ThZeal - The Zeal

DEF 14A 1 tit-def14a.txt TIT PROXY SPECIAL MEETING 12/15/03 SCHEDULE 14A (RULE 14A-101) INFORMATION REQUIRED IN PROXY STATEMENT 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: [ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) [X] Definitive Proxy Statement [ ] Definitive Additional Materials [ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12 TEMPLETON INCOME TRUST ------------------------------------------------ (Name of Registrant as Specified in its Charter) -------------------------------------------------------------------- Name of Person(s) Filing Proxy Statement, other than the Registrant) Payment of Filing Fee (Check the appropriate box): [X] No fee required. [ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11(s)(2). (1) Title of each class of securities to which transaction applies: (2) Aggregate number of securities to which transaction applies: (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): (4) Proposed maximum aggregate value of transaction: (5) Total fee paid: [ ] Fee paid previously with preliminary materials. [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. (1) Amount Previously Paid: (2) Form, Schedule or Registration Statement No.: (3) Filing Party: (4) Date Filed: [LOGO] FRANKLIN/R/ TEMPLETON/R/ INVESTMENTS TEMPLETON INCOME TRUST Templeton Global Bond Fund IMPORTANT SHAREHOLDER INFORMATION These materials are for a Special Meeting of Shareholders scheduled for December 15, 2003 at 11:00 a.m. Eastern time. The enclosed materials discuss four proposals (the "Proposals" or, each, a "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 by signing and returning your proxy card, it tells us how you wish to vote on important issues relating to Templeton Global Bond Fund (the "Fund"), a series of Templeton Income Trust (the "Trust"). If you specify a vote for all Proposals, your proxy will be voted as you indicate. If you specify a vote for one or more Proposals, but not all, your proxy will be voted as specified on such Proposals and, on the Proposal(s) for which no vote is specified, your proxy will be voted FOR such Proposal(s). If you simply sign and date the proxy card, but do not specify a vote for any Proposal, your proxy will be voted FOR all Proposals. We urge you to spend a few minutes reviewing the Proposals in the proxy statement. Then, please fill out and sign the proxy card and return it to us so that we know how you would like to vote. When shareholders return their proxies promptly, the Trust may be able to save money by not having to conduct additional mailings. We welcome your comments. If you have any questions, call Fund Information at 1-800/DIAL BEN(R) (1-800-342-5236). TELEPHONE AND INTERNET VOTING For your convenience, you may be able to vote by telephone or through the Internet, 24 hours a day. If your account is eligible, a control number and separate instructions are enclosed. [LOGO] FRANKLIN/R/ TEMPLETON/R/ INVESTMENTS TEMPLETON INCOME TRUST Templeton Global Bond Fund NOTICE OF SPECIAL MEETING OF SHAREHOLDERS A Special Meeting of Shareholders (the "Meeting") of Templeton Income Trust (the "Trust"), will be held at the Trust's offices, 500 East Broward Boulevard, 12th Floor, Fort Lauderdale, Florida 33394-3091 on December 15, 2003 at 11:00 a.m. Eastern time. During the Meeting, shareholders of Templeton Global Bond Fund (the "Fund"), a series of the Trust, will vote on the following Proposals and Sub-Proposals: 1. To elect a Board of Trustees of the Trust. 2. To approve an Agreement and Plan of Reorganization that provides for the reorganization of the Trust from a Massachusetts business trust to a Delaware statutory trust. 3. To approve amendments to certain of the Fund's fundamental investment restrictions (includes seven (7) Sub-Proposals): (a) To amend the Fund's fundamental investment restriction regarding investments in real estate; (b) To amend the Fund's fundamental investment restriction regarding investments in commodities; (c) To amend the Fund's fundamental investment restriction regarding underwriting; (d) To amend the Fund's fundamental investment restriction regarding issuing senior securities; (e) To amend the Fund's fundamental investment restriction regarding lending; (f) To amend the Fund's fundamental investment restriction regarding industry concentration; and (g) To amend the Fund's fundamental investment restriction regarding borrowing. 4. To approve the elimination of certain of the Fund's fundamental investment restrictions. By Order of the Board of Trustees, Barbara J. Green Secretary October 31, 2003 TEMPLETON INCOME TRUST Templeton Global Bond Fund PROXY STATEMENT TABLE OF CONTENTS

TEMPLETON INCOME TRUST Templeton Global Bond Fund PROXY STATEMENT . INFORMATION ABOUT VOTING Who is asking for my vote? The Trustees of Templeton Income Trust (the "Trust"), on behalf of its series, Templeton Global Bond Fund (the "Fund"), in connection with the Special Meeting of Shareholders of the Trust to be held on December 15, 2003 (the "Meeting"), have requested your vote on several matters. Who is eligible to vote? Shareholders of record at the close of business on September 17, 2003 are entitled to be present and to vote at the Meeting or any adjourned Meeting. Each share of record is entitled to one vote (and a proportionate fractional vote for each fractional share) on each matter presented at the Meeting. The Notice of Meeting, the proxy card, and proxy statement were first mailed to shareholders of record on or about October 31, 2003. On what issues am I being asked to vote? You are being asked to vote on four Proposals: 1. To elect a Board of Trustees of the Trust; 2. To approve an Agreement and Plan of Reorganization that provides for the reorganization of the Trust from a Massachusetts business trust to a Delaware statutory trust; 3. To approve amendments to certain of the Fund's fundamental investment restrictions (includes seven (7) Sub-Proposals); and 4. To approve the elimination of certain of the Fund's fundamental investment restrictions. How do the Trustees recommend that I vote? The Trustees unanimously recommend that you vote: 1. FOR the election of all nominees as Trustees of the Trust; 2. FOR the approval of an Agreement and Plan of Reorganization that provides for the reorganization of the Trust from a Massachusetts business trust to a Delaware statutory trust; 3. FOR the approval of each of the proposed amendments to certain of the Fund's fundamental investment restrictions; and 4. FOR the approval of the elimination of certain of the Fund's fundamental investment restrictions. How do I ensure that my vote is accurately recorded? You may attend the Meeting and vote in person or you may complete and return the enclosed proxy card. If you are eligible to vote by telephone or through the Internet, a control number and separate instructions are enclosed. Proxy cards that are properly signed, dated and received at or prior to the Meeting will be voted as specified. If you specify a vote on any of the Proposals 1 through 4, your proxy will be voted as you indicate, and any Proposal for which no vote is specified will be voted FOR that Proposal. If you simply sign, date and return the proxy card, but do not specify a vote on any of the Proposals 1 through 4, your shares will be voted FOR the election of all nominees as Trustees of the Trust (Proposal 1); FOR the approval of an Agreement and Plan of Reorganization that provides for the reorganization of the Trust from a Massachusetts business trust to a Delaware statutory trust (Proposal 2); FOR the approval of each of the proposed amendments to certain of the Fund's fundamental investment restrictions (Sub-Proposals 3a-3g); and FOR the approval of the elimination of certain of the Fund's fundamental investment restrictions (Proposal 4). May I revoke my proxy? You may revoke your proxy at any time before it is voted by forwarding a written revocation or a later-dated proxy to the Trust that is received by the Trust at or prior to the Meeting, or by attending the Meeting and voting in person. What if my shares are held in a brokerage account? If your shares are held by your broker, then in order to vote in person at the Meeting, you will have to obtain a "Legal Proxy" from your broker and present it to the Inspector of Election at the Meeting. . THE PROPOSALS PROPOSAL 1: TO ELECT A BOARD OF TRUSTEES OF THE TRUST How are nominees selected? The Board of Trustees of the Trust (the "Board" or the "Trustees") has a Nominating and Compensation Committee (the "Committee") consisting of Andrew H. Hines, Jr. (Chairman), Edith E. Holiday and Gordon S. Macklin, none of whom is an "interested person" of the Trust as defined by the Investment Company Act of 1940, as amended, (the "1940 Act"). Trustees who are not interested persons of the Trust are referred to as the "Independent Trustees." The Committee is responsible for the selection and nomination of candidates to serve as Trustees of the Trust. The Committee will review shareholders' nominations to fill vacancies on the Board if these nominations are submitted in writing and addressed 2 to the Committee at the Trust's offices. However, the Committee expects to be able to identify from its own resources an ample number of qualified candidates. Who are the nominees? All of the nominees, except Frank J. Crothers, Frank A. Olson and Constantine D. Tseretopoulos, are currently members of the Board. The term of each nominee will continue for the lifetime of the Trust 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. In addition, all of the current nominees are also directors or trustees of other Franklin(R) funds and/or Templeton(R) funds (collectively, the "Franklin Templeton funds"). Among these nominees, Nicholas F. Brady and Charles B. Johnson are deemed to be "interested persons" for purposes of the 1940 Act. Trustees who are "interested persons" are referred to as the "Interested Trustees." Certain Trustees of the Trust hold director and/or officer positions with Franklin Resources, Inc. ("Resources") and its affiliates. Resources is a publicly owned holding company, the principal shareholders of which are Charles B. Johnson and Rupert H. Johnson, Jr., who own approximately 18.14% and 15.47%, respectively, of its outstanding shares as of August 31, 2003. Resources, a global investment organization operating as Franklin Templeton Investments, is primarily engaged, through various subsidiaries, in providing investment management, share distribution, transfer agent and administrative services to a family of investment companies. Resources is a New York Stock Exchange, Inc. ("NYSE") listed holding company (NYSE: BEN). Charles B. Johnson, Chairman of the Board, Trustee and Vice President of the Trust, and Rupert H. Johnson, Jr., Vice President of the Trust, are brothers. There are no family relationships among any of the nominees for Trustee. Each nominee currently is available and has consented to serve if elected. If any of the nominees should become unavailable, the designated proxy holders will vote in their discretion for another person or persons who may be nominated as Trustees. 3 Listed below, for the nominees, are their names, ages and addresses, as well as their positions and length of service with the Trust, principal occupations during the past five years, the number of portfolios in the Franklin Templeton Investments fund complex that they oversee, and any other directorships held by the nominee. Nominees for Independent Trustee:

7 Nominees for Interested Trustee:

* We base the number of portfolios on each separate series of the U.S. registered investment companies within the Franklin Templeton Investments fund complex that a nominee for election as trustee would oversee if elected. These portfolios have a common investment adviser or affiliated investment advisers, and may also share a common underwriter. 8 ** Nicholas F. Brady and Charles B. Johnson are "interested persons" of the Trust as defined by the 1940 Act. The 1940 Act limits the percentage of interested persons that can comprise a fund's board of trustees. Mr. Johnson is considered an interested person of the Trust due to his position as an officer and director and major shareholder of Resources, which is the parent company of the Fund's investment manager and distributor, and his position with the Trust. Mr. Brady's status as an interested person results from his business affiliations with Resources and Templeton Global Advisors Limited. On October 1, 2003, Resources acquired all of the shares of Darby Overseas Investments, Ltd. ("Darby Investments") and the remaining portion of the limited partner interests not currently owned by Resources of Darby Overseas Partners, L.P. ("Darby Partners"). Mr. Brady, formerly a shareholder of Darby Investments and a partner of Darby Partners, will continue as Chairman of Darby Investments, which is the corporate general partner of Darby Partners. In addition, Darby Partners and Templeton Global Advisors Limited are limited partners of Darby Emerging Markets Fund, L.P. ("DEMF"). Mr. Brady will also continue to serve as Chairman of the corporate general partner of DEMF, and Darby Partners and Darby Investments own 100% of the stock of the general partner of DEMF. Resources also is an investor in Darby Technology Ventures Group, LLC ("DTV") in which Darby Partners is a significant investor and for which Darby Partners has the right to appoint a majority of the directors. Templeton Global Advisors Limited also is a limited partner in Darby--BBVA Latin America Private Equity Fund, L.P. ("DBVA"), a private equity fund in which Darby Partners is a significant investor, and the general partner of which Darby Partners controls jointly with an unaffiliated third party. Mr. Brady is also a director of Templeton Capital Advisors Ltd. ("TCAL"), which serves as investment manager to certain unregistered funds. TCAL and Templeton Global Advisors Limited are both indirect subsidiaries of Resources. The remaining nominees of the Trust are Independent Trustees. 9 The following tables provide the dollar range of the equity securities of the Fund and of all funds overseen by the Trustees in the Franklin Templeton Investments fund complex beneficially owned by the nominees as of September 30, 2003. Independent Nominees:

Interested Nominees:

How often do the Trustees meet and what are they paid? The role of the Trustees is to provide general oversight of the Trust's business and to ensure that the Fund is operated for the benefit of all shareholders. The Trustees anticipate meeting at least five times during the current fiscal year to review the operations of the Fund and the Fund's investment performance. The Trustees also oversee the services furnished to the Fund by Franklin Advisers, Inc., the Fund's investment manager ("Advisers" or the "Investment Manager"), and various other service providers. The Trust currently pays the Independent Trustees and Mr. Brady an annual retainer of $2,000 and a fee of $200 per Board meeting attended. Trustees serving on the Audit Committee of the Trust and other funds in Franklin Templeton Investments receive a flat fee of $2,000 per Audit Committee meeting attended, a portion of which is allocated to the Trust. Members of a committee are not compensated for any committee meeting held on the day of a Board meeting. During the fiscal year ended August 31, 2003, there were five meetings of the Board, three meetings of the Audit Committee, and five meetings of the 10 Nominating and Compensation Committee. Each Trustee then in office attended at least 75% of the aggregate of the total number of meetings of the Board and the total number of meetings held by all committees of the Board on which the Trustee served. Certain Trustees and officers of the Trust are shareholders of Resources and may receive indirect remuneration due to their participation in management fees and other fees received by the Investment Manager and its affiliates from the funds in Franklin Templeton Investments. The Investment Manager or its affiliates pay the salaries and expenses of the officers. No pension or retirement benefits are accrued as part of Trust expenses. The table below indicates the total fees paid to Trustees by the Trust individually and by all of the funds in Franklin Templeton Investments. These Trustees also serve as directors or trustees of other funds in Franklin Templeton Investments, many of which hold meetings at different dates and times. The Trustees and the Trust's management believe that having the same individuals serving on the boards of many of the funds in Franklin Templeton Investments enhances the ability of each fund to obtain, at a relatively modest cost to each separate fund, the services of high caliber, experienced and knowledgeable Independent Trustees who can more effectively oversee the management of the funds.

-------- * Compensation received for the fiscal year ended August 31, 2003. ** Compensation received for the calendar year ended December 31, 2002. *** We base the number of boards on the number of U.S. registered investment companies in the Franklin Templeton Investments fund complex. This number 11 does not include the total number of series or funds within each investment company for which the Board members are responsible. Franklin Templeton Investments currently includes 51 registered investment companies, with approximately 149 U.S. based funds or series. 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 the 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 the 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 to 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 this policy, a board member's fund holdings existing on February 27, 1998 were valued as of such date with subsequent investments valued at cost. Who are the Executive Officers of the Trust? Officers of the Trust are appointed by the Trustees and serve at the pleasure of the Board. Listed below, for the Executive Officers, are their names, ages and addresses, as well as their positions and length of service with the Trust, and principal occupations during the past five years.

