. Materials also may compare performance (as
calculated above) to performance as reported by other investments, indices,
and averages. These comparisons may include, but are not limited to, the
following examples:
EUROPEAN SMALLER COMPANIES FUND
o Lipper, Inc. - Mutual Fund Performance Analysis and Lipper - Equity
Fund Performance Analysis - measure total return and average current
yield for the mutual fund industry and rank individual mutual fund
performance over specified time periods, assuming reinvestment of all
distributions, exclusive of any applicable sales charges.
o Morningstar - information published by Morningstar, Inc., including
Morningstar proprietary mutual fund ratings. The ratings reflect
Morningstar's assessment of the historical risk-adjusted performance of a
fund over specified time periods relative to other funds within its
category.
o HSBC Smaller European Index is composed of about 1,500 companies in
Europe which have market capitalizations in a similar range to that used
by the Fund. The composition of the index is updated quarterly.
LARGE CAPITALIZATION FUND
o Lipper, Inc. - Mutual Fund Performance Analysis and Lipper - Equity
Fund Performance Analysis - measure total return and average current
yield for the mutual fund industry and rank individual mutual fund
performance over specified time periods, assuming reinvestment of all
distributions, exclusive of any applicable sales charges.
o Morningstar - information published by Morningstar, Inc., including
Morningstar proprietary mutual fund ratings. The ratings reflect
Morningstar's assessment of the historical risk-adjusted performance of a
fund over specified time periods relative to other funds within its
category.
o Standard & Poor's(R) 500 Stock Index or its component indices - a
capitalization-weighted index designed to measure performance of the
broad domestic economy through changes in the aggregate market value of
500 stocks representing all major industries.
o Dow Jones Industrial Average is an unmanaged index representing share
prices of major industrial corporations, public utilities, and
transportation companies. Produced by the Dow Jones & Company, it is
cited as a principal indicator of market conditions.
SMALL CAPITALIZATION EQUITY FUND
o Lipper, Inc. - Mutual Fund Performance Analysis and Lipper - Equity
Fund Performance Analysis - measure total return and average current
yield for the mutual fund industry and rank individual mutual fund
performance over specified time periods, assuming reinvestment of all
distributions, exclusive of any applicable sales charges.
o Morningstar - information published by Morningstar, Inc., including
Morningstar proprietary mutual fund ratings. The ratings reflect
Morningstar's assessment of the historical risk-adjusted performance of a
fund over specified time periods relative to other funds within its
category.
o Russell 2000 Index is a broadly diversified index consisting of
approximately 2,000 small capitalization common stocks that can be used
to compare to the total returns of funds whose portfolios are invested
primarily in small capitalization stocks.
o Russell 1000 Growth Index measures the performance of those Russell
1000 companies with higher price-to-book ratios and higher forecasted
growth values.
o Russell 2000 Growth Index measures the performance of those Russell
2000 companies with higher price-to-book ratios and higher forecasted
growth values.
o Dow Jones Industrial Average is an unmanaged index representing share
prices of major industrial corporations, public utilities, and
transportation companies. Produced by the Dow Jones & Company, it is
cited as a principal indicator of market conditions.
o Standard & Poor's Midcap 400 Index is a capitalization weighted index
which measures the performance of the mid-range sector of the U.S. stock
market.
o Standard & Poor's Smallcap 600 Index is a capitalization-weighted index
that measures the performance of selected U.S. stocks with a small market
capitalization.
o Standard & Poor's(R) 500 Stock Index or its component indices - a
capitalization-weighted index designed to measure performance of the
broad domestic economy through changes in the aggregate market value of
500 stocks representing all major industries.
From time to time, advertisements or information for a Fund may include a
discussion of certain attributes or benefits to be derived from an
investment in the Fund. The advertisements or information may include
symbols, headlines, or other material that highlights or summarizes the
information discussed in more detail in the communication.