PROPOSAL 2: TO APPROVE AN AGREEMENT AND PLAN OF REORGANIZATION THAT PROVIDES FOR THE REORGANIZATION OF THE TRUST FROM A MASSACHUSETTS BUSINESS TRUST TO A DELAWARE STATUTORY TRUST The Trustees unanimously recommend that you approve an Agreement and Plan of Reorganization (the "Plan"), substantially in the form attached to this proxy statement as Exhibit A, that would change the state of organization of the Trust. This proposed change calls for the reorganization of the Trust from a Massachusetts business trust into a newly formed Delaware statutory trust. This proposed reorganization will be referred to throughout this proxy statement as the "Reorganization." To implement the Reorganization, the Trustees have approved the Plan, which contemplates the continuation of the current business of the Trust in the form of a new Delaware statutory trust, also named "Templeton Income Trust" (the "DE Trust"). As of the effective date of the Reorganization, the DE Trust will have one series, also named "Templeton Global Bond Fund" (referred to throughout this proxy statement as the "DE Fund") that will correspond to the Fund. 15 What will the Reorganization mean for the Fund and its shareholders? If the Plan is approved by shareholders and the Reorganization is implemented, the DE Fund would have the same investment goal, policies and restrictions as the Fund (including, if approved by shareholders at the Meeting, the same fundamental investment restrictions amended or eliminated by Proposals 3 and 4 in this proxy statement). The Board, including any persons elected under Proposal 1, and officers of the DE Trust would be the same as those of the Trust, and would operate the DE Fund in essentially the same manner as it previously operated the Fund. Thus, on the effective date of the Reorganization, you would hold an interest in the DE Fund that is equivalent to your then interest in the Fund. For all practical purposes, a shareholder's investment in the Fund would not change. Why are the Trustees recommending approval of the Plan and the Reorganization? The Trustees have determined 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. For example, Delaware law does not require that the Declaration of Trust and any amendments to the Declaration of Trust be filed with the State of Delaware while Massachusetts law requires that the Declaration of Trust and any amendments to the Declaration of Trust be filed with the Commonwealth of Massachusetts and the clerk of every city in Massachusetts in which the Trust has a usual place of business. In addition, the simpler Delaware procedures allow the DE Trust to file a one-page Certificate of Trust with the State of Delaware, which rarely needs to be amended. Massachusetts business trusts, like the Trust, are required to file an Officer's Certificate with the Commonwealth of Massachusetts with resolutions adopted by the Board of Trustees of the Trust each time that the Board determines to designate and create additional classes of shares of the Trust or to change or eliminate classes of shares of the Trust. The filings are required to be made because the resolutions constitute amendments to the Trust's Declaration of Trust. Such filings are not required in Delaware. Another advantage of Delaware statutory trusts is greater certainty regarding limiting the liability of shareholders for obligations of the business trust or its trustees. Furthermore, as described below, 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 the DE Trust. This could benefit the DE Trust and its shareholders by, for example, making litigation involving the interpretation of provisions in the DE Trust's governing documents less likely or, if litigation should 16 be initiated, less burdensome or expensive. Accordingly, the Trustees believe that it is in the best interests of the shareholders to approve the Plan. How do the Massachusetts business trust law and the Trust's governing documents compare to the Delaware statutory trust law and the DE Trust's governing documents? The following summary compares certain rights and characteristics of the shares of the Trust to shares of the DE Trust. The summary is qualified in its entirety by the more complete comparisons of Massachusetts business trust law and Delaware statutory trust law, and a comparison of the relevant provisions of the governing documents of the Trust and the DE Trust, attached as Exhibit B to this proxy statement, which is entitled "A Comparison of Governing Documents and State Law." Reorganizing the Trust from a Massachusetts business trust to a Delaware statutory trust is expected to provide benefits to the Trust and its shareholders, some of which are discussed above. Most of the funds in Franklin Templeton Investments are now or are likely to become Delaware statutory trusts. To the extent that the boards and management of funds in Franklin Templeton Investments, including the Board and management of the Trust, 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. Moreover, to the extent provisions in the DE Trust's Declaration of Trust and By-Laws are addressed by rules and principles established under Delaware corporation law and the laws governing other Delaware business entities (such as limited partnerships and limited liability companies), the Delaware courts may look to such other laws to help interpret provisions of the DE Trust's Declaration of Trust and By-Laws. Applying this body of law to the operation of the DE Trust should prove beneficial because these laws are extensively developed and business-oriented. In addition, Delaware's Chancery Court is dedicated to business law matters, which means that the judges tend to be more specialized and better versed in the nuances of the law that will be applied to the DE Trust. These legal advantages tend to make more certain the resolution of legal controversies and help to reduce legal costs resulting from uncertainty in the law. Shares of the DE Trust and the Trust each have one vote per full share and a proportionate fractional vote for each fractional share. Both the DE Trust and Trust provide for noncumulative voting in the election of their Trustees. The DE Trust is not required by its governing instrument to hold annual shareholder meetings. Shareholder meetings may be called at any time by the DE Trust Board, by the 17 chairperson of the DE Trust Board or by the president of the DE Trust for the purpose of taking action upon any matter deemed by the DE Trust Board to be necessary or desirable. To the extent permitted by the 1940 Act, a meeting of the shareholders for the purpose of electing trustees may also be called by the chairperson of the DE Trust Board, or shall be called by the president or any vice-president of the DE Trust at the request of shareholders holding not less than 10% of the DE Trust's shares, provided that the shareholders requesting such meeting shall have paid the DE Trust the reasonably estimated cost of preparing and mailing the notice of the meeting. With respect to shareholder inspection rights of a fund's books and records, the Trust and the DE Trust each provide certain inspection rights to its shareholders at least to the extent required by applicable law. While shareholders of the DE Trust will have similar distribution and voting rights as they currently have as shareholders of the Trust, there are certain differences. The organizational structures differ in record date parameters for determining shareholders entitled to notice, to vote and to a distribution, and differ in the proportion of shares required to vote on certain matters. Massachusetts law does not include an express provision relating to the limitation of liability of the beneficial owners of a Massachusetts business trust. Therefore, the owners of a Massachusetts business trust could potentially be liable for obligations of the trust, notwithstanding an express provision in the governing instrument stating that the beneficial owners are not personally liable in connection with the trust's property or the acts, obligations or affairs of the trust. The Trust's Declaration of Trust provides that no shareholder shall be subject to any personal liability whatsoever to any person in connection with property of the Trust or the acts, obligations or affairs of the Trust. Under the Delaware Act, shareholders of the DE Trust will be entitled to the same limitation of personal liability as is extended to shareholders of a private corporation organized for profit under the General Corporation Law of the State of Delaware. What are the procedures and consequences of the Reorganization? Upon completion of the Reorganization, the DE Trust will continue the business of the Trust and the DE Fund will have the same investment goal and policies as those of the Fund existing on the date of the Reorganization, and will hold the same portfolio of securities previously held by the Fund. The DE Fund will be operated under substantially identical overall management, investment management, distribution and administrative arrangements as those of the Fund. As the successor to the Trust's operations, the DE Trust will adopt the Trust's registration statement under the federal securities laws with amendments to show the new Delaware statutory trust structure. 18 The DE Trust was created solely for the purpose of becoming the successor organization to, and carrying on the business of, the Trust. To accomplish the Reorganization, the Plan provides that the Trust, on behalf of the Fund, will transfer all of its portfolio securities and any other assets, subject to its related liabilities, to the DE Trust, on behalf of the DE Fund. In exchange for these assets and liabilities, the DE Trust will issue shares of the DE Fund to the Trust, which will then distribute those shares pro rata to you as a shareholder of the Fund. Through this procedure, you will receive exactly the same number and dollar amount of shares of the DE Fund as you held in the Fund immediately prior to the Reorganization. You will retain the right to any declared but undistributed dividends or other distributions payable on the shares of the Fund that you may have had as of the effective date of the Reorganization. As soon as practicable after the date of the Reorganization, the Trust will be dissolved and will cease its existence. The Trustees may terminate the Plan and abandon the Reorganization at any time prior to the effective date of the Reorganization if they determine that proceeding with the Reorganization is inadvisable. If the Reorganization is not approved by shareholders of the Fund, or if the Trustees abandon the Reorganization, the Trust will continue to operate as a Massachusetts business trust. If the Reorganization is approved by shareholders, it is expected to be completed in 2004. What effect will the Reorganization have on the current investment management agreement? As a result of the Reorganization, the DE Fund will be subject to a new investment management agreement between the DE Trust, on behalf of the DE Fund, and the Investment Manager. The new management agreement will be substantially identical to the current management agreement between the Investment Manager and the Trust, on behalf of the Fund. What effect will the Reorganization have on the shareholder servicing agreements and distribution plans? The DE Trust, on behalf of the DE Fund, will enter into an agreement with Franklin Templeton Investor Services, LLC for transfer agency, dividend disbursing and shareholder services that is substantially identical to the agreement currently in place for the Trust on behalf of the Fund. Franklin Templeton Distributors, Inc. will serve as the distributor for the shares of the DE Fund under a separate distribution agreement that is substantially identical to the distribution agreement currently in effect for the Fund. As of the effective date of the Reorganization, the DE Fund will have distribution plans under Rule 12b-1 of the 1940 Act relating to the distribution of the classes of shares that are substantially identical to the distribution plans 19 currently in place for the corresponding classes of shares of the Fund. It is anticipated that there will be no material change to the distribution plans as a result of the Reorganization. What is the effect of shareholder approval of the Plan? Under the 1940 Act, the shareholders of a mutual fund must elect trustees and approve the initial investment management agreement for the fund. Theoretically, if the Plan is approved and the Trust is reorganized to a Delaware statutory trust, the shareholders would need to vote on these two items for the DE Trust. In fact, the DE Trust must obtain shareholder approval of these items or it will not comply with the 1940 Act. However, the Trustees have determined that it is in the best interests of the shareholders to avoid the considerable expense of another shareholder meeting to obtain these approvals after the Reorganization. Therefore, the Trustees have determined that approval of the Plan also will constitute, for purposes of the 1940 Act, shareholder approval of (1) the election of the Trustees of the Trust who are in office at the time of the Reorganization as trustees of the DE Trust; and (2) a new investment management agreement between the DE Trust, on behalf of the DE Fund, and the Investment Manager, which is substantially identical to the investment management agreement currently in place for the Trust on behalf of the Fund. Prior to the Reorganization, if the Plan is approved by shareholders, the officers will cause the Trust, on behalf of the Fund, as the sole shareholder of the DE Trust and the DE Fund, to vote its shares FOR the matters specified above. This action will enable the DE Trust to satisfy the requirements of the 1940 Act without involving the time and expense of another shareholder meeting. What is the capitalization and structure of the DE Trust? The DE Trust was formed as a Delaware statutory trust on October 17, 2003 pursuant to the Delaware Act. As of the effective date of the Reorganization, the DE Trust will have one series, the DE Fund, with an unlimited number of shares of beneficial interest without par value. The shares of the DE Fund will be allocated into three classes to correspond to the current three classes of shares of the Fund. As of the effective date of the Reorganization, outstanding shares of the DE Trust will be fully paid, nonassessable, freely transferable, and have no preemptive or subscription rights. The DE Trust will also have the same fiscal year as the Trust. Who will bear the expenses of the Reorganization? Since the Reorganization will benefit the Fund and its shareholders, the Board has authorized that the expenses incurred in the Reorganization shall be paid by the Trust, whether or not the Reorganization is approved by shareholders. 20 Are there any tax consequences for shareholders? The Reorganization is designed to be tax-free for federal income tax purposes so that you will not experience a taxable gain or loss when the Reorganization is completed. Generally, the basis and holding period of your shares in the DE Fund will be the same as the basis and holding period of your shares in the Fund. Consummation of the Reorganization is subject to receipt of a legal opinion from the law firm of Stradley Ronon Stevens & Young, LLP, counsel to the DE Trust and the Trust, that, under the Internal Revenue Code of 1986, as amended, the Reorganization will not give rise to the recognition of income, gain or loss for federal income tax purposes to the Trust, the DE Trust or their shareholders. What if I choose to sell my shares at any time? A request to sell Fund shares that is received and processed prior to the effective date of the Reorganization will be treated as a redemption of shares of the Fund. A request to sell shares that is received and processed after the effective date of the Reorganization will be treated as a request for the redemption of the same number of shares of the DE Fund. What is the effect of my voting "For" the Plan? By voting "FOR" the Plan, you will be agreeing to become a shareholder of a series of a mutual fund organized as a Delaware statutory trust, with Trustees, an investment management agreement, distribution plans and other service arrangements that are substantially identical to those in place for the Fund. THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" PROPOSAL 2. INTRODUCTION TO PROPOSALS 3 AND 4 The Fund is subject to a number of fundamental investment restrictions that (1) are more restrictive than those required under present law; (2) are no longer required; or (3) were adopted in response to regulatory, business or industry conditions that no longer exist. Under the 1940 Act, "fundamental" investment restrictions may be changed or eliminated only if shareholders approve such action. The Board is recommending that shareholders approve the amendment or elimination of certain of the Fund's fundamental investment restrictions principally to (1) update those current investment restrictions that are more restrictive than is required under the federal securities laws; and (2) conform the Fund's fundamental investment restrictions to those of the majority of the funds in Franklin Templeton Investments. In general, the proposed restrictions would (1) simplify, modernize and standardize the fundamental investment restrictions that are required to be stated by a fund under the 1940 Act; and (2) eliminate those fundamental investment restrictions that are no longer required by the federal securities laws, 21 interpretations of the U.S. Securities and Exchange Commission ("SEC") or state securities law, as preempted by the National Securities Markets Improvement Act of 1996 ("NSMIA"). After the Trust was organized as a Massachusetts business trust in 1986, certain legal and regulatory requirements applicable to investment companies changed. For example, certain restrictions imposed by state securities laws and regulations were preempted by NSMIA and, therefore, are no longer applicable to investment companies. As a result, the Fund currently is subject to certain fundamental investment restrictions that are either more restrictive than is required under current law, or which are no longer required at all. The Board believes there are several distinct advantages to revising the Fund's fundamental investment restrictions at this time. First, by reducing the total number of investment restrictions that can be changed only by a shareholder vote, the Board and the Investment Manager believe that the Fund will be able to minimize the costs and delays associated with holding future shareholders' meetings to revise fundamental investment restrictions that have become outdated or inappropriate. Second, the Board and the Investment Manager also believe that the Investment Manager's ability to manage the Fund's assets in a changing investment environment will be enhanced because the Fund will have greater investment management flexibility to respond to market, industry, regulatory or technical changes by seeking Board approval only when necessary to revise certain investment restrictions. Finally, the standardized fundamental investment restrictions are expected to enable the Fund to more efficiently and more easily monitor portfolio compliance. The proposed standardized fundamental investment restrictions cover those areas for which the 1940 Act requires the Fund to have fundamental restrictions and are substantially similar to the fundamental investment restrictions of other funds in Franklin Templeton Investments that have recently amended their investment restrictions. The proposed standardized restrictions will not affect the Fund's investment goal or its current principal investment strategies. Although the proposed amendments will give the Fund greater flexibility to respond to possible future investment opportunities, the Board does not anticipate that the changes, individually or in the aggregate, will result in a material change in the current level of investment risk associated with an investment in the Fund, nor does the Board anticipate that the proposed changes in fundamental investment restrictions will materially change the manner in which the Fund is currently managed and operated. However, the Board may change or modify the way the Fund is managed in the future, as contemplated by the proposed amendments to, or elimination of, the applicable investment restrictions. Should the Board in the future modify materially the way the Fund is managed to take advantage of such increased flexibility, the 22 Fund will make the necessary disclosures to shareholders, including amending its prospectus and statement of additional information ("SAI"), as appropriate. PROPOSAL 3: TO APPROVE AMENDMENTS TO CERTAIN OF THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTIONS (this Proposal involves separate votes on Sub-Proposals 3a-3g) The Fund's existing fundamental investment restrictions, together with the recommended changes to the investment restrictions, are detailed in Exhibit C, which is entitled "Fundamental Investment Restrictions Proposed to be Amended or Eliminated." Shareholders are requested to vote separately on each Sub-Proposal in Proposal 3. Any Sub-Proposal that is approved by shareholders will be effective on the later of January 1, 2004 or the date of shareholder approval. The Board of Trustees recommends unanimously a vote "FOR" each Sub-Proposal. Sub-Proposal 3a: To amend the Fund's fundamental investment restriction regarding investments in real estate. Under the 1940 Act, a fund's restriction regarding investment in real estate must be fundamental. The 1940 Act does not prohibit an investment company from investing in real estate, either directly or indirectly. The Fund's current fundamental investment restriction relating to real estate prohibits the Fund from investing in real estate or mortgages on real estate, although the Fund may invest in marketable securities secured by real estate or interests therein. What effect will amending the current real estate restriction have on the Fund? The proposed restriction would permit the Fund to continue to invest in marketable securities secured by real estate or interests therein. In addition, under the proposed restriction, the Fund would be permitted to invest in securities of issuers that invest, deal or otherwise engage in transactions in real estate or interests therein, including real estate limited partnership interests. The proposed restriction would also permit the Fund to hold and sell real estate acquired by the Fund as a result of owning a security or other instrument. Modifying the Fund's real estate restriction may increase the Fund's exposure to certain risks inherent to investments in real estate, such as relative illiquidity, difficulties in valuation, and greater price volatility. In addition, to the extent the Fund invests in developing or emerging market countries, these investments are subject to risk of forfeiture due to governmental action. Under the proposed real estate restriction, the Fund will not be limited to investments in "marketable" securities secured by real estate or interests therein, which would increase the Fund's ability to invest in illiquid securities. However, the Board has adopted a 23 non-fundamental investment restriction, consistent with the current position of the staff of the SEC (the "SEC Staff") on illiquid securities, which prohibits the Fund from investing more than 15% of its net assets in illiquid securities (the "Illiquid Securities Restriction"). As a result, it is not currently intended that the Fund would materially change its investment strategies as they relate to real estate or interests therein. Thus, it is not currently anticipated that the proposed amendments to the investment restriction relating to real estate would involve additional material risk at this time. The Fund's current fundamental investment restriction relating to real estate is combined with fundamental investment restrictions relating to investments in commodities, investments in other open-end investment companies, and investments in oil, gas, and other mineral development programs. The adoption of this Sub-Proposal would result in separating the Fund's restriction regarding investments in real estate from these other fundamental investment restrictions, including the Fund's fundamental investment restriction on investments in commodities. (See Sub-Proposal 3b below.) The Fund is proposing to eliminate the restrictions on investing in other open-end investment companies and on investing in oil, gas, and mineral development programs. (See Proposal 4 below.) Sub-Proposal 3b: To amend the Fund's fundamental investment restriction regarding investments in commodities. Under the 1940 Act, a fund's investment policy relating to the purchase and sale of commodities must be fundamental. The most common types of commodities are physical commodities such as wheat, cotton, rice and corn. Under the federal securities and commodities laws, certain financial instruments such as futures contracts and options thereon, including currency futures, stock index futures or interest rate futures, may, under limited circumstances, also be considered to be commodities. Funds typically invest in futures contracts and related options on these and other types of commodity contracts for hedging purposes, to implement a tax or cash management strategy, or to enhance returns. What effect will amending the current commodities restriction have on the Fund? The current fundamental investment restriction on commodities states that the Fund may not purchase or sell commodity contracts except futures contracts as described in the Fund's prospectus. Other than referring to the prospectus, the current investment restriction does not clarify the types of futures contracts that the Fund may purchase or sell. The proposed investment restriction relating to commodities clarifies that the Fund has the ability to engage in currency and futures contracts and related options and to invest in securities or other instruments that are secured by physical 24 commodities. Notwithstanding the flexibility provided by the proposed fundamental investment restriction, the Fund is subject to guidelines established by the Board regarding the use of derivatives. Under these guidelines, currently no more than 5% of the Fund's assets may be invested in, or exposed to, options and swap agreements (as measured at the time of investment). The use of futures contracts can involve substantial risks and, therefore, the Fund would only invest in such futures contracts where the Investment Manager believes such investments are advisable and then only to the extent permitted by the guidelines established by the Board. It is not currently intended that the Fund would materially change these guidelines or its use of futures contracts, forward currency contracts and related options. In addition, the deletion of the reference to the Fund's prospectus in the proposed restriction will not materially change the Fund's use of futures contracts - the Fund will continue to describe its use of futures contracts in its prospectus or SAI, as appropriate. Thus, it is not currently anticipated that the proposed amendments to the investment restriction relating to commodities would involve additional material risk at this time. The Fund's current fundamental investment restriction relating to commodities is combined with fundamental investment restrictions relating to investments in real estate, investments in other open-end investment companies, and investments in oil, gas, and other mineral development programs. The adoption of this Sub-Proposal would result in separating the Fund's restriction regarding commodity contracts from these other fundamental investment restrictions, including the Fund's fundamental investment restriction relating to real estate. (See Sub-Proposal 3a above.) The Fund is proposing to eliminate the restrictions on investing in other open-end investment companies and on investing in oil, gas, and mineral development programs. (See Proposal 4 below.) Sub-Proposal 3c: To amend the Fund's fundamental investment restriction regarding underwriting. Under the 1940 Act, the Fund's policy concerning underwriting is required to be fundamental. Under the federal securities laws, a person or company generally is considered to be an underwriter if the person or company participates in the public distribution of securities of other issuers, which involves purchasing the securities from another issuer with the intention of re-selling the securities to the public. From time to time, a mutual fund may purchase securities in a private transaction for investment purposes and later sell or redistribute the securities to institutional investors. Under these or other circumstances, the Fund could possibly be considered to be within the technical definition of an underwriter under the federal securities laws. SEC Staff interpretations have clarified, however, that re-sales of privately placed securities by institutional investors, such as the Fund, do not make the institutional investor an underwriter in these circumstances. In addition, under 25 certain circumstances the Fund may be deemed to be an underwriter of its own securities. The proposed restriction incorporates these SEC interpretations and would make clear that the Fund has the ability to sell its own shares. What effect will amending the current underwriting restriction have on the Fund? The Fund's current fundamental investment restriction relating to underwriting prohibits the Fund from acting as an underwriter. The current investment restriction does not provide any clarification regarding whether the Fund may sell securities that the Fund owns or whether the Fund may sell its own shares in those limited circumstances where the Fund might be deemed to be an underwriter. The proposed restriction relating to underwriting is substantially similar to the Fund's current investment restriction by prohibiting the Fund from engaging in underwriting. The proposed investment restriction, however, clarifies that the Fund may re-sell securities that the Fund owns and that it may also sell its own shares. It is not anticipated that the adoption of the proposed restriction would involve additional material risk to the Fund or affect the way the Fund is currently managed or operated. The Fund's current fundamental investment restriction relating to underwriting is combined with restrictions relating to issuing senior securities, purchasing securities on margin and short sales. The adoption of this Sub-Proposal would result in the separation of the Fund's underwriting restriction from these other fundamental investment restrictions, including the Fund's investment restriction relating to issuing senior securities. (See Sub-Proposal 3d below.) The Fund is proposing to eliminate the restrictions on purchasing securities on margin and on short sales. (See Proposal 4 below.) Sub-Proposal 3d: To amend the Fund's fundamental investment restriction regarding issuing senior securities. The 1940 Act requires the Fund to have an investment policy describing its ability to issue senior securities. A "senior security" is an obligation of a fund, with respect to its earnings or assets, that takes precedence over the claims of the fund's shareholders with respect to the same earnings or assets. The 1940 Act generally prohibits an open-end fund from issuing senior securities in order to limit the fund's ability to use leverage. In general, leverage occurs when a fund borrows money to enter into securities transactions or acquires an asset without being required to make payment until a later time. SEC Staff interpretations allow an open-end fund under certain conditions to engage in a number of types of transactions that might otherwise be considered to 26 create "senior securities," for example, short sales, certain options and futures transactions, reverse repurchase agreements and securities transactions that obligate the fund to pay money at a future date (such as when-issued, forward commitment or delayed delivery transactions). According to SEC Staff interpretations, when engaging in these types of transactions, an open-end fund must mark on its books, or segregate with its custodian bank, cash or other liquid securities to cover its future obligations, in order to avoid the creation of a senior security. This procedure limits the amount of a fund's assets that may be invested in these types of transactions and the fund's exposure to the risks associated with senior securities. What effect will amending the current senior securities restriction have on the Fund? The current fundamental investment restriction relating to issuing senior securities prohibits the Fund from issuing senior securities. The proposed restriction would permit the Fund to issue senior securities as permitted under the 1940 Act or any relevant rule, exemption, or interpretation issued by the SEC. The proposed restriction also would clarify that the Fund may, provided that certain conditions are met, engage in those types of transactions that have been interpreted by the SEC Staff as not constituting senior securities, such as covered reverse repurchase transactions. The Fund has no present intention of changing its current investment strategies regarding transactions that may be interpreted as resulting in the issuance of senior securities. Therefore, the Board does not anticipate that amending the current restriction will result in additional material risk to the Fund. However, the Fund may initiate the use of these strategies in the future to the extent described in the proposed new restriction. To the extent the Fund does engage in such strategies in the future, it would be subject to the risks associated with leveraging, including reduced total returns and increased volatility. The additional risks to which the Fund may be exposed are limited, however, by the limitations on issuing senior securities imposed by the 1940 Act and any rule, exemption or interpretation thereof that may be applicable. The Fund's current fundamental investment restriction relating to issuing senior securities is combined with restrictions relating to underwriting, purchasing securities on margin and short sales. The adoption of this Sub-Proposal would result in the separation of the Fund's senior securities restriction from these other fundamental investment restrictions, including the Fund's investment restriction relating to underwriting. (See Sub-Proposal 3c above.) The Fund is proposing to eliminate the restrictions on purchasing securities on margin and on engaging in short sales. (See Proposal 4 below.) 27 Sub-Proposal 3e: To amend the Fund's fundamental investment restriction regarding lending. Under the 1940 Act, a fund must describe, and designate as fundamental, its policy with respect to making loans. In addition to a loan of cash, the term "loans" may, under certain circumstances, be deemed to include certain transactions and investment-related practices. Among those transactions and practices are the lending of portfolio securities, entering into repurchase agreements and the purchase of certain debt instruments. If a fund adopts a fundamental policy that prohibits lending, the fund may still invest in debt securities, enter into securities lending transactions, and enter into repurchase agreements if it provides an exception from the general prohibition. Under SEC Staff interpretations, lending by an investment company, under certain circumstances, may also give rise to issues relating to the issuance of senior securities. To the extent that the Fund enters into lending transactions under these limited circumstances, the Fund will continue to be subject to the limitations imposed under the 1940 Act regarding the issuance of senior securities. (See Sub-Proposal 3d above.) What effect will amending the current lending restriction have on the Fund? The Fund's current investment restriction regarding lending prohibits the Fund from loaning money, except that the Fund may purchase a portion of an issue of publicly distributed bonds, debentures, notes and other evidences of indebtedness. Although the Fund's current investment restriction permits the purchase of certain debt securities, the Fund is only permitted to purchase publicly distributed debt securities and may not invest in certain types of private placement debt securities or engage in direct corporate loans, even if such investments would otherwise be consistent with the Fund's investment goal and policies. The proposed fundamental investment restriction provides that the Fund may not make loans to other persons except (1) through the lending of its portfolio securities; (2) through the purchase of debt securities, loan participations and/or engaging in direct corporate loans in accordance with its investment goals and policies; and (3) to the extent the entry into a repurchase agreement is deemed to be a loan. The proposed investment restriction provides the Fund with greater lending flexibility by permitting the Fund to invest in non-publicly distributed debt securities, loan participations, and direct corporate loans. To the extent that these instruments are illiquid, they will be subject to the Illiquid Securities Restriction. The proposed fundamental investment restriction also provides the Fund with additional flexibility to make loans to affiliated investment companies or other affiliated entities. In September 1999, the SEC granted an exemptive order to the Fund, together with other funds in Franklin Templeton Investments, permitting the 28 Fund to loan money to other funds in Franklin Templeton Investments (the "Inter-Fund Lending and Borrowing Order"). These lending transactions may include terms that are more favorable than those which would otherwise be available from lending institutions. The proposed investment restriction would permit the Fund, under certain conditions, to lend cash to other funds in Franklin Templeton Investments at rates higher than those that the Fund would receive if the Fund loaned cash to banks through short-term lending transactions, such as repurchase agreements. Management anticipates that this additional flexibility to lend cash to affiliated investment companies would allow additional investment opportunities, and could enhance the Fund's ability to respond to changes in market, industry or regulatory conditions. Because the proposed lending restriction would provide the Fund with greater flexibility to invest in non-publicly distributed debt securities, loan participations, and other direct corporate loans, the Fund may be exposed to additional risks associated with such securities, including general illiquidity, greater price volatility and the possible lack of publicly available information about issuers of privately placed debt obligations and loan counterparties. However, these risks will be somewhat offset by the Fund's adoption of the non-fundamental Illiquid Securities Restriction. Thus, the Investment Manager believes that the risks posed by these investments should be relatively modest. Sub-Proposal 3f: To amend the Fund's fundamental investment restriction regarding industry concentration. Under the 1940 Act, a fund's policy regarding concentration of investments in the securities of companies in any particular industry must be fundamental. The SEC Staff takes the position that a fund "concentrates" its investments if it invests more than 25% of its "net" assets (exclusive of certain items such as cash, U.S. government securities, securities of other investment companies, and certain tax-exempt securities) in any particular industry or group of industries. An investment company is not permitted to concentrate its investments in any particular industry or group of industries unless it discloses its intention to do so. What effect will amending the current industry concentration restriction have on the Fund? The proposed concentration policy is substantially the same as the Fund's current policy, except that (1) it modifies the Fund's asset measure (from "total assets" to "net assets") by which concentration is assessed; and (2) it expressly references, in a manner consistent with current SEC Staff policy, the categories of investments that are excepted from coverage of the restriction. The proposed restriction reflects a more modernized approach to industry concentration, and provides the Fund with investment flexibility that ultimately is expected to help the 29 Fund respond to future legal, regulatory, market or technical changes. In addition, the Board may from time to time establish guidelines regarding industry classifications. The proposed restriction would expressly exempt from the 25% limitation those securities issued or guaranteed by the U.S. government or any of its agencies or instrumentalities, and the securities of other investment companies, consistent with SEC Staff policy. The proposed restriction thus clarifies the types of U.S. government securities in which the Fund may invest. In addition, if Proposal 4 is approved, then the Fund's current fundamental investment restriction against investments in other open-end investment companies will be eliminated. The proposed restriction on industry concentration will make explicit that such investments in other investment companies are exempt from the Fund's concentration policy. Even with this modified restriction, however, the Fund would continue to remain subject to the limitations on a fund's investments in other investment companies as set forth in the 1940 Act, its Prospectus and any exemptive orders issued by the SEC. In general, absent such rules or orders from the SEC, the 1940 Act would prohibit the Fund from investing more than 5% of its total assets in any one investment company and investing more than 10% of its total assets in other investment companies overall. Sub-Proposal 3g: To amend the Fund's fundamental investment restriction regarding borrowing. The 1940 Act requires investment companies to impose certain limitations on borrowing activities, and a fund's borrowing limitations must be fundamental. The 1940 Act limitations on borrowing are generally designed to protect shareholders and their investment by restricting a fund's ability to subject its assets to the claims of creditors who, under certain circumstances, might have a claim to the fund's assets that would take precedence over the claims of shareholders. Under the 1940 Act, an open-end fund may borrow up to 33 1/3% of its total assets (including the amount borrowed) from banks and may borrow up to 5% of its total assets for temporary purposes from any other person. Generally, a loan is considered temporary if it is repaid within sixty days. Funds typically borrow money to meet redemptions or for other short-term cash needs in order to avoid forced, unplanned sales of portfolio securities. This technique allows a fund greater flexibility by allowing its manager to buy and sell portfolio securities primarily for investment or tax considerations, rather than for cash flow considerations. What effect will amending the current borrowing restriction have on the Fund? The Fund's current investment restriction relating to borrowing prohibits the Fund from borrowing money, except that the Fund may borrow money in amounts up to 30% of the value of the Fund's net assets. In addition, the Fund may not 30 pledge, mortgage or hypothecate its assets for any purpose, except that the Fund may do so to secure such borrowings and then only to an extent not greater than 15% of its total assets. Arrangements with respect to margin for futures contracts are not deemed to be a pledge of assets. The proposed investment restriction would prohibit borrowing money, except to the extent permitted by the 1940 Act or any rule, exemption or interpretation thereunder issued by the SEC. In addition, the Fund's investment restriction on pledging, mortgaging or hypothecating its assets for any purpose, except to secure such borrowings and then only to an extent not greater than 15% of its total assets, would be eliminated because the 1940 Act does not require this type of fundamental investment restriction. By so amending the investment restriction, the Fund would not unnecessarily limit the Investment Manager if the Investment Manager determines that borrowing is in the best interests of the Fund and its shareholders. As a general matter, however, Section 18 of the 1940 Act limits a fund's borrowings to not more than 33 1/3% of the fund's total assets (including the amount borrowed), which is somewhat greater than the Fund's current investment restriction of up to 30% of the value of the Fund's net assets. The proposed restriction would also permit the Fund to borrow money from affiliated investment companies or other affiliated entities. In September 1999, the SEC granted the Inter-Fund Lending and Borrowing Order, permitting the Fund to borrow money from other funds in Franklin Templeton Investments. The proposed borrowing restriction would permit the Fund, under certain circumstances and in accordance with the Inter-Fund Lending and Borrowing Order, to borrow money from other funds in Franklin Templeton Investments at rates that are more favorable than the rates that the Fund would receive if it borrowed from banks or other lenders. The proposed borrowing restriction would also permit the Fund to borrow from other affiliated entities, such as the Investment Manager, under emergency market conditions should the SEC permit investment companies to engage in such borrowing in the future, such as it did in response to the emergency market conditions that existed immediately after the events of September 11, 2001. Because the proposed borrowing restriction would provide the Fund with additional borrowing flexibility, to the extent that the Fund uses such flexibility, the Fund may be subject to additional costs and risks inherent to borrowing, such as reduced total return and increased volatility. The additional costs and risks to which the Fund may be exposed are limited, however, by the borrowing limitations imposed by the 1940 Act and any rule, exemption or interpretation thereof that may be applicable. THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" SUB-PROPOSALS 3a-3g 31 PROPOSAL 4: TO APPROVE THE ELIMINATION OF CERTAIN OF THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTIONS. The Fund's existing fundamental investment restrictions, together with those recommended to be eliminated, are detailed in Exhibit C, which is entitled "Fundamental Investment Restrictions Proposed to be Amended or Eliminated." If shareholders approve Proposal 4, the elimination of such investment restrictions will be effective on the later of January 1, 2004 or the date of shareholder approval. Why is the Board recommending that certain fundamental investment restrictions be eliminated, and what effect will their elimination have on the Fund? Certain of the Fund's fundamental investment restrictions are either restatements of restrictions that are already included within the 1940 Act or are more restrictive than current SEC Staff interpretations. These restrictions include those relating to (1) investments in other open-end investment companies; (2) purchasing securities on margin and short sales; and (3) participation in joint trading accounts. The fundamental investment restriction relating to unlisted foreign securities and restricted securities does not represent current SEC Staff positions and is effectively limited by the Fund's non-fundamental Illiquid Securities Restriction. The other fundamental investment restrictions of the Fund were originally adopted to comply with state securities laws and regulations. Due to the passage of NSMIA, these fundamental restrictions are no longer required by law. As a result, the Fund is no longer legally required to adopt or maintain investment restrictions relating to (1) investments in oil and gas programs; (2) management ownership of portfolio securities; (3) investing for purposes of exercising control; (4) investments in companies with less than three years of continuous operation; and (5) warrants. Accordingly, the Investment Manager has recommended, and the Board has determined, that these nine restrictions (referred to in this Proposal 4 as the "Restrictions") be eliminated and that their elimination is consistent with the federal securities laws. By reducing the total number of investment restrictions that can be changed only by a shareholder vote, the Board believes that the Fund will be able to reduce the costs and delays associated with holding future shareholder meetings for the purpose of revising fundamental investment restrictions that become outdated or inappropriate. Elimination of the Restrictions would also enable the Fund to be managed in accordance with the current requirements of the 1940 Act, without being constrained by additional and unnecessary limitations. The Board believes that the elimination of the Restrictions is in the best interest of the 32 Fund's shareholders as it will provide the Fund with increased flexibility to pursue its investment goal and will enhance the Investment Manager's ability to manage the Fund's assets in a changing investment environment. Which nine (9) Restrictions is the Board recommending that the Fund eliminate? The Fund currently is subject to nine Restrictions that are no longer required by law and were adopted primarily in response to regulatory, business or industry conditions that no longer exist. The exact language of the Restrictions has been included in Exhibit C, which is entitled "Fundamental Investment Restrictions Proposed to be Amended or Eliminated." Investment in Other Open-End Investment Companies The Fund's current fundamental investment restriction prohibits the Fund from investing in other open-end investment companies, except in connection with a merger, consolidation, acquisition or reorganization. This fundamental investment restriction is more restrictive than the 1940 Act and current SEC Staff interpretations, which do not require a fund to adopt such a provision as a fundamental investment restriction. Upon elimination of this restriction, the Fund would remain subject to the restrictions under Section 12(d) of the 1940 Act relating to the Fund's ability to invest in other investment companies, including open-end investment companies, except where the Fund has received an exemption from such restrictions. The 1940 Act restrictions generally specify that the Fund may not purchase more than 3% of another fund's total outstanding voting stock, invest more than 5% of its total assets in another fund's securities, or have more than 10% of its total assets invested in securities of all other funds. The Fund, together with the other funds in Franklin Templeton Investments, obtained an exemptive order from the SEC (the "Cash Sweep Order") that permits the funds in Franklin Templeton Investments to invest their uninvested cash in one or more registered or unregistered money market funds sponsored by Franklin Templeton Investments. Eliminating the Fund's current restriction on investments in other open-end investment companies would enable the Fund to take advantage of the investment opportunities presented by the Cash Sweep Order, since it contemplates relief from the 1940 Act restrictions relating to investments in other registered and unregistered investment companies in certain limited circumstances. Therefore, the Board is recommending that the restriction be eliminated. Oil and Gas Programs The Fund has a fundamental investment restriction that prohibits it from investing in interests (other than publicly issued debentures or equity stock 33 interests) in oil, gas or other mineral exploration or development programs. The Fund's fundamental investment restriction regarding oil and gas programs was based on state securities laws that had been adopted by a few jurisdictions, but have since been pre-empted by NSMIA. Accordingly, the Board proposes that the restriction be eliminated. Management Ownership of Securities The Fund's current fundamental investment restriction prohibits the Fund from investing in companies in which certain affiliated persons of the Fund have an ownership interest. This restriction was based on state law provisions that have been pre-empted by NSMIA. In addition, the 1940 Act provisions addressing conflicts of interest would continue to apply to the Fund. Therefore, the Board is recommending that the restriction be eliminated. Investing for Purposes of Exercising Control The 1940 Act does not require, and applicable state law no longer requires, that the Fund adopt a fundamental investment restriction prohibiting it from investing in any company for the purpose of exercising control or management. Even though the Fund is a non-diversified investment company, it is still subject to certain limitations under the federal tax code with respect to how much of a single issuer's securities it may acquire. As a result, the Board is recommending that this restriction be eliminated. Purchasing Securities on Margin and Engaging in Short Sales The 1940 Act does not require the Fund to adopt a fundamental investment restriction regarding purchasing on margin or engaging in short sales, except to the extent that these transactions may result in the creation of senior securities (as described more fully in Sub-Proposal 3d above). The Fund's current fundamental investment restrictions prohibit the Fund from purchasing securities on margin (except for margin payments in connection with futures, options and currency transactions) or engaging in short sales of securities. Current 1940 Act provisions on issuing senior securities, engaging in short sales and purchasing on margin, together with the proposed fundamental investment restriction on senior securities, will limit the ability of the Fund to purchase securities on margin and engage in short sales. Therefore, the Investment Manager does not anticipate that deleting the current restrictions will result in additional material risk to the Fund at this time. Three Years of Continuous Operation The Fund's current fundamental investment restriction relating to investments in newer companies limits the Fund's ability to invest more than 5% of the value of 34 its total assets in securities of issuers which have been in continuous operation less than three years. This restriction was based upon state securities laws, which have been pre-empted by NSMIA. Therefore, the Board proposes that the restriction be eliminated. Unlisted Foreign Securities and Restricted Securities The fundamental investment restriction on unlisted foreign securities and restricted securities limits the Fund from investing more than 15% of its total assets in securities of foreign issuers that are not listed on a recognized U.S. or foreign securities exchange. To the extent that unlisted foreign securities are not readily marketable at a price that is approximately equal to the value placed on such assets by the Fund, these types of securities may be considered illiquid. The Fund remains subject to the limitations imposed by the SEC Staff on an open-end fund's ability to invest in illiquid securities, which is currently limited to 15% of its net assets. As a result of the proposed elimination of the Fund's current investment restrictions that relate to restricted and illiquid securities, the Board has adopted the non-fundamental Illiquid Securities Restriction. Thus, the Fund is already prohibited from investing more than 15% of its net assets in illiquid securities, including foreign securities that are not readily marketable. The Fund's current fundamental investment restriction also limits the Fund's ability to invest in restricted securities to no more than 10% of the Fund's total assets. With some exceptions, restricted securities generally include securities that have not been registered under the Securities Act of 1933, as amended, and therefore may only be resold to certain institutional investors under certain circumstances, and securities that are subject to other contractual restrictions on resale. To the extent that a restricted security is not readily marketable, such a security may also be considered illiquid. The Fund's current fundamental investment restriction on restricted securities was based upon state law restrictions on the purchase of unregistered securities, as well as an SEC Staff position relating to illiquid securities. The state law provision has been pre-empted by NSMIA and the SEC Staff, which does not require investment companies to adopt the position as a fundamental restriction and has subsequently amended its position to permit investment companies to invest up to 15% of their net assets in illiquid securities. As described above, the Board has adopted the Illiquid Securities Restriction in recognition of the SEC Staff position and, therefore, is recommending that the current fundamental investment restriction on unlisted foreign securities and restricted securities be eliminated. The Board also has eliminated a related non-fundamental investment restriction that limited the Fund to investing no more than 10% of its total assets in securities that may not be resold without registration and securities which are not otherwise readily marketable, with a maximum of 5% in restricted securities. 35 Joint Trading Accounts The Fund's fundamental investment restriction relating to joint trading accounts prohibits the Fund's participation on a joint or a joint and several basis in such an account. Because Section 12(a)(2) of the 1940 Act prohibits a mutual fund from participating in a joint trading account unless allowed by rule or exemptive order, the current fundamental restriction is unnecessary. Therefore, the Board is recommending that the restriction be eliminated. Warrants The Fund's fundamental investment restriction relating to warrants limits the Fund's investments in warrants to 5% of its net assets whether or not the warrant is listed on the New York Stock Exchange or the American Stock Exchange, including no more than 2% of its net assets which may be invested in warrants that are not listed on those exchanges. A warrant entitles an investor to purchase a specified amount of stock at a specified price and is effective for a period of time normally ranging from a number of years to perpetuity. The Fund's fundamental investment restriction on warrants was based on state securities laws that have since been pre-empted by NSMIA. Accordingly, the Board proposes that the restriction be eliminated. What are the risks, if any, in eliminating the Restrictions? The Board does not anticipate that eliminating the Restrictions will result in any additional material risk to the Fund at this time. If this Proposal 4 is approved, the Fund's ability to invest in these nine areas will continue to be subject to the limitations of the 1940 Act, or any rule, SEC Staff interpretation, or exemptive orders granted under the 1940 Act. Moreover, the Fund does not currently intend to change its present investment practices as a result of eliminating the Restrictions. THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" PROPOSAL 4 . ADDITIONAL INFORMATION ABOUT THE FUND The Investment Manager. The Investment Manager of the Fund is Franklin Advisers, Inc., One Franklin Parkway, San Mateo, CA 94403-1906. Pursuant to an investment management agreement, the Investment Manager manages the investment and reinvestment of Fund assets. The Investment Manager is a wholly owned subsidiary of Resources. The Administrator. The administrator of the Fund is Franklin Templeton Services, LLC ("FT Services"), with offices at 500 East Broward Boulevard, Fort Lauderdale, FL 33394-3091. FT Services is an indirect, wholly owned subsidiary of Resources and an affiliate of the Fund's principal underwriter. Pursuant to an 36 administration agreement, FT Services provides certain administrative functions for the Fund. The Underwriter. The underwriter for the Fund is Franklin Templeton Distributors, Inc., One Franklin Parkway, San Mateo, California 94403-1906. The Transfer Agent. The transfer agent and dividend-paying agent for the Fund is Franklin Templeton Investor Services, LLC, 100 Fountain Parkway, St. Petersburg, Florida 33716-1205. The Custodian. The custodian for the Fund is JPMorgan Chase Bank, MetroTech Center, Brooklyn, New York 11245. Other Matters. The Fund's last audited financial statements and annual report, dated August 31, 2003, are available free of charge. To obtain a copy, please call 1-800/DIAL BEN(R) (1-800-342-5236) or forward a written request to Franklin Templeton Investor Services, LLC, P.O. Box 33030, St. Petersburg, Florida 33733-8030. Shareholders Sharing the Same Address. If two or more shareholders share the same address, only one copy of this proxy statement is being delivered to that address, unless the Trust has received contrary instructions from one or more of the shareholders at that shared address. Upon written or oral request, the Trust will deliver promptly a separate copy of this proxy statement to a shareholder at a shared address. Please call 1-800/DIAL BEN(R) (1-800-342-5236) or forward a written request to Franklin Templeton Investor Services, LLC, P.O. Box 33030, St. Petersburg, Florida 33733-8030 if you would like to (1) receive a separate copy of this proxy statement; (2) receive your annual reports or proxy statements separately in the future; or (3) request delivery of a single copy of annual reports or proxy statements if you are currently receiving multiple copies at a shared address. Principal Shareholders. As of September 17, 2003, the Fund had total net assets of $490,473,104.95 and a total of 51,043,834.437 shares of beneficial interest, $0.01 par value ("shares") outstanding divided among three separate classes of shares as follows: 37,332,804.810 Class A shares, 7,951,731.428 Class C shares and 5,759,298.199 Advisor Class shares. From time to time, the number of shares held in "street name" accounts of various securities dealers for the benefit of their clients may exceed 5% of the total shares outstanding. To the knowledge of the Fund's management, as of 37 September 17, 2003, the only other entities owning beneficially more than 5% of the outstanding shares of any class of the Fund were:

In addition, to the knowledge of the Trust's management, as of September 17, 2003, the Trustees and officers of the Trust, as a group, owned of record and beneficially less than 1% of the outstanding shares of the Fund in the aggregate and of each class of the Fund individually. 38 . AUDIT COMMITTEE Audit Committee and Independent Auditors. The Fund's Audit Committee is responsible for the selection of the Fund's independent auditors, including evaluating their independence and meeting with such auditors to consider and review matters relating to the Fund's financial reports and internal accounting. The Audit Committee also reviews the maintenance of the Fund's records and the safekeeping arrangements of the Fund's custodian. The Audit Committee consists of Andrew H. Hines, Jr. and Fred R. Millsaps (Chairman), who are Independent Trustees. Selection of Independent Auditors. The Audit Committee and the Board selected the firm of PricewaterhouseCoopers LLP ("PwC") as independent auditors of the Fund for the current fiscal year. Representatives of PwC are not expected to be present at the Meeting, but will have the opportunity to make a statement if they wish, and will be available should any matter arise requiring their presence. Audit Fees. The aggregate fees paid to PwC for professional services rendered by PwC for the audit of the Fund's annual financial statements or for services that are normally provided by PwC in connection with statutory and regulatory filings or engagements were $28,948 for the fiscal year ended August 31, 2003 and $27,779 for the fiscal year ended August 31, 2002. Audit-Related Fees. The aggregate fees paid to PwC for assurance and related services by PwC that are reasonably related to the performance of the audit or review of the Fund's financial statements and are not reported under "Audit Fees" above were $187 for the fiscal year ended August 31, 2003 and $0 for the fiscal year ended August 31, 2002. The services for which these fees were paid included services in connection with the Fund's Investment Manager's contract renewal. In addition, the Audit Committee pre-approved PwC's engagements for audit-related services with the Investment Manager and certain entities controlling, controlled by, or under common control with the Investment Manager that provide ongoing services to the Fund, which engagements related directly to the operations and financial reporting of the Fund. The fees for these services were $426,460 for the fiscal year ended August 31, 2003 and $284,400 for the fiscal year ended August 31, 2002. Tax Fees. PwC did not render any tax compliance, tax advice or tax planning services to the Fund for the fiscal year ended August 31, 2003 or for the fiscal year ended August 31, 2002. PwC did not render any tax services to the Investment Manager or entities controlling, controlled by, or under common control with the Investment Manager that provide ongoing services to the Fund, which engagements related directly to 39 the operations and financial reporting of the Fund, for the fiscal year ended August 31, 2003 or for the fiscal year ended August 31, 2002. All Other Fees. PwC did not bill for other products and services, other than the services reported above, for the fiscal year ended August 31, 2003 or for the fiscal year ended August 31, 2002. PwC did not render any other services to the Investment Manager or entities controlling, controlled by, or under common control with the Investment Manager that provide ongoing services to the Fund, which engagements related directly to the operations and financial reporting of the Fund, for the fiscal year ended August 31, 2003 or for the fiscal year ended August 31, 2002. Audit Committee Pre-Approval Policies and Procedures. As of the date of this proxy statement, the Audit Committee has not adopted pre-approval policies and procedures. As a result, all services provided by PwC must be directly pre-approved by the Audit Committee. Aggregate Non-Audit Fees. PwC did not render any non-audit services to the Fund, to the Investment Manager and any entity controlling, controlled by, or under common control with the Investment Manager that provides ongoing services to the Fund for the fiscal year ended August 31, 2003 or for the fiscal year ended August 31, 2002. . FURTHER INFORMATION ABOUT VOTING AND THE MEETING Solicitation of Proxies. Your vote is being solicited by the Board of Trustees of the Trust. The cost of soliciting proxies, including the fees of a proxy soliciting agent, will be borne by the Trust. The Trust reimburses brokerage firms and others for their expenses in forwarding proxy material to the beneficial owners and soliciting them to execute proxies. The Trust has engaged D.F. King & Co., Inc. ("D.F. King"), a professional proxy solicitation firm, to solicit proxies from brokers, banks, other institutional holders and individual shareholders at an anticipated cost of approximately $23,000 to $38,000, including out-of-pocket expenses. The Trust expects that the solicitation will be primarily by mail, but also may include telephone, facsimile, electronic or other means of communication. If the Trust does not receive your proxy by a certain time, you may receive a telephone call from D.F. King asking you to vote. The Trust does not reimburse Trustees and officers of the Trust or regular employees and agents of the Investment Manager involved in the solicitation of proxies. The Trust intends to pay all costs associated with the solicitation and the Meeting. Voting by Broker Dealers. The Trust expects that, before the Meeting, broker-dealer firms holding shares of the Fund in "street name" for their customers 40 and beneficial owners will request voting instructions from their customers and beneficial owners. If these instructions are not received by the date specified in the broker-dealer firms' or such depositories' proxy solicitation materials, the Trust understands that the broker-dealers may vote on Proposal 1 on behalf of their customers and beneficial owners. Certain broker-dealers may exercise discretion over shares held in their name for which no instructions are received by voting these shares in the same proportion as they vote shares for which they received instructions. Quorum. A majority of the outstanding shares of the Trust - present in person or represented by proxy - constitutes a quorum at the Meeting. The shares over which broker-dealers have discretionary voting power, the shares that represent "broker non-votes" (i.e., shares held by brokers or nominees as to which (i) instructions have not been received from the beneficial owners or persons entitled to vote and (ii) the broker or nominee does not have discretionary voting power on a particular matter), and the shares whose proxies reflect an abstention on any item, will all be counted as shares present for purposes of determining whether the required quorum of shares exists. Methods of Tabulation. Proposal 1, the election of Trustees, requires the affirmative vote of the holders of a plurality of the Trust's shares present and voting at the Meeting. Proposal 2, to approve an Agreement and Plan of Reorganization that provides for the reorganization of the Trust from a Massachusetts business trust to a Delaware statutory trust, requires the affirmative vote of a majority of the Trust's outstanding shares. Proposal 3, to approve amendments to certain of the Fund's fundamental investment restrictions (including seven (7) Sub-Proposals), and Proposal 4, to approve the elimination of certain of the Fund's fundamental investment restrictions, each require 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 outstanding 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. Abstentions and broker non-votes will be treated as votes present at the Meeting, but will not be treated as votes cast. Abstentions and broker non-votes, therefore, will have no effect on Proposal 1, which requires a plurality of the Fund's shares present and voting, but will have the same effect as a vote "against" Proposal 2, Sub-Proposals 3a-3g, and Proposal 4. Adjournment. In the event that a quorum is not present at the Meeting or in the event that a quorum is present but sufficient votes have not been received to approve a Proposal or Sub-Proposal, the Meeting may be adjourned to permit further solicitation of proxies. The persons designated as proxies may adjourn the 41 Meeting to permit further solicitation of proxies or for other reasons consistent with Massachusetts law and the Fund's Declaration of Trust, as amended, and By-Laws, as amended and restated. Unless otherwise instructed by a shareholder granting a proxy, the persons designated as proxies may use their discretionary authority to vote on questions of adjournment. Shareholder Proposals. Neither the Trust nor the DE Trust is required, and they do not intend, to hold regular annual shareholders' meetings. Shareholders wishing to submit proposals for consideration for inclusion in a proxy statement for the next shareholders' meeting should send their written proposals to the offices of the Trust or the DE Trust, as applicable, 500 East Broward Boulevard, Suite 2100, Fort Lauderdale, Florida 33394-3091, Attention: Secretary, so they are received within 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, state law, and other governing instruments. Submission of a proposal by a shareholder does not guarantee that the proposal will be included in the Trust's or the DE Trust's, as applicable, proxy statement or presented at the meeting. No business other than the matters described above is expected to come before the Meeting, but should any other matter requiring a vote of shareholders arise, including any question as to an adjournment or postponement of the Meeting, the persons designated as proxies will vote on such matters in accordance with the views of management. By Order of the Board of Trustees, Barbara J. Green Secretary Dated: October 31, 2003 42 EXHIBIT A FORM OF AGREEMENT AND PLAN OF REORGANIZATION BETWEEN TEMPLETON INCOME TRUST (A MASSACHUSETTS BUSINESS TRUST) AND TEMPLETON INCOME TRUST (A DELAWARE STATUTORY TRUST) This Agreement and Plan of Reorganization ("Agreement") is made as of this day of , 2003 by and between Templeton Income Trust, a Delaware statutory trust (the "Delaware Trust"), and Templeton Income Trust, a Massachusetts business trust (the "Massachusetts Trust") (the Delaware Trust and the Massachusetts Trust are hereinafter collectively referred to as the "parties"). In consideration of the mutual promises contained herein, and intending to be legally bound, the parties hereto agree as follows: 1. Plan of Reorganization. (a) Upon satisfaction of the conditions precedent described in Section 3 hereof, the Massachusetts Trust, on behalf of its sole series of shares designated as Templeton Global Bond Fund (the "Fund"), will convey, transfer and deliver to the Delaware Trust, on behalf of its Templeton Global Bond Fund (the "New Fund"), at the closing provided for in Section 2 (hereinafter referred to as the "Closing") all of the Massachusetts Trust's then-existing assets, including the assets of the Fund (the "Assets"). In consideration thereof, the Delaware Trust, on behalf of the New Fund, agrees at the Closing (i) to assume and pay when due, all obligations and liabilities of the Fund, existing on or after the Effective Date of the Reorganization (as defined in Section 2 hereof), whether absolute, accrued, contingent or otherwise, including all fees and expenses in connection with this Agreement, which fees and expenses shall, in turn, include, without limitation, costs of legal advice, accounting, printing, mailing, proxy solicitation and transfer taxes, if any (collectively, the "Liabilities"), such Liabilities to become the obligations and liabilities of the New Fund; and (ii) to deliver to the Massachusetts Trust, on behalf of the Fund, in accordance with paragraph (b) of this Section 1, full and fractional shares of each class of shares of beneficial interest, without par value, of the New Fund, equal in number to the number of full and fractional shares of the corresponding class of shares of beneficial interest, $.01 par value per share, of the Fund's outstanding shares at the close of regular trading on the New York Stock Exchange, Inc. ("NYSE") on the business day immediately preceding the Effective Date of the Reorganization. The reorganization contemplated hereby is intended to qualify as a reorganization within the meaning of Section 368 of the Internal Revenue Code of 1986, as amended ("Code"). The Massachusetts Trust, on behalf A-1 of the Fund, shall distribute to the Fund's shareholders the shares of the New Fund in accordance with this Agreement and the resolutions of the Board of Trustees of the Massachusetts Trust (the "Massachusetts Board of Trustees") authorizing the transactions contemplated by this Agreement. (b) In order to effect the delivery of shares described in Section 1(a)(ii) hereof, the Delaware Trust will establish an open account for each shareholder of the Fund and, on the Effective Date of the Reorganization, will credit to such account full and fractional shares of beneficial interest, without par value, of the appropriate class of the New Fund equal to the number of full and fractional shares of beneficial interest such shareholder holds in the corresponding class of the Fund at the close of regular trading on the NYSE on the business day immediately preceding the Effective Date of the Reorganization. Fractional shares of the New Fund will be carried to the third decimal place. At the close of regular trading on the NYSE on the business day immediately preceding the Effective Date of the Reorganization, the net asset value per share of each class of shares of the New Fund shall be deemed to be the same as the net asset value per share of each corresponding class of shares of the Fund. On the Effective Date of the Reorganization, each certificate representing shares of a class of the Fund will be deemed to represent the same number of shares of the corresponding class of the New Fund. Simultaneously with the crediting of the shares of the New Fund to the shareholders of record of the Fund, the shares of the Fund held by such shareholders shall be cancelled. Each shareholder of the Fund will have the right to deliver their share certificates of the Fund to the Delaware Trust in exchange for share certificates of the New Fund. However, a shareholder need not deliver such certificates to the Delaware Trust unless the shareholder so desires. (c) As soon as practicable after the Effective Date of the Reorganization, the Massachusetts Trust shall take all necessary steps under Massachusetts law to effect a complete dissolution of the Massachusetts Trust. (d) The expenses of entering into and carrying out this Agreement will be borne by the Massachusetts Trust to the extent not paid by its investment manager. 2. Closing and Effective Date of the Reorganization. The Closing shall consist of (i) the conveyance, transfer and delivery of the Assets to the Delaware Trust, on behalf of the New Fund, in exchange for the assumption and payment, when due, by the Delaware Trust, on behalf of the New Fund, of the Liabilities of the Fund; and (ii) the issuance and delivery of the New Fund's shares in accordance with Section 1(b), together with related acts necessary to consummate such transactions. The Closing shall occur either on (a) the business A-2 day immediately following the later of the receipt of all necessary regulatory approvals and the final adjournment of the meeting of shareholders of the Massachusetts Trust at which this Agreement is considered and approved, or (b) such later date as the parties may mutually agree ("Effective Date of the Reorganization"). 3. Conditions Precedent. The obligations of the Massachusetts Trust and the Delaware Trust to effectuate the transactions hereunder shall be subject to the satisfaction of each of the following conditions: (a) Such authority and orders from the U.S. Securities and Exchange Commission (the "Commission") and state securities commissions as may be necessary to permit the parties to carry out the transactions contemplated by this Agreement shall have been received; (b) (i) One or more post-effective amendments to the Massachusetts Trust's Registration Statement on Form N-1A ("Registration Statement") under the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended ("1940 Act"), containing such amendments to such Registration Statement as are determined under the supervision of the Massachusetts Board of Trustees to be necessary and appropriate as a result of this Agreement, shall have been filed with the Commission; (ii) the Delaware Trust shall have adopted as its own such Registration Statement, as so amended; (iii) the most recent post-effective amendment or amendments to the Massachusetts Trust's Registration Statement shall have become effective, and no stop order suspending the effectiveness of the Registration Statement shall have been issued, and no proceeding for that purpose shall have been initiated or threatened by the Commission (other than any such stop order, proceeding or threatened proceeding which shall have been withdrawn or terminated); and (iv) an amendment of the Form N-8A Notification of Registration filed pursuant to Section 8(a) of the 1940 Act ("Form N-8A") reflecting the change in legal form of the Massachusetts Trust to a Delaware statutory trust shall have been filed with the Commission and the Delaware Trust shall have expressly adopted such amended Form N-8A as its own for purposes of the 1940 Act; (c) Each party shall have received an opinion of Stradley, Ronon, Stevens & Young, LLP, Philadelphia, Pennsylvania, to the effect that, assuming the reorganization contemplated hereby is carried out in accordance with this Agreement, the laws of the State of Delaware and the Commonwealth of Massachusetts, and in accordance with customary representations provided by the parties in a certificate(s) delivered to Stradley, A-3 Ronon, Stevens & Young, LLP, the reorganization contemplated by this Agreement qualifies as a "reorganization" under Section 368 of the Code, and thus will not give rise to the recognition of income, gain or loss for federal income tax purposes to the Massachusetts Trust, the Delaware Trust or the shareholders of the Massachusetts Trust or the Delaware Trust; (d) The Massachusetts Trust shall have received an opinion of Stradley, Ronon, Stevens & Young, LLP, dated the Effective Date of the Reorganization, addressed to and in form and substance reasonably satisfactory to the Massachusetts Trust, to the effect that (i) the Delaware Trust is a statutory trust duly formed, validly existing, and in good standing under the laws of the State of Delaware; (ii) this Agreement and the transactions contemplated thereby and the execution and delivery of this Agreement have been duly authorized and approved by all requisite action of the Delaware Trust and this Agreement has been duly executed and delivered by the Delaware Trust and is a legal, valid and binding agreement of the Delaware Trust in accordance with its terms; and (iii) the shares of the Delaware Trust to be issued in the reorganization have been duly authorized and, upon issuance thereof in accordance with this Agreement, will have been validly issued and fully paid and will be nonassessable by the Delaware Trust; (e) The Delaware Trust shall have received the opinion of Stradley, Ronon, Stevens & Young, LLP, dated the Effective Date of the Reorganization, addressed to and in form and substance reasonably satisfactory to the Delaware Trust, to the effect that: (i) the Massachusetts Trust is organized and validly existing under the laws of the Commonwealth of Massachusetts; (ii) the Massachusetts Trust is an open-end investment company of the management type registered under the 1940 Act; and (iii) this Agreement and the transactions contemplated hereby and the execution and delivery of this Agreement have been duly authorized and approved by all requisite action of the Massachusetts Trust and this Agreement has been duly executed and delivered by the Massachusetts Trust and is a legal, valid and binding agreement of the Massachusetts Trust in accordance with its terms; (f) The shares of the New Fund are eligible for offering to the public in those states of the United States and jurisdictions in which the shares of the Fund are currently eligible for offering to the public so as to permit the issuance and delivery by the Delaware Trust, on behalf of the New Fund, of the shares contemplated by this Agreement to be consummated; (g) This Agreement and the transactions contemplated hereby shall have been duly adopted and approved by the appropriate action of the Massachusetts Board of Trustees and the shareholders of the Massachusetts Trust; A-4 (h) The shareholders of the Massachusetts Trust shall have voted to direct the Massachusetts Trust to vote, and the Massachusetts Trust shall have voted, as sole shareholder of each class of the New Fund, to: (1) Elect as Trustees of the Trust the following individuals: Harris J. Ashton, Nicholas F. Brady, Frank J. Crothers, S. Joseph Fortunato, Edith E. Holiday, Charles B. Johnson, Rupert H. Johnson, Jr., Betty P. Krahmer, Gordon S. Macklin, Fred R. Millsaps, Frank A. Olson, and Constantine D. Tseretopoulos; and (2) Approve an Investment Management Agreement between Franklin Advisers, Inc. ("FAI") and the Delaware Trust, on behalf of the New Fund, which is substantially identical to the then-current Investment Management Agreement between FAI and the Massachusetts Trust, on behalf of the Fund; (i) The Trustees of the Delaware Trust shall have duly adopted and approved this Agreement and the transactions contemplated hereby and shall have taken the following actions at a meeting duly called for such purposes: (1) Approval of the Investment Management Agreement described in paragraph (h)(2) of this Section 3 hereof between FAI and the Delaware Trust, on behalf of the New Fund; (2) Approval of the assignment to the Delaware Trust, on behalf of the New Fund, of the Custody Agreement dated September 15, 1986, as amended, (the "Custody Agreement"), between The Chase Manhattan Bank, N.A. (now JP Morgan Chase Bank) and the Massachusetts Trust, on behalf of the Fund; (3) Selection of PricewaterhouseCoopers LLP as the Delaware Trust's independent auditors for the fiscal year ending August 31, 2004; (4) Approval of an Administration Agreement between the Delaware Trust, on behalf of the New Fund, and Franklin Templeton Services, LLC; (5) Approval of a Distribution Agreement between the Delaware Trust, on behalf of the New Fund, and Franklin/Templeton Distributors, Inc.; (6) Approval of a Form of Dealer Agreement between the Delaware Trust, on behalf of the New Fund, and Franklin/Templeton Distributors, Inc. and securities dealers dated March 1, 1998, including the Amendment to the Form of Dealer Agreement, dated May 15, 1998; A-5 (7) Approval of the following Distribution Plans by the Delaware Trust, on behalf of the New Fund, pursuant to Rule 12b-1 under the 1940 Act: (i) Class A Distribution Plan pursuant to Rule 12b-1; (ii) Class C Distribution Plan pursuant to Rule 12b-1; and (iii) Multiple Class Plan pursuant to Rule 18f-3; (8) Approval of a Transfer Agency Agreement between the Delaware Trust, on behalf of the New Fund, and Franklin Templeton Investor Services, LLC; (9) Approval of the assignment to the Delaware Trust, on behalf of New Fund, of the Sub-Transfer Agent Services Agreement between Franklin Templeton Investor Services, LLC, The Shareholder Services Group, Inc. and the Massachusetts Trust, on behalf of the Fund. (10) Authorization of the issuance by the Delaware Trust, on behalf of the New Fund, prior to the Effective Date of the Reorganization, of one share of each class of shares of beneficial interest of the New Fund to the Massachusetts Trust, on behalf of the Fund, in consideration for the payment of $1.00 for each such share for the purpose of enabling the Massachusetts Trust to vote on the matters referred to in paragraph (h) of this Section 3 hereof; (11) Submission of the matters referred to in paragraph (h) of this Section 3 to the Massachusetts Trust as sole shareholder of each class of the New Fund; and (12) Authorization of the issuance and delivery by the Delaware Trust, on behalf of the New Fund, of shares of the New Fund on the Effective Date of the Reorganization and the assumption by the Delaware Trust, on behalf of the New Fund, of the Liabilities of the Fund in exchange for the Assets of the Fund pursuant to the terms and provisions of this Agreement. At any time prior to the Closing, any of the foregoing conditions may be waived or amended, or any additional terms and conditions may be fixed, by the Massachusetts Board of Trustees, if, in the judgment of such Board, such waiver, amendment, term or condition will not affect in a materially adverse way the benefits intended to be accorded the shareholders of the Massachusetts Trust under this Agreement. 4. Dissolution of the Massachusetts Trust. Promptly following the consummation of the distribution of the New Fund shares to holders of the Fund shares under this Agreement, the officers of the A-6 Massachusetts Trust shall take all steps necessary under Massachusetts law to effect its dissolution as a business trust, including publication of any necessary notices to creditors, receipt of any necessary pre-dissolution clearances from the Commonwealth of Massachusetts, and filing for record with the Secretary of the Commonwealth of Massachusetts of the termination of the Trust. 5. Termination. The Massachusetts Board of Trustees may terminate this Agreement and abandon the reorganization contemplated hereby, notwithstanding approval thereof by the shareholders of the Fund, at any time prior to the Effective Date of the Reorganization if, in the judgment of such Board, the facts and circumstances make proceeding with this Agreement inadvisable. 6. Entire Agreement. This Agreement embodies the entire agreement between the parties hereto and there are no agreements, understandings, restrictions or warranties among the parties hereto other than those set forth herein or herein provided for. 7. Further Assurances. The Massachusetts Trust and the Delaware Trust shall take such further action as may be necessary or desirable and proper to consummate the transactions contemplated hereby. 8. Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument. 9. Governing Law. This Agreement and the transactions contemplated hereby shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware. A-7 IN WITNESS WHEREOF, the Delaware Trust and the Massachusetts Trust have each caused this Agreement and Plan of Reorganization to be executed on its behalf by its Chairman, President or a Vice President and attested by its Secretary or an Assistant Secretary, all as of the day and year first-above written. Attest: TEMPLETON INCOME TRUST (a Massachusetts business trust) By ------------------------- By ------------------------- Name: Name: Title: Title: Attest: TEMPLETON INCOME TRUST (a Delaware statutory trust) By ------------------------- By ------------------------- Name: Name: Title: Title:

A-8 EXHIBIT B A COMPARISON OF GOVERNING DOCUMENTS AND STATE LAW A Comparison of: The Law Governing Delaware Statutory Trusts and The Charter Documents of Templeton Income Trust Under Such Law With The Law Governing Massachusetts Business Trusts and The Charter Documents of Templeton Income Trust Under Such Law
Delaware Statutory Trust Massachusetts Business Trust ------------------------ ---------------------------- Governing A Delaware statutory trust (a "DST") is A Massachusetts business trust Documents/ formed by a governing instrument and (an "MBT") is created by filing a Governing Body the filing of a certificate of trust with the declaration of trust with the Delaware Secretary of State ("Secretary Secretary of State of of State"). The Delaware law governing a Massachusetts and with the clerk DST is referred to in this analysis as the of every city or town in "Delaware Act." Massachusetts where the MBT has a usual place of business. A DST is an unincorporated association An MBT is an unincorporated organized under the Delaware Act whose association organized under the operations are governed by its governing Massachusetts statute governing instrument (which may consist of one or voluntary associations and certain more instruments). Its business and trusts (the "Massachusetts affairs are managed by or under the Statute") and is considered to be a direction of one or more trustees. hybrid, having characteristics of both corporations and common law trusts. An MBT's operations are governed by a declaration of trust and by-laws. The business and affairs of an MBT are managed by or under the direction of one or more trustees.
B-1
Delaware Statutory Trust Massachusetts Business Trust ------------------------ ---------------------------- If a DST is, becomes, or will become MBTs are also granted a prior to or within 180 days following its significant amount of first issuance of beneficial interests, a organizational and operational registered investment company under the flexibility. The Massachusetts Investment Company Act of 1940, as Statute is silent on most of the amended (the "1940 Act"), such DST is salient features of MBTs, thereby not required to have a trustee who is a allowing the trustees of the MBT resident of Delaware or who has a to freely structure the MBT. The principal place of business in Delaware Massachusetts Statute does not provided that notice that the DST is or specify what information must be will become an investment company is contained in the declaration of set forth in the DST's certificate of trust trust, nor does it require a and the DST has a registered office and a registered officer or agent for registered agent for service of process in service of process, provided at Delaware. least one trustee lists his or her address as a Massachusetts address. Otherwise, the declaration of trust must include the name and address of a resident agent. The governing instrument for the DST, The governing instrument for the Templeton Income Trust (the "Delaware MBT, Templeton Income Trust Trust"), is comprised of an agreement (the "Massachusetts Trust"), is and declaration of trust ("Declaration") comprised of a declaration of and by-laws ("By-Laws"). The Delaware trust, as amended to date ("MA Trust's governing body is a board of Declaration"), and amended and trustees (the "board" or "board of restated by-laws ("MA By- trustees" or collectively, the "trustees"). Laws"). The Massachusetts Trust's governing body is comprised of trustees. Each trustee of the Delaware Trust shall Except in the event of the hold office for the lifetime of the resignation or removal of a Delaware Trust or until such trustee's trustee, each trustee of the earlier death, resignation, removal or Massachusetts Trust shall hold inability otherwise to serve, or, if sooner office for the lifetime of the than any such events, until the next Massachusetts Trust or, if earlier, meeting of shareholders called for the until the next meeting of purpose of electing trustees or consent of shareholders called for the shareholders in lieu thereof for the purpose of electing trustees or election of trustees, and until the election consent of shareholders in lieu and qualification of his or her successor. thereof for the election of trustees and until the election and qualification of his or her successor.
B-2
Delaware Statutory Trust Massachusetts Business Trust ------------------------ ---------------------------- Designation of Under the Delaware Act, the ownership Under the Massachusetts Statute, Ownership Interests interests in a DST are denominated as the ownership interests in an "beneficial interests" and are held by MBT are denominated as "beneficial owners." However, there is "beneficial interests" and are held flexibility as to how a governing by "beneficial owners." However, instrument refers to "beneficial interests" there is flexibility as to how a and "beneficial owners" and the governing instrument refers to governing instrument may identify "beneficial interests" and "beneficial interests" and "beneficial "beneficial owners" and the owners" as "shares" and "shareholders," governing instrument may respectively. identify "beneficial interests" and "beneficial owners" as "shares" and "shareholders," respectively. The Delaware Trust's beneficial interests, The Massachusetts Trust's units without par value, are designated as of beneficial interests, par value "shares" and its beneficial owners are $0.01 per unit, are designated as designated as "shareholders." This "shares" and its beneficial owners analysis will use the "share" and are designated as "shareholders." "shareholder" terminology. This analysis will use the "share" and "shareholder" terminology. Series and Classes Under the Delaware Act, the governing The Massachusetts Statute does instrument may provide for classes, not prohibit an MBT from issuing groups or series of shares, shareholders one or more series or classes of or trustees, having such relative rights, beneficial interest. The powers and duties as set forth in the Massachusetts Statute is largely governing instrument. Such series, silent as to any requirements for classes or groups may be described in the the creation of such series or DST's governing instrument or in classes, although the trust resolutions adopted by its trustees. No documents creating an MBT may state filing is necessary and, unless provide methods or authority to required by the governing instrument, create such series or classes shareholder approval is not needed. without seeking shareholder Except to the extent otherwise provided approval. in the governing instrument of a DST, where the DST is a registered investment company under the 1940 Act, any class, group or series of shares established by the governing instrument shall be a class, group or series preferred as to distributions or dividends over all other classes, groups or series 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 and any regulations issued thereunder.
B-3
Delaware Statutory Trust Massachusetts Business Trust ------------------------ ---------------------------- The Declaration authorizes the board of The MA Declaration authorizes an trustees to divide the Delaware Trust's unlimited number of shares, which shares into separate and distinct series the trustees may divide into and to divide a series into separate separate series and classes. classes of shares as permitted by the Variations in the relative rights and Delaware Act. Such series and classes preferences between the different will have the rights, powers and duties set series and classes shall be fixed forth in the Declaration unless otherwise and determined by the trustees; provided in resolutions of the board with provided, that all shares shall be respect to such series or class. The board identical except that there may be of trustees may classify or reclassify any variations so fixed and determined unissued shares or any shares of the between different series as to Delaware Trust or any series or class, that investment objective, purchase were previously issued and are price, allocation of expenses, right reacquired, into one or more series or of redemption, special and relative classes that may be established and rights as to dividends and on designated from time to time. liquidation, conversion rights, and conditions under which the several The Declaration provides that the series shall have separate voting establishment and designation of any rights. Each shareholder of a series series or class shall be effective, without shall be entitled to receive his or the requirement of shareholder approval, her pro rata share of distributions upon the adoption of a resolution by not of income and capital gains made less than a majority of the then board of with respect to such series. Shares trustees, which resolution shall set forth do not entitle the holder to such establishment and designation and preference, preemptive, appraisal, may provide, to the extent permitted by conversion or exchange rights, the Delaware Act, for rights, powers and except as the trustees may duties of such series or class (including determine with respect to any variations in the relative rights and series. The trustees may reallocate preferences as between the different assets and expenses or change the series and classes) otherwise than as designation of any series or any provided in the Declaration. The board of class, or otherwise change the trustees has approved resolutions that special and relative rights of any provide the shareholders of each series series or any class, provided that and class of the Delaware Trust with the such change shall not adversely same conversion rights, and subject to the affect the rights of the shareholders same conditions of conversion, as the of such series or class. shareholders of the corresponding series and class of the Massachusetts Trust. The MA Declaration provides that shares of each class may vary between themselves as to rights of redemption and conversion rights, as may be approved by the trustees and set forth in the then-current prospectus of such class(es). (The Massachusetts Trust's current prospectuses, however, do not provide for the automatic conversion of one class of shares into another class of shares.)
B-4
Delaware Statutory Trust Massachusetts Business Trust ------------------------ ---------------------------- Assets and Liabilities Assets and Liabilities The Declaration also provides that each The MA Declaration also series of the Delaware Trust shall be provides that liabilities, expenses, separate and distinct from any other costs, charges and reserves related series of the Delaware Trust, shall to the distribution of, and other maintain separate and distinct records on expenses that should properly be the books of the Delaware Trust, and allocated to, the shares of a shall hold and account for the assets and particular class may be charged to liabilities belonging to any such series and borne solely by such class. separately from the assets and liabilities The bearing of expenses solely by of the Delaware Trust or any other series. a class may be appropriately Each class of a series shall be separate reflected in (in a manner and distinct from any other class of the determined by the trustees), and series. If any assets or liabilities which cause differences in, the net asset are not readily identifiable as assets or value attributable to, and the liabilities of a particular series, then the dividend, redemption and board of trustees, or an appropriate liquidation rights of, the shares of officer as determined by the board of different classes. Each allocation trustees, shall allocate such assets or of liabilities, expenses, costs, liabilities to, between or among any one charges and reserves by the or more of the series in such manner and trustees shall be conclusive and on such basis as the board of trustees, in binding upon the shareholders of its sole discretion, deems fair and all classes for all purposes. equitable. Each such allocation by or under the direction of the board of trustees shall be conclusive and binding upon the shareholders of all series for all purposes. Liabilities, debts, obligations, costs, charges, reserves and expenses related to the distribution of, and other identified expenses that should properly be allocated to, the shares of a particular class may be charged to and borne solely by such class. The bearing of expenses solely by a particular class of shares may be appropriately reflected in (in a manner determined by the board of trustees), and may affect the net asset value attributable to, and the dividend, redemption and liquidation rights of, such class. Each allocation of liabilities, debts, obligations, costs, charges, reserves and expenses by or under the direction of the board of trustees shall be conclusive and binding upon the shareholders of all classes for all purposes.
B-5
Delaware Statutory Trust Massachusetts Business Trust ------------------------ ---------------------------- Dividends and Distributions Dividends and Distributions The Declaration provides that no The MA Declaration provides dividend or distribution including, that the trustees shall from time to without limitation, any distribution paid time distribute ratably among the upon dissolution of the Delaware Trust or shareholders of a series such of any series, nor any redemption of, the proportion of the net profits, shares of any series or class of such series surplus (including paid-in shall be effected by the Delaware Trust surplus), capital, or assets of such other than from the assets held with series held by the trustees as they respect to such series, nor, except as deem proper. Such distributions specifically provided in the Declaration, may be made in cash or property, shall any shareholder of any particular and the trustees may distribute series otherwise have any right or claim ratably among the shareholders against the assets held with respect to any additional shares of such series other series or the Delaware Trust issuable pursuant to the MA generally except, in the case of a right or Declaration in such manner, at claim against the assets held with respect such times, and on such terms as to any other series, to the extent that such the trustees deem proper. The shareholder has such a right or claim trustees may retain from the net under the Declaration as a shareholder of profits such amount as they deem such other series. The shareholders of the necessary to pay the debts or Delaware Trust or any series or class, if expenses of the series or to meet any, shall be entitled to receive dividends obligations of the series, or as and distributions when, if and as declared they deem desirable to use in the by the board of trustees, provided that conduct of its affairs or to retain with respect to classes, such dividends for future requirements or and distributions shall comply with the extensions of the business. The 1940 Act. The right of shareholders to trustees may, in their discretion, receive dividends or other distributions distribute for any fiscal year as on shares of any class may be set forth in ordinary dividends and as capital a plan adopted by the board of trustees gains distributions, respectively, and amended from time to time pursuant such additional or lesser amounts to the 1940 Act. sufficient to enable the Massachusetts Trust or the series to avoid or reduce liability for taxes.
B-6
Delaware Statutory Trust Massachusetts Business Trust ------------------------ ---------------------------- No share shall have any priority or preference over any other share of the same series with respect to dividends or distributions paid in the ordinary course of business or distributions upon dissolution of the Delaware Trust or of such series made pursuant to the provisions of the Declaration; provided however, that if the shares of a series are divided into classes, no share of a particular class shall have any priority or preference over any other share of the same class with respect to dividends or distributions paid in the ordinary course of business or distributions upon dissolution of the Delaware Trust or of such series made pursuant to the provisions of the Declaration. All dividends and distributions shall be made ratably among all shareholders of the Delaware Trust or a particular series from the property of the Delaware Trust held with respect to the Delaware Trust or such series; provided however, that if the shares of a series are divided into classes, all dividends and distributions from the property of the Delaware Trust held with respect to such series shall be distributed to each class of such series according to the net asset value computed for such class and within such particular class, shall be distributed ratably to the shareholders of such class. Dividends may be paid in cash or in kind. Before payment of any dividend there may be set aside out of any funds of the Delaware Trust, or the applicable series, available for dividends such sum or sums as the board of trustees may from time to time, in its absolute discretion, think proper as a reserve fund to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Delaware Trust, or any series, or for such other lawful purpose as the board of trustees shall deem to be in the best interests of the Delaware Trust, or the applicable series, as the case may be, and the board of trustees may abolish any such reserve in the manner in which it was created.
B-7
Delaware Statutory Trust Massachusetts Business Trust ------------------------ ---------------------------- Amendments to The Delaware Act provides broad The Massachusetts Statute Governing flexibility as to the manner of amending provides broad flexibility as to the Documents and/or restating the governing instrument manner of amending and/or of a DST. Amendments to the restating the governing instrument Declaration that do not change the of an MBT. The Massachusetts information in the DST's certificate of Statute provides that the trustees trust are not required to be filed with the shall, within thirty (30) days after Secretary of State. 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 Declaration of Trust The Declaration may be restated and/or The MA Declaration may be amended at any time by a written amended by a vote of the holders instrument signed by a majority of the of a majority of the shares board of trustees and, if required by the outstanding and entitled to vote or Declaration, the 1940 Act or any by an instrument in writing, securities exchange on which outstanding without a meeting, signed by a shares are listed for trading, by approval majority of the trustees and of such amendment by the shareholders, consented to by the holders of a by the affirmative "vote of a majority of majority of the shares outstanding the outstanding voting securities" (as and entitled to vote. defined in the 1940 Act) of the Delaware Trust entitled to vote at a shareholders' The trustees may amend the MA meeting at which a quorum is present, Declaration in their sole subject to Article III, Section 6 of the discretion, without the need for Declaration relating to voting by series shareholder action, to add to, and classes. delete, or otherwise modify any provisions relating to the shares of the Massachusetts Trust if the trustees determine that such action 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. Such amendments include, but are not limited to: (1) creating one or more series or classes of shares with such rights and preferences and eligibility requirements for investment as the trustees determine and reclassifying outstanding shares as shares of particular series; (2) amending the series and class
B-8
Delaware Statutory Trust Massachusetts Business Trust ------------------------ ---------------------------- designation section of the MA Declaration; (3) combining one or more series or classes into a single series or class; (4) changing or eliminating the eligibility requirements for investment in shares of any series or class; (5) changing the designation of any series or class; (6) changing the method of allocating dividends among various series or classes; (7) allocating specific assets, liabilities, income or expenses of the Massachusetts Trust to one or more series or classes thereof; or (8) specifically allocating assets to any or all series or creating additional series or classes which are preferred over all other series or classes in certain respects and providing for any special voting or other rights regarding such series or classes. The trustees may also amend the MA Declaration without the vote or consent of shareholders to: (1) change the name of the Massachusetts Trust; (2) supply any omission; (3) cure, correct or supplement any ambiguous, defective or inconsistent provision thereof; or (4) if they deem it necessary, conform the MA Declaration to the requirements of applicable federal laws or regulations. No amendment of the MA Declaration that would change the rights of shareholders by reducing the amount payable upon liquidation or by diminishing or eliminating any related voting rights may be made without the vote or consent of the holders of two-thirds of the shares outstanding and entitled to vote or such other vote established by the trustees regarding any series of shares.
B-9
Delaware Statutory Trust Massachusetts Business Trust ------------------------ ---------------------------- By-Laws By-Laws The By-Laws may be amended, restated The MA By-Laws may be or repealed or new By-Laws may be amended or repealed, or new by- adopted by the affirmative vote of a laws may be adopted, by a vote of majority of the outstanding shares a majority of the outstanding entitled to vote. The By-Laws may also shares entitled to vote, or by the be amended, restated or repealed or new trustees, but the trustees may not By-Laws may be adopted by the board of take such action, if such action trustees, by a vote of a majority of the requires, under applicable law, the trustees present at a meeting at which a MA Declaration or the MA By- quorum is present. Laws, a vote of the shareholders. Certificate of Trust Pursuant to the Declaration, amendments and/or restatements of the certificate of trust shall be made at any time by the board of trustees, without approval of the shareholders, to correct any inaccuracy contained therein. Any such amendments/restatements of the certificate of trust must be executed by at least one (1) trustee and filed with the Secretary of State in order to become effective. Preemptive Under the Delaware Act, a governing Under the Massachusetts Statute, Rights and instrument may contain any provision a governing instrument may Redemption of relating to the rights, duties and contain any provision relating to Shares obligations of the shareholders. Unless the rights, duties and obligations otherwise provided in the governing of the shareholders. instrument, a shareholder shall have no preemptive right to subscribe to any additional issue of shares or another interest in a DST. The Declaration provides that no The MA Declaration provides shareholder shall have the preemptive or that no shareholder shall have any other right to subscribe for new or preference, preemptive, appraisal, additional shares or other securities conversion or exchange rights, issued by the Delaware Trust or any except as the trustees may series thereof. determine with respect to any series of shares.
B-10
Delaware Statutory Trust Massachusetts Business Trust ------------------------ ---------------------------- Unless otherwise provided in the The shares of any shareholder Delaware Trust's prospectus relating to shall be redeemed at net asset the outstanding shares, as such value per share at the request of prospectus may be amended from time to the shareholder, under the terms time, the Delaware Trust shall purchase specified in the MA Declaration, the outstanding shares offered by any by the trustees and in the shareholder for redemption upon such Massachusetts Trust's then shareholder's compliance with the effective prospectus or procedures set forth in the Declaration registration statement. and/or such other procedures as the board may authorize. The Delaware Trust shall Shares of a shareholder are also pay the net asset value for such redeemable at net asset value per outstanding shares, subject to certain share (i) by agreement between reductions for fees and sales charges, in the Massachusetts Trust and such accordance with the Declaration, the By- shareholder; (ii) by the Laws, the 1940 Act and other applicable Massachusetts Trust at any time law. The Delaware Trust's payments for the aggregate purchase price of such outstanding shares shall be made in the shares owned by the cash, but may, at the option of the board shareholder is less than $500; (iii) of trustees or an authorized officer, be by the Massachusetts Trust to made in kind or partially in cash and meet federal tax requirements, in partially in kind. In addition, at the option which case such shares would be of the board of trustees, the Delaware redeemed to the extent necessary Trust may, from time to time, without the to conform to such requirements vote of the shareholders, but subject to (for this purpose, the trustees may the 1940 Act, redeem outstanding shares also refuse to transfer or issue or authorize the closing of any shares to any person); or (iv) by shareholder account, subject to such the Massachusetts Trust at any conditions as may be established by the time a series has a negative net board of trustees. income, in which case the shareholders' shares of such series would be reduced by an amount that represents the amount of such negative net income. Payment for such shares may be made in cash or in property of the relevant series at such time and in the manner specified in the Massachusetts Trust's then effective prospectus or registration statement, subject to the trustees' right to suspend redemption rights.
B-11
Delaware Statutory Trust Massachusetts Business Trust ------------------------ ---------------------------- Dissolution and The Delaware Trust shall be dissolved Pursuant to the MA Declaration, Termination upon the first to occur of the following: the Massachusetts Trust may be Events (i) upon the vote of the holders of a terminated by the affirmative vote majority of the outstanding shares of the of the holders of two-thirds of the Delaware Trust entitled to vote; (ii) at the shares outstanding and entitled to discretion of the board of trustees at any vote, at any meeting of time there are no shares outstanding of shareholders, or by an instrument the Delaware Trust; (iii) upon the sale, in writing, without a meeting, conveyance and transfer of all of the signed by a majority of the assets of the Delaware Trust to another trustees and consented to by the entity; or (iv) upon the occurrence of a holders of two-thirds of such dissolution or termination event pursuant shares, or by such other vote as to any provision of the Delaware Act. may be established by the trustees with respect to any series of shares. A particular series shall be dissolved A series may be terminated with upon the first to occur of the following: or without shareholder vote. (i) upon the vote of the holders of a majority of the outstanding shares of that series entitled to vote; (ii) at the discretion of the board of trustees at any time there are no shares outstanding of that series; or (iii) upon any event that causes the dissolution of the Delaware Trust. A particular class shall be terminated The trustees may, by an upon the first to occur of the following: instrument executed by a majority (i) upon the vote of the holders of a of their number, abolish any class majority of the outstanding shares of that and the establishment and class entitled to vote; (ii) at the discretion designation thereof. of the board of trustees at any time there are no shares outstanding of that class; or (iii) upon the dissolution of the series of which the class is a part. Liquidation upon Under the Delaware Act, a DST that has The Massachusetts Statute is Dissolution or dissolved shall first pay or make silent on the manner of Termination reasonable provision to pay all known liquidating an MBT upon claims and obligations, including those termination. 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.
B-12
Delaware Statutory Trust Massachusetts Business Trust ------------------------ ---------------------------- 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. The Declaration provides that any The MA Declaration provides remaining assets of the dissolved that upon the termination of the Delaware Trust and/or each series thereof Massachusetts Trust or any series (or the particular dissolved series, as the thereof, the trustees shall wind up case may be) shall be distributed to the its affairs; provided that any sale, shareholders of the Delaware Trust and/ conveyance, assignment, or each series thereof (or the particular exchange, transfer or other dissolved series, as the case may be) disposition of all or substantially ratably according to the number of all of the property of the outstanding shares of the Delaware Trust Massachusetts Trust or series and/or such series thereof (or the thereof shall require the particular dissolved series, as the case shareholder approval set forth may be) held of record by the several under Shareholder Vote on shareholders on the date for such Certain Transactions. After dissolution distribution; provided, paying or making provision to however, that if the outstanding shares of pay all liabilities, and upon a series are divided into classes, any receipt of such releases, remaining assets held with respect to indemnities and refunding such series shall be distributed to each agreements as the trustees deem class of such series according to the net necessary for their protection, the asset value computed for such class and trustees may distribute the within such particular class, shall be remaining assets, in cash or in distributed ratably to the shareholders of kind or partly each, among the such class according to the number of shareholders according to their outstanding shares of such class held of respective rights. record by the several shareholders on the date for such dissolution distribution.
B-13
Delaware Statutory Trust Massachusetts Business Trust ------------------------ ---------------------------- Voting Rights, Under the Delaware Act, the governing There is no provision in the Meetings, Notice, instrument may set forth any provision Massachusetts Statute addressing Quorum, Record relating to trustee and shareholder voting voting by the shareholders of an Dates and Proxies rights, including the withholding of such MBT. The declaration of trust of rights from certain trustees or an MBT, however, may specify shareholders. If voting rights are granted, matters on which shareholders are the governing instrument may contain entitled to vote. 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 One Vote Per Share Subject to Article III, Section 6 of the The MA Declaration provides Declaration relating to voting by series that each whole share is entitled and classes, the Declaration provides that to one vote as to any matter on each outstanding share is entitled to one which it is entitled to vote and vote and each outstanding fractional each fractional share is entitled to share is entitled to a fractional vote. a proportionate fractional vote. Voting by Series or Class Voting by Series or Class In addition, the Declaration provides that The MA Declaration provides all outstanding shares of the Delaware that in conjunction with the Trust entitled to vote on a matter shall establishment of any series or vote on the matter, separately by series class of shares, the trustees may and, if applicable, by class, provided establish conditions under which that: (1) where the 1940 Act requires all the several series or classes shall outstanding shares of the Delaware Trust have separate voting rights. These to be voted in the aggregate without provisions are subject to the differentiation between the separate requirements of the 1940 Act series or classes, then all of the Delaware requiring a separate vote by series Trust's outstanding shares shall vote in or class in certain circumstances. the aggregate; and (2) if any matter The trustees have adopted affects only the interests of some but not separate voting rights for each all series or classes, then only the series and class of the shareholders of such affected series or Massachusetts Trust, which are classes shall be entitled to vote on the consistent with the 1940 Act. matter. Shareholders' Meetings Shareholders' Meetings The Delaware Act does not mandate An annual shareholders' meeting annual shareholders' meetings. is not required by the Massachusetts Statute.
B-14
Delaware Statutory Trust Massachusetts Business Trust ------------------------ ---------------------------- The By-Laws authorize the calling of a An annual shareholders' meeting shareholders' meeting: (i) when deemed is not required either by the MA necessary or desirable by the board of Declaration or the MA By-Laws. trustees; or (ii) to the extent permitted by The MA Declaration provides the 1940 Act, by the chairperson of the that the trustees may call a board, or at the request of holders of 10% shareholders' meeting for the of the outstanding shares if such election or removal of trustees or shareholders pay the reasonably for any other purpose specified by estimated cost of preparing and mailing the trustees. In addition, the MA the notice thereof, for the purpose of Declaration provides that the electing trustees. However, no meeting trustees will call a meeting to may be called at the request of consider the removal of a trustee shareholders to consider any matter that if requested in writing by is substantially the same as a matter shareholders holding at least 10% voted upon at a shareholders' meeting of the outstanding shares. held during the preceding twelve (12) months, unless requested by holders of a majority of all outstanding shares entitled to vote at such meeting. Record Dates Record Dates As set forth above, the Delaware Act There is no record date provision authorizes the governing instrument of a in the Massachusetts Statute. DST to set forth any provision relating to record dates. In order to determine the shareholders For the purpose of determining entitled to notice of, and to vote at, a the shareholders entitled to notice shareholders' meeting, the Declaration of and to vote at any meeting, or authorizes the board of trustees to fix a to participate in any distribution, record date. The record date may not or for the purpose of any other precede the date on which it is fixed by action, the MA By-Laws permit the board and it may not be more than the trustees from time to time to one hundred and twenty (120) days nor close the transfer books for a less than ten (10) days before the date of period not exceeding 30 days, or the shareholders' meeting. The By-Laws without closing the transfer provide that notice of a shareholders' books, to set a record date not meeting shall be given to shareholders more than 90 days before the date entitled to vote at such meeting not less of any shareholder meeting or than ten (10) nor more than one hundred distribution or other action. The and twenty (120) days before the date of MA By-Laws also provide that all the meeting. notices of shareholders' meetings shall be mailed to shareholders not less than 10 days nor more than 60 days before the date of the meeting.
B-15
Delaware Statutory Trust Massachusetts Business Trust ------------------------ ---------------------------- To determine the shareholders entitled to vote on any action without a meeting, the Declaration authorizes the board of trustees to fix a record date. The record date may not precede the date on which it is fixed by the board nor may it be more than thirty (30) days after the date on which it is fixed by the board. Pursuant to the Declaration, 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 the day before the date on which notice is given or, if notice is waived, on the day before the date of the meeting; (b) the record date for determining shareholders entitled to vote on any action by consent 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 signed written consent is delivered to the Delaware Trust, or (ii) when prior action of the board of trustees has been taken, shall be the day on which the board of trustees adopts the resolution taking such prior action. To determine the shareholders of the Delaware Trust or any series or class thereof entitled to a dividend or any other distribution of assets of the Delaware Trust or any series or class thereof, the Declaration authorizes the board of trustees to fix a record date. The record date may not precede the date on which it is fixed by the board nor may it be more than sixty (60) days before the date such dividend or distribution is to be paid. The board may set different record dates for different series or classes.
B-16
Delaware Statutory Trust Massachusetts Business Trust ------------------------ ---------------------------- Quorum for Shareholders' Meeting Quorum for Shareholders' Meeting To transact business at a shareholders' The MA By-Laws provide that a meeting, the Declaration provides that majority of the outstanding shares forty percent (40%) of the outstanding present, in person or by proxy, shares entitled to vote at the meeting, shall constitute a quorum at a which are present in person or shareholders' meeting. represented by proxy, shall constitute a quorum at such meeting, except when a larger quorum is required by the Declaration, the By-Laws, applicable law or any securities exchange on which such shares are listed for trading, in which case such quorum shall comply with such requirements. When a separate vote by one or more series or classes is required, forty percent (40%) of the outstanding shares of each such series or class entitled to vote at a shareholders' meeting of such series or class, which are present in person or represented by proxy, shall constitute a quorum at such series or class meeting, except when a larger quorum is required by the Declaration, the By-Laws, applicable law or the requirements of any securities exchange on which outstanding shares of such series or class are listed for trading, in which case such quorum shall comply with such requirements.
B-17
Delaware Statutory Trust Massachusetts Business Trust ------------------------ ---------------------------- Shareholder Vote Shareholder Vote The Declaration provides that, subject to The MA Declaration and MA By- any provision of the Declaration, the By- Laws specify certain matters on Laws, the 1940 Act or other applicable which shareholders are entitled, law that requires a different vote: (i) in all but not necessarily required, to matters other than the election of trustees, vote. Specifically, a shareholder the affirmative "vote of a majority of the has the power to vote only: (1) for outstanding voting securities" (as defined the election or removal of in the 1940 Act) of the Delaware Trust trustees; (2) to the same extent as entitled to vote at a shareholders' meeting a stockholder of a Massachusetts at which a quorum is present, shall be the business corporation as to act of the shareholders; and (ii) trustees whether or not a court action, shall be elected by a plurality of the votes proceeding or claim should be cast of the holders of outstanding shares brought or maintained entitled to vote present in person or derivatively or as a class action; represented by proxy at a shareholders' (3) regarding the termination of meeting at which a quorum is present. the Massachusetts Trust or a Pursuant to the Declaration, where a series thereof; (4) regarding any separate vote by series and, if applicable, investment advisory or by classes is required, the preceding management contract; (5) sentence shall apply to such separate regarding amendments to the MA votes by series and classes. By-Laws and certain amendments to the MA Declaration; (6) regarding mergers, consolidations or sale of substantially all the assets of the Massachusetts Trust; (7) regarding incorporation of the Massachusetts Trust to the extent provided in the MA Declaration; and (8) with respect to such additional matters required by the MA Declaration, the MA By- Laws, the registration of the Massachusetts Trust as an investment company under the 1940 Act, or as the trustees consider necessary or desirable.
B-18
Delaware Statutory Trust Massachusetts Business Trust ------------------------ ---------------------------- Shareholder Vote on Certain Shareholder Vote on Certain Transactions Transactions Pursuant to the Declaration, the board of Trustees shall be elected by the trustees, by vote of a majority of the shareholders owning a plurality of trustees, may cause the merger, the shares voting at a consolidation, conversion, share shareholders' meeting at which a exchange or reorganization of the quorum is present and called for Delaware Trust, or the conversion, share that purpose. exchange or reorganization of any series of the Delaware Trust, without the vote Pursuant to the MA Declaration, a of the shareholders of the Delaware Trust merger or consolidation of the or such series, as applicable, unless such Massachusetts Trust or the sale, vote is required by the 1940 Act; lease or exchange of all or provided however, that the board of substantially all of its property trustees shall provide 30 days' prior shall require the affirmative vote written notice to the shareholders of the of the holders of two-thirds of the Delaware Trust or such series, as shares outstanding and entitled to applicable, of such merger, consolidation, vote at a shareholders' meeting, a conversion, share exchange or written consent by such reorganization. percentage of shares or such other vote established by the trustees If permitted by the 1940 Act, the board of with respect to a series of shares, trustees, by vote of a majority of the except that if the action is trustees, and without a shareholder vote, recommended by the trustees, the may cause the Delaware Trust to convert affirmative vote or written to a master feeder structure and thereby consent of a majority of the shares cause series of the Delaware Trust to outstanding and entitled to vote, either become feeders into a master fund, or other vote established by the or to become master funds into which trustees with respect to a series of other funds are feeders. shares, is sufficient. With the approval of the holders of a majority of the shares outstanding and entitled to vote, or by such other vote as may be established by the trustees with respect to any series of shares, the trustees may organize another entity to acquire all of the property of the Massachusetts Trust or to carry on any business in which the Massachusetts Trust has an interest. They may transfer the Massachusetts Trust property to such entity in exchange for the securities thereof, and may cause the Massachusetts Trust to lend money to, subscribe for the securities of, and enter into any contract with such entity. The trustees may also merge or consolidate the Massachusetts
B-19
Delaware Statutory Trust Massachusetts Business Trust ------------------------ ---------------------------- Trust with such entity to the extent permitted by law. No shareholder approval shall be required for the trustees to organize an entity and sell, convey or transfer a portion of the property of the Massachusetts Trust for value to such entity. Cumulative Voting Cumulative Voting The Declaration provides that The MA Declaration provides shareholders are not entitled to cumulate that shareholders are not entitled their votes on any matter. to cumulate their votes in the election of trustees. Proxies Proxies Under the Delaware Act, unless There is no provision in the otherwise provided in the governing Massachusetts Statute regarding instrument of a DST, on any matter that proxies. 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. Under the Delaware Act, the term "electronic transmission" is defined as any form of communication not directly involving the physical transmission of paper that creates a record that may be retained, retrieved and reviewed by a recipient thereof and that may be directly reproduced in paper form by such a recipient through an automated process. The By-Laws permit a shareholder to The MA By-Laws permit the authorize another person to act as proxy Massachusetts Trust to accept by the following methods: execution of a written proxies signed by the written instrument or by "electronic shareholder or shareholders (for transmission" (as defined in the Delaware jointly held shares) and filed with Act), telephonic, computerized, the secretary of the Massachusetts telecommunications or another Trust or the secretary's designee. reasonable alternative to the execution of A proxy shall be deemed valid a written instrument. Unless a proxy unless challenged at or prior to its provides otherwise, it is not valid more exercise and the burden of than 11 months after its date. In addition, proving invalidity rests on the the By-Laws provide that the revocability challenger. of a proxy that states on its face that it is irrevocable shall be governed by the provisions of the general corporation law of the State of Delaware.
B-20
Delaware Statutory Trust Massachusetts Business Trust ------------------------ ---------------------------- Action by Written Consent Action by Written Consent Under the Delaware Act, unless There is no provision in the otherwise provided in the governing Massachusetts Statute regarding instrument of a DST, on any matter that action by written consent. 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. Shareholders. The Declaration authorizes Shareholders. The MA By-Laws shareholders to take action without a provide that any action which meeting and without prior notice if may be taken by shareholders written consents setting forth the action may be taken without a meeting if taken are signed by the holders of all a majority of the shareholders outstanding shares entitled to vote on that entitled to vote on the matter (or action. A consent transmitted by such larger proportion thereof as "electronic transmission" (as defined in shall be required by law, the MA the Delaware Act) by a shareholder or by Declaration or the MA By-Laws a person(s) authorized to act for a for approval of such matter) shareholder shall be deemed to be written consent to the action in writing and signed for purposes of this provision. and the written consents are filed with the records of the meetings of shareholders.
B-21
Delaware Statutory Trust Massachusetts Business Trust ------------------------ ---------------------------- Board of Trustees. The Declaration also Trustees. Under the MA authorizes the board of trustees or any Declaration and MA By-Laws, committee of the board of trustees to take any action which may be taken at action without a meeting and without any meeting of the trustees may prior written notice if written consents be taken without a meeting if all setting forth the action taken are executed the trustees consent to the action by trustees having the number of votes in writing and the written necessary to take that action at a meeting consents are filed with the records at which the entire board of trustees or of the trustees' meetings. any committee thereof, as applicable, is present and voting. A consent transmitted by "electronic transmission" (as defined in the Delaware Act) by a trustee shall be deemed to be written and signed for purposes of this provision. Removal of The governing instrument of a DST may The governing instrument of an Trustees contain any provision relating to the MBT may contain any provision removal of trustees; provided however, relating to the removal of trustees; that there shall at all times be at least one provided, however, that there trustee of the DST. shall at all times be at least one trustee of the MBT. Under the Declaration, any trustee may The MA Declaration provides be removed, with or without cause, by that any trustee may be removed: the board of trustees, by action of a (i) with cause, by action of two- majority of the trustees. Shareholders thirds of the remaining trustees shall have the power to remove a trustee (except that at least 3 trustees only to the extent provided by the 1940 must remain in office after the Act. removal); or (ii) by vote of the holders of two-thirds of the outstanding shares of the Massachusetts Trust, either by "declaration in writing" or at a meeting called for such purpose. Vacancies on Subject to the 1940 Act, vacancies on the Subject to the provisions of the Board of board of trustees may be filled by a 1940 Act, vacancies in the Trustees majority vote of the trustee(s) then in number of trustees may be filled office, regardless of the number and even by a majority vote of the if less than a quorum. However, a trustee(s) then in office. A shareholders' meeting shall be called to shareholders' meeting shall be elect trustees if required by the 1940 Act. called to elect trustees if required by the 1940 Act.
B-22
Delaware Statutory Trust Massachusetts Business Trust ------------------------ ---------------------------- In the event all trustee offices become vacant, the investment adviser shall serve as the sole remaining trustee, subject to the provisions of the 1940 Act, and shall, as soon as practicable, fill all of the vacancies on the board. Thereupon, the investment adviser shall resign as trustee and a shareholders' meeting shall be called to elect trustees. Limitation on The Delaware Act explicitly authorizes The Massachusetts Statute does Interseries limitation on interseries liability so that not contain statutory provisions Liability the debts, liabilities, obligations and addressing series or class liability expenses incurred, contracted for or with respect to a multiple series or otherwise existing with respect to a class investment company. particular series of a multiple series DST Therefore, unless otherwise will be enforceable only against the provided in the declaration of assets of such series, and not against the trust for an MBT, the debts, general assets of the DST or any other liabilities, obligations and series, and, unless otherwise provided in expenses incurred, contracted for the governing instrument of the DST, or otherwise existing with respect none of the debts, liabilities, obligations to a particular series or class may and expenses incurred, contracted for or be enforceable against the assets otherwise existing with respect to the of the business trust generally. 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 The MA Declaration explicitly the Delaware Trust provide for limitation limits the liabilities of series and on interseries liability. states that under no circumstances shall the assets of a particular series be charged with liabilities attributable to any other series. The MA Declaration also states that the liabilities allocated to a class may be charged to and borne solely by such class. Additionally, the MA Declaration provides that third parties extending credit to, contracting with or having a claim against a particular series or class shall look only to the assets of that
B-23
Delaware Statutory Trust Massachusetts Business Trust ------------------------ ---------------------------- particular series or class for payment of such credit, contract or claim. No present or former shareholder of any series shall have any claim or right to any assets of any other series. 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. Shareholder Liability Under the Delaware Act, except to the The Massachusetts Statute does extent otherwise provided in the not include an express provision governing instrument of a DST, relating to the limitation of shareholders of a DST are entitled to the liability of the beneficial owners same limitation of personal liability of a business trust. Therefore, the extended to shareholders of a private owners of an MBT could corporation organized for profit under the potentially be liable for General Corporation Law of the State of obligations of the MBT, Delaware (such shareholders are notwithstanding an express generally not liable for the obligations of provision in the governing the corporation). instrument stating that the beneficial owners are not personally liable in connection with MBT property or the acts, obligations or affairs of the MBT. Under the Declaration, shareholders are The MA Declaration provides entitled to the same limitation of personal that no shareholder shall be liability as that extended to shareholders subject to any personal liability of a private corporation organized for whatsoever to any person in profit under the General Corporation Law connection with property of the of the State of Delaware. However, the Massachusetts Trust or the acts, board of trustees may cause any obligations or affairs of the shareholder to pay for charges of the Massachusetts Trust. trust's custodian or transfer, dividend disbursing, shareholder servicing or similar agent for services provided to such shareholder.
B-24
Delaware Statutory Trust Massachusetts Business Trust ------------------------ ---------------------------- Trustee/Agent Subject to the provisions in the governing The Massachusetts Statute does Liability instrument, the Delaware Act provides not include an express provision that a trustee or any other person limiting the liability of the managing the DST, when acting in such trustees of an MBT. The trustees capacity, will not be personally liable to of an MBT could potentially be any person other than the DST or a held personally liable for the shareholder of the DST for any act, obligations of the MBT. 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 any person The MA Declaration provides who is or was a trustee, officer, employee that no trustee, officer, employee, or other agent of the Delaware Trust or is or agent shall be subject to any or was serving at the request of the personal liability whatsoever to Delaware Trust as a trustee, director, any person, other than to the officer, employee or other agent of Massachusetts Trust or its another corporation, partnership, joint shareholders, in connection with venture, trust or other enterprise (an the Massachusetts Trust's affairs, "Agent") will be liable to the Delaware except liability arising from bad Trust and to any shareholder solely for faith, willful misfeasance, gross such Agent's own willful misfeasance, negligence or reckless disregard bad faith, gross negligence or reckless of his or her duties to such disregard of the duties involved in the person; and all such persons shall conduct of such Agent (such conduct look solely to the Massachusetts referred to as "Disqualifying Conduct"). Trust property for satisfaction of any claims arising in connection with the Massachusetts Trust's affairs. Subject to the preceding sentence, Agents If any shareholder, trustee, will not be liable for any act or omission officer, employee, or agent, as of any other Agent or any investment such, of the Massachusetts Trust adviser or principal underwriter of the is made a party to any suit or Delaware Trust. No Agent, when acting proceeding to enforce any such in such capacity, shall be personally claims arising in connection with liable to any person (other than the the Massachusetts Trust's affairs, Delaware Trust or its shareholders as he or she shall not, on account described above) for any act, omission or thereof, be personally liable. obligation of the Delaware Trust or any trustee.
B-25
Delaware Statutory Trust Massachusetts Business Trust ------------------------ ---------------------------- No trustee, officer, employee or agent of the Massachusetts Trust shall be liable to the Massachusetts Trust, its shareholders, or to any shareholder, trustee, officer, employee, agent or service provider thereof for any action or failure to act by him or her or by any such other trustee, officer, employee, agent or service provider except for any such action or failure to act arising from his or her own Disqualifying Conduct. Every obligation, contract, instrument, certificate, share, other security of the Massachusetts Trust or undertaking, and every other act or thing whatsoever executed in connection with the Massachusetts Trust shall be conclusively presumed to have been executed or done by the executors thereof only in their capacities as trustees, officers, employees or agents of the Massachusetts Trust. Each trustee, officer and employee of the Massachusetts Trust shall, in the performance of his or her duties, be fully protected with regard to any act or failure to act resulting from reliance in good faith upon the books of account or other records of the Massachusetts Trust, upon an opinion of counsel, or upon reports made to the Massachusetts Trust by any of its officers or employees or experts or consultants selected with reasonable care by the trustees, officers or employees of the Massachusetts Trust, regardless of whether such counsel or expert is also a trustee.
B-26
Delaware Statutory Trust Massachusetts Business Trust ------------------------ ---------------------------- Indemnification Subject to such standards and restrictions Although the Massachusetts contained in the governing instrument of Statute is silent as to the a DST, the Delaware Act authorizes a indemnification of trustees, DST to indemnify and hold harmless any officers and shareholders, trustee, shareholder or other person from indemnification is expressly and against any and all claims and provided for in the MA demands. Declaration. Pursuant to the Declaration, the Delaware The Massachusetts Trust shall Trust will indemnify any Agent who was indemnify and hold each or is a party or is threatened to be made a shareholder harmless from and party to any proceeding by reason of such against all claims and liabilities, Agent's capacity, against attorneys' fees to which such shareholder may and other certain expenses, judgments, become subject by reason of his fines, settlements and other amounts being or having been a incurred in connection with such shareholder, and shall reimburse proceeding if such Agent acted in good such shareholder for all legal and faith or in the case of a criminal other expenses reasonably proceeding, had no reasonable cause to incurred by him or her in believe such Agent's conduct was connection with such claim or unlawful. However, there is no right to liability, provided that any such indemnification for any liability arising expenses will be paid solely out from the Agent's Disqualifying Conduct. of the assets of the series with As to any matter for which such Agent is respect to which such found to be liable in the performance of shareholder's shares are issued. such Agent's duty to the Delaware Trust or its shareholders, indemnification will Subject to the paragraph below, be made only to the extent that the court every person who is, or has been, in which that action was brought a trustee or officer of the determines that in view of all the Massachusetts Trust will be circumstances of the case, the Agent was indemnified by the Massachusetts not liable by reason of such Agent's Trust to the fullest extent Disqualifying Conduct. Note that the permitted by law against all Securities Act of 1933, as amended (the liability and expenses (including, "1933 Act"), in the opinion of the U.S. without limitation, attorneys' Securities and Exchange Commission fees, costs, judgments, amounts ("SEC"), and the 1940 Act also limit the paid in settlement, fines, penalties ability of the Delaware Trust to and other liabilities) reasonably indemnify an Agent. incurred or paid by him or her in connection with any threatened or actual claim, action, suit or proceeding in which he or she becomes involved as a party or otherwise by virtue of being or having been a trustee or officer and against amounts paid or incurred in the settlement thereof.
B-27
Delaware Statutory Trust Massachusetts Business Trust ------------------------ ---------------------------- However, no indemnification will be provided to a trustee or officer: (i) against any liability to the Massachusetts Trust or its shareholders by reason of a final adjudication by a court or other body that he or she engaged in Disqualifying Conduct; (ii) regarding any matter as to which he or she has been finally adjudicated not to have acted in good faith in the reasonable belief that his or her action was in the best interest of the Massachusetts Trust; or (iii) in the event of a settlement or other disposition not involving a final adjudication on the merits that results in a payment by a trustee or officer, unless it has been determined that such trustee or officer did not engage in Disqualifying Conduct: (1) by the court or other body approving the settlement or other disposition; or (2) based upon a review of readily available facts by (a) vote of a majority of non- party trustees who are not interested persons of the Massachusetts Trust acting on the matter (provided that a majority of such trustees act on the matter) or (b) written opinion of independent legal counsel. To the extent permitted by law, the right to indemnification will continue as to a person who has ceased to be such trustee or officer and will inure to the benefit of the heirs, executors, administrators and assigns of such person.
B-28
Delaware Statutory Trust Massachusetts Business Trust ------------------------ ---------------------------- To the extent permitted by law, the trustees have the power to indemnify any person with whom the Massachusetts Trust has dealings, including the employees, agents, investment advisers, administrators, distributors, selected dealers and independent contractors of the Massachusetts Trust, to such extent as the trustees shall determine. These provisions do not affect any right to indemnification to which other Massachusetts Trust personnel may be entitled by contract or otherwise under law. Note that the 1933 Act, in the opinion of the SEC, and the 1940 Act also limit the ability of the Massachusetts Trust to indemnify such persons. Expenses incurred by an Agent in Expenses incurred in defense of defending any proceeding may be any such claim, action, suit or advanced by the Delaware Trust before proceeding may be advanced by the final disposition of the proceeding on the Massachusetts Trust prior to receipt of an undertaking by or on behalf its final disposition upon receipt of the Agent to repay the amount of the of an undertaking by or on behalf advance if it is ultimately determined that of the recipient to repay such the Agent is not entitled to amount if it is ultimately indemnification by the Delaware Trust. determined that he or she is not entitled to indemnification, provided that either: (i) the recipient provides security for such undertaking, or the Massachusetts Trust is insured against losses arising from such advances; or (ii) a majority of non-party trustees who are not interested persons of the Massachusetts Trust acting on the matter (provided that a majority of such trustees act on the matter) or an independent legal counsel in a written opinion determine that there is reason to believe that the recipient ultimately will be entitled to indemnification.
B-29
Delaware Statutory Trust Massachusetts Business Trust ------------------------ ---------------------------- Insurance The Delaware Act is silent as to the right There is no provision in the of a DST to purchase insurance on behalf Massachusetts Statute relating to of its trustees or other persons. insurance. However, as the policy of the Delaware Under the MA Declaration, the Act is to give maximum effect to the trustees have the power, to the principle of freedom of contract and to extent permitted by law, to the enforceability of governing purchase, and pay for out of the instruments, the Declaration authorizes Massachusetts Trust property, the board of trustees, to the fullest extent insurance policies insuring the permitted by applicable law, to purchase shareholders, trustees, officers, with Delaware Trust assets, insurance for employees, agents, investment liability and for all expenses of an Agent advisers, administrators, in connection with any proceeding in distributors, selected dealers and which such Agent becomes involved by independent contractors of the virtue of such Agent's actions, or Massachusetts Trust against all omissions to act, in its capacity or former claims arising by reason of capacity with the Delaware Trust, holding any such position or by whether or not the Delaware Trust would reason of any action taken or have the power to indemnify such Agent omitted by any such person in against such liability. such capacity. Shareholder Under the Delaware Act, except to the There is no provision in the Right of extent otherwise provided in the Massachusetts Statute relating to Inspection governing instrument and subject to shareholder inspection rights. 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. To the extent permitted by Delaware law The MA By-Laws provide that and the By-Laws, a shareholder, upon the trustees shall determine reasonable written demand to the whether and to what extent, and at Delaware Trust for any purpose what times and places, and under reasonably related to such shareholder's what conditions and regulations, interest as a shareholder, may inspect the accounts and books of the certain information as to the governance Massachusetts Trust shall be open and affairs of the Delaware Trust during for inspection by any shareholder, regular business hours. However, and no shareholder has the right reasonable standards governing, without to inspect any account or book or limitation, the information and document of the Massachusetts documents to be furnished and the time Trust except as conferred by law and location of furnishing the same, will or authorized by the trustees or by be established by the board or any officer resolution of the shareholders. to whom such power is delegated in the
B-30
Delaware Statutory Trust Massachusetts Business Trust ------------------------ ---------------------------- By-Laws. In addition, as permitted by the However, the MA Declaration Delaware Act, the By-Laws also requires the trustees to, at least authorize the board or an officer to whom semi-annually, submit to the the board delegates such powers to keep shareholders a written financial confidential from shareholders for such report (including financial period of time as deemed reasonable any statements) of the Massachusetts information that the board or such officer Trust's transactions, which may in good faith believes would not be in the be included in the Massachusetts best interest of the Delaware Trust to Trust's prospectus. disclose or that could damage the Delaware Trust or that the Delaware Trust is required by law or by agreement with a third party to keep confidential. Derivative Actions Under the Delaware Act, a shareholder There is no provision under the may bring a derivative action if trustees Massachusetts Statute regarding with authority to do so have refused to derivative actions. 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 provides that, subject to The MA Declaration has a the requirements set forth in the provision regarding shareholder Delaware Act, a shareholder may bring a voting on derivative actions as derivative action on behalf of the described in Shareholder Vote Delaware Trust only if the shareholder above. first makes a pre-suit demand upon the The MA Declaration states that a board of trustees to bring the subject shareholder of a particular series action unless an effort to cause the board of the Massachusetts Trust shall of trustees to bring such action is not be entitled to participate in a excused. A demand on the board of derivative or class action on trustees shall only be excused if a behalf of any other series or the majority of the board of trustees, or a shareholders of any other series of majority of any committee established to the Massachusetts Trust. consider the merits of such action, has a material personal financial interest in the action at issue. A trustee shall not be
B-31
Delaware Statutory Trust Massachusetts Business Trust ------------------------ ---------------------------- deemed to have a\ material personal financial interest in an action or otherwise be disqualified from ruling on a shareholder demand by virtue of the fact that such trustee receives remuneration from his service on the board of trustees of the Delaware Trust or on the boards of one or more investment companies with the same or an affiliated investment adviser or underwriter. Management The Delaware Trust is an open-end The Massachusetts Trust is an Investment management investment company under open-end management investment Company the 1940 Act (i.e., a management company under the 1940 Act (i.e., Classification investment company whose securities are a management investment redeemable). company whose securities are redeemable).
B-32 EXHIBIT C FUNDAMENTAL INVESTMENT RESTRICTIONS PROPOSED TO BE AMENDED OR ELIMINATED
CURRENT INVESTMENT CURRENT PROPOSED RESTRICTION FUNDAMENTAL FUNDAMENTAL PROPOSAL OR NUMBER & RESTRICTION RESTRICTION SUB-PROPOSAL SUBJECT The Fund may not: The Fund may not: ------------ ----------------- ------------------------------- --------------------------------------- 3a 1. (Real Estate) Invest in real estate or Purchase or sell real estate unless mortgages on real estate acquired as a result of ownership (although the Fund may of securities or other instruments invest in marketable and provided that this restriction securities secured by real does not prevent the Fund from estate or interests therein). purchasing or selling securities secured by real estate or interests therein or securities of issuers that invest, deal or otherwise engage in transactions in real estate or interests therein. 4 1. (Investment in Invest in other open-end Proposed to be Eliminated. Other Open-End investment companies Investment (except in connection with Note: The Fund will still be Companies) a merger, consolidation, subject to the restrictions of (S)12(d) acquisition or of the 1940 Act, or any rules or reorganization). exemptions or interpretations thereunder that may be adopted, granted or issued by the SEC, which restrict an investment company's investments in other investment companies. 4 1. (Oil and Gas Invest in interests (other Proposed to be Eliminated. Programs) than publicly issued debentures or equity stock interests) in oil, gas or other mineral exploration or development programs. 3b 1. (Commodities) Purchase or sell commodity Purchase or sell physical contracts (except futures commodities, unless acquired as a contracts as described in the result of ownership of securities or Fund's prospectus). other instruments and provided that this restriction does not prevent the Fund from engaging in transactions involving currencies and futures contracts and options thereon or investing in securities or other instruments that are secured by physical commodities.
C-1
CURRENT INVESTMENT CURRENT PROPOSED RESTRICTION FUNDAMENTAL FUNDAMENTAL PROPOSAL OR NUMBER & RESTRICTION RESTRICTION SUB-PROPOSAL SUBJECT The Fund may not: The Fund may not: ------------ ----------------- ----------------------------- ----------------------------------- 4 2. (Management Purchase or retain securities Proposed to be Eliminated. Ownership of of any company in which Securities) trustees or officers of the [Trust] or of the [Investment Manager], individually owning more than 1/2 of 1% of the securities of such company, in the aggregate own more than 5% of the securities of such company. 4 3. (Control) Invest in any company for Proposed to be Eliminated. the purpose of exercising control or management. 3c 4. (Underwriting) Act as an underwriter. 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. 3d 4. (Senior Issue senior securities. Issue senior securities, except to Securities) the extent permitted by the 1940 Act or any rules, exemptions or interpretations thereunder that may be adopted, granted or issued by the SEC. 4 4. (Purchase Purchase on margin or sell Proposed to be Eliminated. Securities on short, except that the Fund Margin and may make margin Note: The Fund will still be Short Sales) payments in connection subject to the fundamental with futures, options and investment restriction on issuing currency transactions. senior securities described in Sub- Proposal 3d above.
C-2
CURRENT INVESTMENT CURRENT PROPOSED RESTRICTION FUNDAMENTAL FUNDAMENTAL PROPOSAL OR NUMBER & RESTRICTION RESTRICTION SUB-PROPOSAL SUBJECT The Fund may not: The Fund may not: ------------ --------------- ----------------------------- ------------------------------------- 3e 5. (Lending) Loan money, except that Make loans to other persons except the Fund may purchase a (a) through the lending of its portion of an issue of portfolio securities, (b) through the publicly distributed bonds, purchase of debt securities, loan debentures, notes and other participations and/or engaging in evidences of indebtedness. 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 other investment companies to the extent permitted by the 1940 Act or any rules or exemptions or interpretations thereunder that may be adopted, granted or issued by the SEC. 4 6. (Three Years Invest more than 5% of the Proposed to be Eliminated. of Company value of its total assets in Operation) securities of issuers which have been in continuous operation less than three years. 4 7. (Unlisted Invest more than 15% of its Proposed to be Eliminated. Foreign total assets in securities of Securities and foreign companies that are Note: The Board has adopted the Restricted not listed on a recognized non-fundamental Illiquid Securities) U.S. or foreign securities Securities Restriction, consistent exchange, including no with the SEC Staff's current more than 5% of its total position on illiquid securities, assets in restricted which prohibits the Fund from securities and no more than investing more than 15% of its net 10% of its total assets in assets in illiquid securities. restricted securities and other securities (including repurchase agreements having more than seven days remaining to maturity) that are not restricted but which are not readily marketable (i.e., trading in the security is suspended or, in the case of unlisted securities, market makers do not exist or will not entertain bids or offers).
C-3
CURRENT INVESTMENT CURRENT PROPOSED RESTRICTION FUNDAMENTAL FUNDAMENTAL PROPOSAL OR NUMBER & RESTRICTION RESTRICTION SUB-PROPOSAL SUBJECT The Fund may not: The Fund may not: ------------ --------------- ----------------------------- -------------------------------------- 3f 8. (Industry Invest more than 25% of its Invest more than 25% of its net Concentration) total assets in a single assets in securities of issuers in any industry. 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). 3g 9. (Borrowing ) Borrow money, except that Borrow money, except to the the Fund may borrow extent permitted by the 1940 Act money in amounts up to or any rules, exemptions or 30% of the value of the interpretations thereunder that may Fund's net assets. In be adopted, granted or issued by addition, the Fund may not the SEC. pledge, mortgage or hypothecate its assets for any purpose, except that the Fund may do so to secure such borrowings and then only to an extent not greater than 15% of its total assets. Arrangements with respect to margin for futures contracts are not deemed to be a pledge of assets. 4 10. (Joint Participate on a joint or a Proposed to be Eliminated. Accounts) joint and several basis in any trading account in securities. (See "Portfolio Transactions" as to transactions in the same securities for the Fund, other clients and/or other mutual funds within Franklin Templeton Investments.)/1/
-------- /1 /This disclosure states that if purchases or sales of securities of the Fund and one or more other investment companies or clients supervised by the Investment 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 Investment Manager, taking into account the respective sizes of the funds and the amount of securities to be purchased or sold. C-4
CURRENT INVESTMENT CURRENT PROPOSED RESTRICTION FUNDAMENTAL FUNDAMENTAL PROPOSAL OR NUMBER & RESTRICTION RESTRICTION SUB-PROPOSAL SUBJECT The Fund may not: The Fund may not: ------------ -------------- ----------------------------- -------------------------- 4 11. (Warrants) Invest more than 5% of its Proposed to be Eliminated. net assets in warrants whether or not listed on the New York Stock Exchange (NYSE) or American Stock Exchange, and more than 2% of its net assets in warrants that are not listed on those exchanges. Warrants acquired in units or attached to securities are not included in this restriction.
C-5 406 PROXY 10/03 PROXY PROXY TEMPLETON INCOME TRUST TEMPLETON GLOBAL BOND FUND SPECIAL MEETING OF SHAREHOLDERS - DECEMBER 15, 2003 The undersigned hereby revokes all previous proxies for his/her shares and appoints BARBARA J. GREEN, BRUCE S. ROSENBERG and ROBERT C. ROSSELOT, and each of them, proxies of the undersigned with full power of substitution to vote all shares of Templeton Global Bond Fund (the "Fund"), a series of Templeton Income Trust (the "Trust"), that the undersigned is entitled to vote at the Fund's Special Meeting of Shareholders (the "Meeting") to be held at 500 East Broward Blvd., 12th Floor, Fort Lauderdale, Florida 33394 at 11:00 a.m., Eastern time, on the 15th day of December 2003, including any postponements or adjournments thereof, upon the matters set forth below and instructs them to vote upon any matters that may properly be acted upon at the Meeting. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES. IT WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION IS MADE, THIS PROXY SHALL BE VOTED FOR PROPOSALS 1 (INCLUDING ALL NOMINEES FOR TRUSTEE), 2, 3 (INCLUDING SEVEN (7) SUB-PROPOSALS) AND 4. IF ANY OTHER MATTERS PROPERLY COME BEFORE THE MEETING TO BE VOTED ON, THE PROXY HOLDERS WILL VOTE, ACT AND CONSENT ON THOSE MATTERS IN ACCORDANCE WITH THE VIEWS OF MANAGEMENT. VOTE VIA THE INTERNET: WWW.FRANKLINTEMPLETON.COM VOTE VIA THE TELEPHONE: 1-866-241-6192 CONTROL NUMBER: 999 9999 9999 999 PLEASE SIGN EXACTLY AS YOUR NAME APPEARS ON THIS PROXY. IF SIGNING FOR ESTATES, TRUSTS OR CORPORATIONS, TITLE OR CAPACITY SHOULD BE STATED. IF SHARES ARE HELD JOINTLY, EACH HOLDER SHOULD SIGN. ------------------------------------------------------ Signature ------------------------------------------------------ Signature -------------------------------------------------, 2003 Dated TIT_13522A I PLAN TO ATTEND THE MEETING. YES NO [ ] [ ] (CONTINUED ON THE OTHER SIDE) PLEASE MARK VOTES AS INDICATED IN THIS EXAMPLE [X] THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS A VOTE FOR PROPOSALS 1 THROUGH 4.
PROPOSAL 1 - To elect a Board of Trustee of the Trust: 01 Harris J. Ashton 05 Betty P. Krahmer 09 Constantine D. Tseretopoulos FOR all nominees WITHHOLD AUTHORITY 02 Frank J. Crothers 06 Gordon S. Macklin 10 Nicholas F. Brady listed (except as to vote for all 03 S. Joseph Fortunato 07 Fred R. Millsaps 11 Charles B. Johnson marked to the left) nominees listed 04 Edith E. Holiday 08 Frank A. Olson [ ] [ ]
TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE THAT NOMINEE'S NAME ON THE LINE BELOW. ------------------------------------------------------------------------------ PROPOSAL 2 - To approve an Agreement and Plan of Reorganization that provides for the Reorganization of the Trust from a Massachusetts business trust to a Delaware statutory trust. FOR AGAINST ABSTAIN [ ] [ ] [ ] PROPOSAL 3 - To approve amendments to certain of the Fund's fundamental investment restrictions (includes seven (7) Sub-Proposals): Sub-Proposal 3a To amend the Fund's fundamental investment restriction regarding investments in real estate. FOR AGAINST ABSTAIN [ ] [ ] [ ] Sub-Proposal 3b To amend the Fund's fundamental investment restriction regarding investments in commodities. FOR AGAINST ABSTAIN [ ] [ ] [ ] Sub-Proposal 3c To amend the Fund's fundamental investment restriction regarding underwriting. FOR AGAINST ABSTAIN [ ] [ ] [ ] Sub-Proposal 3d To amend the Fund's fundamental investment restriction regarding issuing senior securities. FOR AGAINST ABSTAIN [ ] [ ] [ ] Sub-Proposal 3e To amend the Fund's fundamental investment restriction regarding lending. FOR AGAINST ABSTAIN [ ] [ ] [ ] Sub-Proposal 3f To amend the Fund's fundamental investment restriction regarding industry concentration. FOR AGAINST ABSTAIN [ ] [ ] [ ] Sub-Proposal 3g To amend the Fund's fundamental investment restriction regarding borrowing. FOR AGAINST ABSTAIN [ ] [ ] [ ] PROPOSAL 4 - To approve the elimination of certain of the Fund's fundamental investment restrictions. FOR AGAINST ABSTAIN [ ] [ ] [ ] IMPORTANT: PLEASE SIGN, DATE AND RETURN YOUR PROXY...TODAY