Advertisements or information also may compare the Funds' performance to the
return on certificates of deposit (CDs) or other investments. You should be
aware, however, that an investment in the Funds involves the risk of
fluctuation of principal value, a risk generally not present in an
investment in a CD issued by a bank. CDs are frequently insured by an agency
of the U.S. government. An investment in the Funds are not insured by any
federal, state or private entity.
In assessing comparisons of performance, you should keep in mind that the
composition of the investments in the reported indices and averages is not
identical to the Funds' portfolio, the indices and averages are generally
unmanaged, and the items included in the calculations of the averages may
not be identical to the formula used by the Funds to calculate their
figures. In addition, there can be no assurance that the Funds will continue
its performance as compared to these other averages.
MISCELLANEOUS INFORMATION
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The Funds may help you achieve various investment goals such as accumulating
money for retirement, saving for a down payment on a home, college costs and
other long-term goals. The Franklin College Costs Planner may help you in
determining how much money must be invested on a monthly basis to have a
projected amount available in the future to fund a child's college
education. (Projected college cost estimates are based upon current costs
published by the College Board.) The Franklin Retirement Planning Guide
leads you through the steps to start a retirement savings program. Of
course, an investment in the Funds cannot guarantee that these goals will be
met.
The Funds are members of Franklin Templeton Investments, one of the largest
mutual fund organizations in the U.S., and may be considered in a program
for diversification of assets. Founded in 1947, Franklin is one of the
oldest mutual fund organizations and now services approximately 3 million
shareholder accounts. In 1992, Franklin, a leader in managing fixed-income
mutual funds and an innovator in creating domestic equity funds, joined
forces with Templeton, a pioneer in international investing. The Mutual
Series team, known for its value-driven approach to domestic equity
investing, became part of the organization four years later. In 2001, the
Fiduciary Trust team, known for providing global investment management to
institutions and high net worth clients worldwide, joined the organization.
Together, Franklin Templeton Investments has over $267 billion in assets
under management for more than 5 million U.S. based mutual fund shareholder
and other accounts. Franklin Templeton Investments offers 100 U.S. based
open-end investment companies to the public. The Funds may identify
themselves by their Nasdaq symbol or CUSIP number.
Currently, there are more mutual funds than there are stocks listed on the
NYSE. While many of them have similar investment goals, no two are exactly
alike. Shares of the Funds are generally sold through securities dealers,
whose investment representatives are experienced professionals who can offer
advice on the type of investments suitable to your unique goals and needs,
as well as the risks associated with such investments.
DESCRIPTION OF RATINGS
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PREFERRED STOCKS RATINGS
STANDARD & POOR'S RATINGS GROUP (S&P(R))
AAA: This is the highest rating that may be assigned by S&P to a preferred
stock issue and indicates an extremely strong capacity to pay the preferred
stock obligations.
AA: A preferred stock issue rated AA also qualifies as a high quality
fixed-income security. The capacity to pay preferred stock obligations is
very strong, although not as overwhelming as for issues rated AAA.
A: An issue rated A is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions.
BBB: An issue rated BBB is regarded as backed by an adequate capacity to pay
the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to make payments for a
preferred stock in this category than for issues in the A category.
BB, B and CCC: Preferred stock rated BB, B, and CCC are regarded, on
balance, as predominately speculative with respect to the issuer's capacity
to pay preferred stock obligations. BB indicates the lowest degree of
speculation and CCC the highest degree of speculation. While these issues
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse
conditions.
CC: The rating CC is reserved for a preferred stock issue in arrears on
dividends or sinking fund payments but that is currently paying.
C: A preferred stock rated C is a non-paying issue.
D: A preferred stock rated D is a non-paying issue with the issuer in
default on debt instruments.
NR: Indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
Plus (+) or Minus (-): To provide more detailed indications of preferred
stock quality, the ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
CORPORATE BOND RATINGS
MOODY'S INVESTORS SERVICES (MOODY'S)
INVESTMENT GRADE
Aaa: Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or exceptionally
stable margin, and principal is secure. While the various protective
elements are likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds rated Aa are judged to be high quality by all standards. Together
with the Aaa group, they comprise what are generally known as high-grade
bonds. They are rated lower than the best bonds because margins of
protection may not be as large, fluctuation of protective elements may be of
greater amplitude, or there may be other elements present that make the
long-term risks appear somewhat larger.
A: Bonds rated A possess many favorable investment attributes and are
considered upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
that suggest a susceptibility to impairment sometime in the future.
Baa: Bonds rated Baa are considered medium-grade obligations. They are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may
be lacking or may be characteristically unreliable over any great length of
time. These bonds lack outstanding investment characteristics and, in fact,
have speculative characteristics as well.
BELOW INVESTMENT GRADE
Ba: Bonds rated Ba are judged to have predominantly speculative elements and
their future cannot be considered well assured. Often the protection of
interest and principal payments is very moderate and, thereby, not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B: Bonds rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other
terms of the contract over any long period of time may be small.
Caa: Bonds rated Caa are of poor standing. These issues may be in default or
there may be present elements of danger with respect to principal or
interest.
Ca: Bonds rated Ca represent obligations that are speculative to a high
degree. These issues are often in default or have other marked shortcomings.
C: Bonds rated C are the lowest rated class of bonds and can be regarded as
having extremely poor prospects of ever attaining any real investment
standing.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond ratings. The modifier
1 indicates that the security ranks in the higher end of its generic rating
category; modifier 2 indicates a mid-range ranking; and modifier 3 indicates
that the issue ranks in the lower end of its generic rating category.
S&P
INVESTMENT GRADE
AAA: This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.
AA: Bonds rated AA also qualify as high-quality debt obligations. Capacity
to pay principal and interest is very strong and, in the majority of
instances, differ from AAA issues only in a small degree.
A: Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to
lead to a weakened capacity to pay principal and interest for bonds in this
category than for bonds in the A category.
BELOW INVESTMENT GRADE
BB, B, CCC, CC: Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of the
obligations. BB indicates the lowest degree of speculation and CC the
highest degree of speculation. While these bonds will likely have some
quality and protective characteristics, they are outweighed by large
uncertainties or major risk exposures to adverse conditions.
C: Bonds rated C are typically subordinated debt to senior debt that is
assigned an actual or implied CCC- rating. The C rating also may reflect the
filing of a bankruptcy petition under circumstances where debt service
payments are continuing. The C1 rating is reserved for income bonds on which
no interest is being paid.
D: Debt rated D is in default and payment of interest and/or repayment of
principal is in arrears.
Plus (+) or minus (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
SHORT-TERM DEBT & COMMERCIAL PAPER RATINGS
MOODY'S
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations. These obligations have an original
maturity not exceeding one year, unless explicitly noted. Moody's commercial
paper ratings are opinions of the ability of issuers to repay punctually
their promissory obligations not having an original maturity in excess of
nine months. Moody's employs the following designations for both short-term
debt and commercial paper, all judged to be investment grade, to indicate
the relative repayment capacity of rated issuers:
P-1 (Prime-1): Superior capacity for repayment.
P-2 (Prime-2): Strong capacity for repayment.
S&P
S&P's ratings are a current assessment of the likelihood of timely payment
of debt having an original maturity of no more than 365 days. Ratings are
graded into four categories, ranging from "A" for the highest quality
obligations to "D" for the lowest. Issues within the "A" category are
delineated with the numbers 1, 2 and 3 to indicate the relative degree of
safety, as follows:
A-1: This designation indicates the degree of safety regarding timely
payment is very strong. A "plus" (+) designation indicates an even stronger
likelihood of timely payment.
A-2: Capacity for timely payment on issues with this designation is strong.
The relative degree of safety, however, is not as overwhelming as for issues
designated A-1.
A-3: Issues carrying this designation have a satisfactory capacity for
timely payment. They are, however, somewhat more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations.