Prospectus
Franklin Global Trust
INVESTMENT STRATEGY
GROWTH
Franklin Global Aggressive Growth Fund
Franklin Global Growth Fund
CLASS A, B & C
DECEMBER 29, 2000
[Insert Franklin Templeton Ben Head]
The SEC has not approved or disapproved these securities or passed upon the
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
CONTENTS
THE FUNDS
[Begin callout]
INFORMATION ABOUT EACH FUND YOU SHOULD KNOW BEFORE INVESTING
[END CALLOUT]
2 Franklin Global Aggressive Growth Fund
7 Franklin Global Growth Fund
11 More Information on Investment Policies
and Practices
16 Management
19 Distributions and Taxes
YOUR ACCOUNT
[Begin callout]
INFORMATION ABOUT SALES CHARGES, ACCOUNT TRANSACTIONS AND SERVICES
[End callout]
20 Choosing a Share Class
25 Buying Shares
28 Investor Services
32 Selling Shares
34 Account Policies
37 Questions
FOR MORE INFORMATION
[Begin callout]
WHERE TO LEARN MORE ABOUT EACH FUND
[End callout]
Back Cover
FRANKLIN GLOBAL AGGRESSIVE GROWTH FUND
[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES
-------------------
GOAL The Fund's investment goal is long term capital appreciation.
MAIN INVESTMENT STRATEGIES Under normal market conditions, the Fund invests
primarily in equity securities of companies located throughout the world that
demonstrate accelerating growth, increasing profitability, or above-average
growth or growth potential. The manager focuses on companies believed to be
poised for rapid growth through the development of next generation products,
services and technologies. Common stocks, preferred stocks and depository
receipts are examples of equity securities.
[Begin call out]
The Fund invests primarily in companies located throughout the world that
demonstrate accelerating growth, increasing profitability, or above-average
growth or growth potential.
[End callout]
The Fund invests in companies of any size located throughout the world that
the manager believes are positioned for rapid growth in revenues, earnings or
assets. When suitable opportunities are available, the Fund may invest in
initial public offerings of securities, and may invest a small portion of its
assets in private or illiquid securities, such as late stage venture capital
financing. The Fund will not invest more than 40% of its net assets in any
one country other than the U.S. The Fund expects that a significant portion
of its investments will be in securities of domestic issuers.
In choosing individual equity investments, the Fund's manager utilizes both a
"top-down" evaluation of equity market sectors and an in-depth qualitative
and quantitative analysis of individual equity securities. The manager
employs this analysis to identify themes to help focus the Fund's investments
on sectors considered to have exceptional growth potential and on fast
growing, innovative companies within these sectors. Consequently, the Fund,
from time to time, may have significant positions in particular sectors such
as technology (including electronic technology, technology services,
biotechnology and health care technology) and telecommunications.
[Insert graphic of chart with line going up and down] MAIN RISKS
----------
[Begin callout]
Because the securities the Fund holds fluctuate in price, the value of your
investment in the Fund will go up and down. This means you could lose money
over short or even extended periods.
[End callout]
STOCKS While stocks historically have outperformed other asset classes over
the long term, they tend to go up and down more dramatically over the short
term. These price movements may result from factors affecting individual
companies, industries or the securities market as a whole.
FOREIGN SECURITIES Investing in foreign securities, especially those of
companies in emerging markets, typically involves more risks than investing
in U.S. securities. Certain of these risks also may apply to securities of
U.S. companies with significant foreign operations. These risks can increase
the potential for losses in the Fund and affect its share price.
AGGRESSIVE GROWTH STYLE INVESTING The Fund's manager uses an aggressive
growth strategy in choosing the Fund's investments. As a result, an
investment in the Fund involves a greater degree of risk and its share price
may be more volatile than an investment in a conservative equity Fund or a
growth Fund investing entirely in proven growth stocks. The prices of
aggressive growth stocks are based largely on projections of the issuer's
future earnings and revenues and product development. If a company's
earnings or revenues fall short of expectations, or if its new products do
not come on line on a timely basis, its stock price may fall dramatically.
Aggressive growth stocks have performed exceptionally well in the last
several years, and investors should not expect such historically unusual
performance to continue indefinitely. Currently aggressive growth stocks are
more expensive relative to their earnings or assets compared to value or
other stocks, and if those valuations return to more historical norms, the
prices of such aggressive growth stocks may moderate or fall. Prices of
these companies' securities historically have been more volatile than other
securities, especially over the short term.
SMALLER AND MIDSIZE COMPANIES The Fund can invest without limit in smaller
and midsize companies. Such companies involve greater risks than larger,
more established companies. Historically, smaller and midsize company
securities have been more volatile in price than larger company securities,
especially over the short term. Among the reasons for the greater price
volatility are the less certain growth prospects of smaller and midsize
companies, the lower degree of liquidity in the markets for such securities,
and the greater sensitivity of smaller and midsize companies to changing
economic conditions.
In addition, smaller and midsize companies may lack depth of management, may
be unable to generate funds necessary for growth or development, or may be
developing or marketing new products or services for which markets are not
yet established and may never become established. Smaller and midsize
companies may be particularly affected by interest rate increases, as they
may find it more difficult to borrow money to continue or expand operations,
or may have difficulty in repaying any loans which have a floating interest
rate.
[Insert graphic of a bull and a bear] PERFORMANCE
-----------
Because the Fund is new, it does not have a full calendar year of performance.
[Insert graphic of percentage sign] FEES AND EXPENSES
-----------------
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A CLASS B CLASS C
-----------------------------------------------------------------
Maximum sales charge (load) as a
percentage of offering price 5.75% 4.00% 1.99%
Load imposed on purchases 5.75% None 1.00%
Maximum deferred sales charge
(load) None/1 4.00%/2 0.99%/3
Please see "Choosing a Share Class" on page 20 for an explanation of how and
when these sales charges apply.
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)/4
CLASS A CLASS B CLASS C
-----------------------------------------------------------------
Management fees/5 0.80 0.80 0.80
Distribution and service (12b-1)
fees 0.25 1.00 1.00
Other expenses 1.12 1.12 1.12
----------------------------
Total annual Fund operating
expenses/5 2.17 2.92 2.92
============================
1. Except for investments of $1 million or more (see page 20) and purchases
by certain retirement plans without an initial sales charge.
2. Declines to zero after six years.
3. This is equivalent to a charge of 1% based on net asset value.
4. The management fees and distribution and service (12-b1)fees shown are
based on the Fund's maximum contractual amount. Other expenses are estimated.
5. The manager and administrator have agreed in advance to waive or limit
their respective fees and assume as their own expense certain expenses
otherwise payable by the Fund so that total annual Fund operating expenses do
not exceed 1.75% for Class A, 2.40 % for Class B and 2.40% for Class C for
the current fiscal year. After July 31, 2002, the manager and administrator
may end this arrangement at any time.
EXAMPLE
This example can help you compare the cost of investing in the Fund with the
cost of investing in other mutual funds. It assumes:
o You invest $10,000 for the periods shown;
o Your investment has a 5% return each year; and
o The Fund's operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
1 YEAR 3 YEARS
--------------------------------------------------
If you sell your shares at
the end of the period:
CLASS A 782/1 1,215
CLASS B 695 1,204
CLASS C 491 995
If you do not sell your
shares:
CLASS B 295 904
CLASS C 392 995
1. Assumes a contingent deferred sales charge (CDSC) will not apply.
FRANKLIN GLOBAL GROWTH FUND
[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES
-------------------
GOAL The Fund's principal investment goal is long-term capital appreciation.
MAIN INVESTMENT STRATEGIES Under normal market conditions, the Fund invests
primarily in equity securities of large and mid cap growth companies located
and doing business throughout the world. The manager focuses on established
companies who are among the global leaders in their industries in terms of
products, services, and technologies. Common stocks, preferred stocks and
depository receipts are examples of equity securities.
[Begin callout]
The Fund invests primarily in equity securities of large and mid cap growth
companies located and doing business throughout the world.
[End callout]
The Fund invests in securities of companies located throughout the world that
currently have rising profits and revenues and accelerating growth rates,
that have superior products, services, brands and technologies, that
participate in industries with above-average growth characteristics and that
are highly competitive within their industry. When suitable opportunities are
available, the Fund may also invest in initial public offerings of
securities, and may invest a small portion of its assets in private or
illiquid securities, such as late stage venture capital financings. The Fund
will not invest more than 40% of its net assets in any one country other than
the U.S. The Fund expects that a significant portion of its investments will
be in securities of domestic issuers.
In choosing individual equity investments, the Fund's manager utilizes both a
"top-down" evaluation of equity market sectors and an in-depth qualitative
and quantitative analysis of individual equity securities. The manager
employs this analysis to identify themes to help focus the Fund's investments
on sectors considered to have exceptional growth potential and on fast
growing, innovative companies within these sectors. Consequently, the Fund,
from time to time, may have significant positions in particular sectors such
as technology (including electronic technology, technology services,
biotechnology and health care technology) and telecommunications.
[Insert graphic of chart with line going up and down] MAIN RISKS
----------
[Begin callout]
Because the securities the Fund holds fluctuate in price, the value of your
investment in the Fund will go up and down. This means you could lose money
over short or even extended periods.
[End callout]
STOCKS While stocks historically have outperformed other asset classes over
the long term, they tend to go up and down more dramatically over the short
term. These price movements may result from factors affecting individual
companies, industries or the securities market as a whole.
FOREIGN SECURITIES Investing in foreign securities, especially those of
companies in emerging markets, typically involves more risks than investing
in U.S. securities. Certain of these risks also may apply to securities of
U.S. companies with significant foreign operations. These risks can increase
the potential for losses in the Fund and affect its share price.
GROWTH STYLE INVESTING Growth stock prices reflect projections of future
earnings or revenues, and can, therefore, fall dramatically if the company
fails to meet those projections. Growth stocks may also be more expensive
relative to their earnings or assets compared to other stocks. The prices of
growth stocks are based largely on projections of the issuer's future
earnings and revenues. If a company's earnings or revenues fall short of
expectations, its stock price may fall dramatically. Growth stocks have
performed exceptionally well in the last several years, and investors should
not expect such historically unusual performance to continue indefinitely.
Currently, growth stocks are more expensive relative to their earnings or
assets compared to value or other stocks, and if those valuations return to
more historical norms, the prices of such aggressive growth stocks may
moderate or fall. Prices of these companies' securities historically have
been more volatile than other securities, especially over the short term.
[Insert graphic of a bull and a bear] PERFORMANCE
-----------
Because the Fund is new, it does not have a full calendar year of performance.
[Insert graphic of percentage sign] FEES AND EXPENSES
-----------------
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A CLASS B CLASS C
-----------------------------------------------------------------
Maximum sales charge (load) as a
Percentage of offering price 5.75% 4.00% 1.99%
Load imposed on purchases 5.75% None 1.00%
Maximum deferred sales charge
(load) None/1 4.00%/2 0.99%/3
Please see "Choosing a Share Class" on page 20 for an explanation of how and
when these sales charges apply.
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)/4
CLASS A CLASS B CLASS C
-----------------------------------------------------------------
Management fees/5 0.80 0.80 0.80
Distribution and service (12b-1)
fees 0.25 1.00 1.00
Other expenses 1.12 1.12 1.12
----------------------------
Total annual Fund operating
expenses5 2.17 2.92 2.92
============================
1. Except for investments of $1 million or more (see page 20) and purchases
by certain retirement plans without an initial sales charge.
2. Declines to zero after six years.
3. This is equivalent to a charge of 1% based on net asset value.
4. The management fees and distribution and service (12-b1)fees shown are
based on the Fund's maximum contractual amount. Other expenses are estimated.
5. The manager and administrator have agreed in advance to waive or limit
their respective fees and assume as their own expense certain expenses
otherwise payable by the Fund so that total annual Fund operating expenses do
not exceed 1.75% for Class A, 2.40 % for Class B and 2.40% for Class C for
the current fiscal year. After July 31, 2001, the manager and administrator
may end this arrangement at any time.
EXAMPLE
This example can help you compare the cost of investing in the Fund with the
cost of investing in other mutual funds. It assumes:
o You invest $10,000 for the periods shown;
o Your investment has a 5% return each year; and
o The Fund's operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
1 YEAR 3 YEARS
--------------------------------------------------
If you sell your shares at
the end of the period:
CLASS A 782/1 1,215
CLASS B 695 1,204
CLASS C 491 995
If you do not sell your
shares:
CLASS B 295 904
CLASS C 392 995
1. Assumes a contingent deferred sales charge (CDSC) will not apply.
MORE INFORMATION ON INVESTMENT POLICIES AND PRACTICES
APPLICABLE TO THE FRANKLIN GLOBAL AGGRESSIVE GROWTH FUND AND THE FRANKLIN
GLOBAL GROWTH FUND
---------------------------------------------------------------------------
EQUITY SECURITIES Each of the Funds invests primarily in equity securities.
An equity security, or stock, represents a proportionate share of the
ownership of a company; its value is based on the success of the company's
business, any income paid to stockholders, the value of its assets, and
general market conditions.
TEMPORARY INVESTMENTS When the manager believes market or economic
conditions are unfavorable for investors, the manager may invest up to 100%
of a Fund's assets in a temporary defensive manner or hold a substantial
portion of its assets in cash, cash equivalents or other high quality
short-term investments. Temporary defensive investments generally may
include short-term U.S. government securities, commercial paper, bank
obligations, repurchase agreements and other money market instruments. The
manager also may invest in these types of securities or hold cash while
looking for suitable investment opportunities or to maintain liquidity. In
these circumstances, the Fund may be unable to achieve its investment goal.
DEPOSITARY RECEIPTS The Funds may buy American, European, and Global
Depositary Receipts. Depositary receipts are certificates typically issued by
a bank or trust company that give their holders the right to receive
securities issued by a foreign or domestic company.
INITIAL PUBLIC OFFERINGS Initial public offerings (IPOs) of securities
issued by unseasoned companies with little or no operating history are risky
and their prices are highly volatile, but they can result in very large gains
in their initial trading. Attractive IPOs are often oversubscribed and may
not be available to the Funds, or only in very limited quantities. Thus,
when the Funds' size is smaller, any gains from IPOs will have an exaggerated
impact of the Funds' performance than when the Funds are larger. There can be
no assurance that the Funds will have favorable IPO investment opportunities.
RISKS OF INVESTING IN FOREIGN SECURITIES
COUNTRY. General securities market movements in any country where a Fund has
investments are likely to affect the value of the Fund's securities that trade
in that country. These movements will affect the Fund's share price and Fund
performance.
POLITICAL AND ECONOMIC DEVELOPMENTS. The political, economic and social
structures of some foreign countries may be less stable and more volatile
than those in the U.S. Investments in these countries may be subject to the
risks of internal and external conflicts, currency devaluations, foreign
ownership limitations and tax increases. It is possible that a government may
take over the assets or operations of a company or impose restrictions on the
exchange or export of currency or other assets. Some countries also may
have different legal systems that may make it difficult for a Fund to vote
proxies, exercise shareholder rights, and pursue legal remedies with respect
to its foreign investments.
AVAILABILITY OF INFORMATION. Foreign companies may not be subject to the same
disclosure, accounting, auditing and financial reporting standards and
practices as U.S. companies. Thus, there may be less information publicly
available about foreign companies than about most U.S. companies.
TRADING PRACTICES. Brokerage commissions and other fees generally are higher
for foreign securities. Government supervision and regulation of foreign
stock exchanges, currency markets, trading systems and brokers may be less
than in the U.S. The procedures and rules governing foreign transactions and
custody (holding of the Fund's assets) also may involve delays in payment,
delivery or recovery of money or investments.
LIMITED MARKETS. Certain foreign securities may be less liquid (harder to
sell) and more volatile than many U.S. securities. This means the Fund may at
times be unable to sell foreign securities at favorable prices.
EMERGING MARKETS A Fund's investments in developing or emerging markets are
subject to all of the risks of foreign investing generally and have additional
heightened risks due to a lack of established legal, political, business and
social frameworks to support securities markets. Foreign securities markets,
including emerging markets, may have substantially lower trading volumes than
U.S. markets, resulting in less liquidity and more volatility than experienced
in the U.S. Short-term volatility in these markets is not unusual, nor are
declines in excess of 50%.
CURRENCY Many of the Funds' investments are denominated in foreign currencies.
Changes in foreign currency exchange rates will affect the value of what each
Fund owns and the Fund's share price. Generally, when the U.S. dollar rises in
value against a foreign currency, an investment in that country loses value
because that currency is worth fewer U.S. dollars. Devaluation of a currency by
a country's government or banking authority also will have a significant impact
on the value of any securities denominated in that currency. Currency markets
generally are not as regulated as securities markets.
EURO On January 1, 1999, the European Economic and Monetary Union (EMU)
introduced a new single currency called the euro. By July 1, 2002, the euro,
which will be implemented in stages, will have fully replaced the national
currencies of the following member countries: Austria, Belgium, Finland, France,
Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain.
Currently, the exchange rate of the currencies of each of these countries is
fixed to the euro and the new European Central Bank has control over each
country's monetary policies. These countries' governments, however, continue to
have the authority to set tax and spending policies and public debt levels.
Because this change to a single currency is new and untested, it is not
possible to predict the impact of the euro on currency values or on the
business or financial condition of European issuers whose securities the
Funds may hold in their portfolios and, thus, the impact, if any, this will
have on a Fund's performance. To the extent a Fund holds non-U.S. dollar
(euro or other) denominated securities, it will also be exposed to currency
risk due to fluctuations in those currencies versus the U.S. dollar.
SECTOR FOCUS - TECHNOLOGY COMPANIES To the extent that a Fund has
significant investments in one or a few sectors, it bears more risk than a
fund which always maintains broad sector diversification.
Technology company stocks can be subject to abrupt or erratic price movements
and have been volatile, especially over the short term, due to the rapid pace
of product change and development affecting such companies. Technology
companies are subject to significant competitive pressures, such as new
market entrants, aggressive pricing, and tight profit margins.
ELECTRONIC TECHNOLOGY AND TECHNOLOGY SERVICES COMPANIES These companies also
face the risks that new services, equipment or technologies will not be
accepted by consumers and businesses or will become rapidly obsolete. These
factors can affect the profitability of technology companies and, as a
result, the value of their securities. In addition, many Internet-related
companies are in the emerging stage of development and are particularly
vulnerable to the risks that their business plans will not develop as
anticipated and of rapidly changing technologies.
BIOTECHNOLOGY AND HEALTH TECHNOLOGY COMPANIES The biotechnology and health
technology industries are subject to extensive government regulation. These
industries will be affected by government regulatory requirements, regulatory
approval for new drugs and medical products, patent considerations, product
liability, and similar matters. For example, in the past several years, the
U.S. Congress has considered legislation concerning health care reform and
changes to the U.S. Food and Drug Administration's (FDA) approval process,
which would, if enacted, affect the biotechnology and health technology
industries. In addition, these industries are characterized by competition
and rapid technological developments which may make a company's products or
services obsolete in a short period of time. As these factors impact these
industries, the value of your shares may fluctuate significantly over
relatively short periods of time.
TELECOMMUNICATION COMPANIES In addition to risks faced by the technology
sector in general, telecommunication companies may be adversely affected by
international, federal, and state regulations to which they are subject. In
addition, this sector has been undergoing deregulations to enable increased
competition, which could affect the companies in these sectors.
PORTFOLIO TURNOVER Each Fund's portfolio turnover rate may be higher than
that of other mutual funds. High portfolio turnover may involve additional
expenses to the Fund, including transaction costs for purchases and sales of
securities. These transactions may result in realization of taxable capital
gains, including short-term capital gains, which are generally taxed at
ordinary income tax rates.
More detailed information about the Funds, their policies and risks can be
found in the Funds' Statement of Additional Information (SAI).
[Begin callout]
Mutual fund shares are not deposits or obligations of, or guaranteed or
endorsed by, any bank, and are not insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other agency of the U.S.
government. Mutual fund shares involve investment risks, including the
possible loss of principal.
[End callout]
[Insert graphic of briefcase] MANAGEMENT
Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo, CA
94404, is the Funds' investment manager. Advisers is a wholly owned
subsidiary of Franklin Resources, Inc. Together, Advisers and its affiliates
manage over $229 billion in assets.
Under an agreement with Advisers, Fiduciary International, Inc., (Fiduciary
or manager), an indirect wholly owned subsidiary of Fiduciary Trust Company
International (Fiduciary Trust), Two World Trade Center, New York, NY 10048
is the Funds' sub-advisor. Fiduciary provides Advisers with investment
management advice and assistance.
Resources and Fiduciary Trust have entered into a definitive agreement under
which Resources will acquire Fiduciary Trust. The acquisition, which is
subject to shareholder and regulatory approvals and other customary closing
conditions, is expected to be completed in the first quarter of 2001. Because
completion of the acquisition would have the effect of terminating the
current subadvisory agreement with Fiduciary, the Funds' Board of Trustees
and initial shareholder have approved a second sub-advisory agreement, with
terms identical to those of the initial agreement. The second agreement will
take effect if and when the acquisition of Fiduciary Trust is completed. If
the acquisition does not occur, shareholders will be notified of the status
of the subadvisory relationship.
The team responsible for each Fund's management is:
FRANKLIN GLOBAL AGGRESSIVE GROWTH FUND
JEREMY H. BIGGS, CFA, Chairman and Chief Investment Officer of Fiduciary
TRUST AND Vice PRESIDENT OF FIDUCIARY
Mr. Biggs has been a manager of the Funds since inception. He joined
Fiduciary Trust in 1978.
SHEILA HARTNETT-DEVLIN, CFA, Executive Vice President of Fiduciary TRUST AND
Vice PRESIDENT OF FIDUCIARY
Ms. Hartnett-Devlin has been a manager of the Funds since inception. She
joined Fiduciary Trust in 1980.
MARGARET S. LINDSAY, Senior Vice President of Fiduciary TRUST AND Vice
PRESIDENT OF FIDUCIARY
Ms. Lindsay has been a manager of the Funds since inception. She joined
Fiduciary in 1991.
DAVID S. LEE, CFA, Vice President of Fiduciary TRUST AND FIDUCIARY
Mr. Lee has been a manager of the Funds since inception. He joined Fiduciary
in 1996. Previously, he was international equity analyst with Prudential.
FRANKLIN GLOBAL GROWTH FUND
SHEILA HARTNETT-DEVLIN, CFA, Executive Vice President of Fiduciary TRUST AND
Vice PRESIDENT OF FIDUCIARY
Ms. Hartnett-Devlin has been a manager of the Funds since inception. She
joined Fiduciary Trust in 1980.
JOSHUA A. ROSENTHAL, Senior Vice President of Fiduciary TRUST AND Vice
PRESIDENT OF FIDUCIARY
Mr. Rosenthal has been a manager of the Funds since inception. He joined
Fiduciary in 1998. Previously, he held investment positions at Grantham,
Mayo Van Otterloo, The Metropolitan Museum of Art, and Amerada Hess.
PAUL A.M. HARRIS, CFA, VICE PRESIDENT OF FIDUCIARY TRUST AND Vice PRESIDENT
OF FIDUCIARY
Mr. Harris has been a manager of the Funds since inception. He joined
Fiduciary in 2000. Previously he was with Toronto Dominion Bank for ten
years, including eight years with TD Asset Management.
Each Fund pays Advisers a fee for managing the Fund's assets. The fee is
equal to an annual rate of:
o 0.800% of the value of net assets up to and including $500 million;
o 0.700% of the value of net assets over $500 million up to and including $1
billion;
o 0.650% of the value of net assets over $1 billion up to and including $1.5
billion;
o 0.600% of the value of net assets over $1.5 billion up to and including
$6.5 billion;
o 0.575% of the value of net assets over $6.5 billion up to and including
$11.5 billion;
o 0.555% of the value of net assets over $11.5 billion up to and including
$16.5 billion;
o 0.540% of the value of net assets over $16.5 billion up to and including
$19 billion;
o 0.530% of the value of net assets over $19 billion up to and including
$21.5 billion; and
o 0.520% of the value of net assets in excess of $21.5 billion.
[Insert graphic of dollar
signs and stacks of coins] DISTRIBUTIONS AND TAXES
INCOME AND CAPITAL GAINS DISTRIBUTIONS Each Fund intends to pay a dividend at
least annually representing substantially all of its net investment income
and any net realized capital gains. The amount of this distribution will
vary and there is no guarantee any Fund will pay dividends.
To receive a distribution, you must be a shareholder on the record date. The
record dates for each Fund's distributions will vary. Please keep in mind
that if you invest in a Fund shortly before the record date of a
distribution, any distribution will lower the value of the Fund's shares by
the amount of the distribution and you will receive some of your investment
back in the form of a taxable distribution. If you would like information on
upcoming record dates for a Fund's distributions, please call 1-800/DIAL BEN(R).
TAX CONSIDERATIONS In general, Fund distributions are taxable to you as
either ordinary income or capital gain. This is true whether you reinvest
your distributions in additional Fund shares or receive them in cash. Capital
gain dividends paid by a Fund are taxable to you as long-term capital gain no
matter how long you have owned your shares.
[Begin callout]
BACKUP WITHHOLDING
By law, a Fund must withhold 31% of your taxable distributions and redemption
proceeds if you do not provide your correct social security or taxpayer
identification number and certify that you are not subject to backup
withholding, or if the IRS instructs a Fund to do so.
[End callout]
Every January, you will receive a statement that shows the tax status of
distributions you received for the previous year. Distributions declared in
December but paid in January are taxable as if they were paid in December.
When you sell your shares of a Fund, you may have a capital gain or loss. For
tax purposes, an exchange of your Fund shares for shares of a different
Franklin Templeton fund is the same as a sale.
Fund distributions and gain from the sale or exchange of your shares
generally will be subject to state and local taxes. Non-U.S. investors may be
subject to U.S. withholding and estate tax. You should consult your tax
advisor about the federal, state, local or foreign tax consequences of your
investment in a Fund.
YOUR ACCOUNT
[Insert graphic of pencil marking an X] CHOOSING A SHARE CLASS
----------------------
Each class has its own sales charge and expense structure, allowing you to
choose the class that best meets your situation. Your investment
representative can help you decide.
CLASS A CLASS B CLASS C
----------------------------------------------------------------------
o Initial sales charge o No initial sales o Initial sales
of 5.75% or less charge charge of 1%
o Deferred sales o Deferred sales o Deferred sales
charge of 1% on charge of 4% on charge of 1% on
purchases of $1 shares you sell shares you sell
million or more sold within the first within 18 months
within 12 months year, declining to
1% within six years
and eliminated
after that
o Lower annual o Higher annual o Higher annual
expenses than Class expenses than Class expenses than Class
B or C due to lower A (same as Class C) A (same as Class B)
distribution fees due to higher due to higher
distribution fees. distribution fees.
Automatic No conversion to
conversion to Class Class A shares, so
A shares after annual expenses do
eight years, not decrease.
reducing future
annual expenses.
SALES CHARGES - CLASS A
THE SALES CHARGE
MAKES UP THIS % WHICH EQUALS THIS %
WHEN YOU INVEST THIS AMOUNT OF THE OFFERING OF YOUR NET INVESTMENT
PRICE
----------------------------------------------------------------------
Under $50,000 5.75 6.10
$50,000 but under $100,000 4.50 4.71
$100,000 but under $250,000 3.50 3.63
$250,000 but under $500,000 2.50 2.56
$500,000 but under $1 2.00 2.04
million
INVESTMENTS OF $1 MILLION OR MORE If you invest $1 million or more, either as
a lump sum or through our cumulative quantity discount or letter of intent
programs (see page 23), you can buy Class A shares without an initial sales
charge. However, there is a 1% contingent deferred sales charge (CDSC) on any
shares you sell within 12 months of purchase. The way we calculate the CDSC
is the same for each class (please see page 22).
DISTRIBUTION AND SERVICE (12B-1) FEES Class A has a distribution plan,
sometimes known as a Rule 12b-1 plan, that allows each Fund to pay
distribution fees of up to 0.25% per year to those who sell and distribute
Class A shares and provide other services to shareholders. Because these fees
are paid out of Class A's assets on an on-going basis, over time these fees
will increase the cost of your investment and may cost you more than paying
other types of sales charges.
SALES CHARGES - CLASS B
IF YOU SELL YOUR SHARES
WITHIN THIS MANY YEARS THIS % IS DEDUCTED FROM
AFTER BUYING THEM YOUR PROCEEDS AS A CDSC
-----------------------------------------------------
1 Year 4
2 Years 4
3 Years 3
4 Years 3
5 Years 2
6 Years 1
7 Years 0
With Class B shares, there is no initial sales charge. However, there is a
CDSC if you sell your shares within six years, as described in the table
above. The way we calculate the CDSC is the same for each class (please see
page 22). After 8 years, your Class B shares automatically convert to Class A
shares, lowering your annual expenses from that time on.
MAXIMUM PURCHASE AMOUNT The maximum amount you may invest in Class B shares
at one time is $249,999. We place any investment of $250,000 or more in Class
A shares, since a reduced initial sales charge is available and Class A's
annual expenses are lower.
RETIREMENT PLANS Class B shares are available to certain retirement plans,
including IRAs (of any type), Franklin Templeton Bank & Trust 403(b) plans,
and Franklin Templeton Bank & Trust qualified plans with participant or
earmarked accounts.
DISTRIBUTION AND SERVICE (12B-1) FEES Class B has a distribution plan,
sometimes known as a Rule 12b-1 plan, that allows each Fund to pay
distribution and other fees of up to 1% per year for the sale of Class B
shares and for services provided to shareholders. Because these fees are paid
out of Class B's assets on an on-going basis, over time these fees will
increase the cost of your investment and may cost you more than paying other
types of sales charges.
SALES CHARGES - CLASS C
THE SALES
WHEN YOU INVEST THIS CHARGE MAKES UP WHICH EQUALS THIS % OF
AMOUNT THIS % OF THE YOUR NET INVESTMENT
OFFERING PRICE
-------------------------------------------------------------------
Under $1 million 1.00 1.01
WE PLACE ANY INVESTMENT OF $1 MILLION OR MORE IN CLASS A SHARES, SINCE THERE
IS NO INITIAL SALES CHARGE AND CLASS A'S ANNUAL EXPENSES ARE LOWER.
CDSC There is a 1% contingent deferred sales charge (CDSC) on any Class C
shares you sell within 18 months of purchase. The way we calculate the CDSC
is the same for each class (please see below).
DISTRIBUTION AND SERVICE (12B-1) FEES Class C has a distribution plan,
sometimes known as a Rule 12b-1 plan, that allows each Fund to pay
distribution and other fees of up to 1% per year for the sale of Class C
shares and for services provided to shareholders. Because these fees are paid
out of Class C's assets on an on-going basis, over time these fees will
increase the cost of your investment and may cost you more than paying other
types of sales charges.
CONTINGENT DEFERRED SALES CHARGE (CDSC) - CLASS A, B & C
The CDSC for each class is based on the current value of the shares being
sold or their net asset value when purchased, whichever is less. There is no
CDSC on shares you acquire by reinvesting your dividends or capital gains
distributions.
[Begin callout]
The HOLDING PERIOD FOR THE CDSC begins on the day you buy your shares. Your
shares will age one month on that same date the next month and each following
month.
For example, if you buy shares on the 18th of the month, they will age one
month on the 18th day of the next month and each following month.
[End callout]
To keep your CDSC as low as possible, each time you place a request to sell
shares we will first sell any shares in your account that are not subject to
a CDSC. If there are not enough of these to meet your request, we will sell
the shares in the order they were purchased. We will use this same method if
you exchange your shares into another Franklin Templeton fund (please see
page 30/*7 for exchange information).
SALES CHARGE REDUCTIONS AND WAIVERS
If you qualify for any of the sales charge reductions or waivers below,
please let us know at the time you make your investment to help ensure you
receive the lower sales charge.
QUANTITY DISCOUNTS We offer several ways for you to combine your purchases in
Franklin Templeton funds to take advantage of the lower sales charges for
large purchases of Class A shares.
[Begin callout]
FRANKLIN TEMPLETON FUNDS include all of the U.S. registered mutual funds of
Franklin Templeton Investments, except Franklin Templeton Variable Insurance
Products Trust and Templeton Capital Accumulator Fund, Inc.
[End callout]
o CUMULATIVE QUANTITY DISCOUNT - lets you combine all of your shares in the
Franklin Templeton funds for purposes of calculating the sales charge. You
also may combine the shares of your spouse, and your children or
grandchildren, if they are under the age of 21. Certain company and
retirement plan accounts also may be included.
o LETTER OF INTENT (LOI) - expresses your intent to buy a stated dollar
amount of shares over a 13-month period and lets you receive the same sales
charge as if all shares had been purchased at one time. We will reserve a
portion of your shares to cover any additional sales charge that may apply
if you do not buy the amount stated in your LOI.
TO SIGN UP FOR THESE PROGRAMS, COMPLETE THE APPROPRIATE SECTION OF YOUR
ACCOUNT APPLICATION.
REINSTATEMENT PRIVILEGE If you sell shares of a Franklin Templeton fund, you
may reinvest some or all of the proceeds within 365 days without an initial
sales charge. The proceeds must be reinvested within the same share class,
except proceeds from the sale of Class B shares will be reinvested in Class A
shares.
If you paid a CDSC when you sold your Class A or C shares, we will credit
your account with the amount of the CDSC paid but a new CDSC will apply. For
Class B shares reinvested in Class A, a new CDSC will not apply, although
your account will not be credited with the amount of any CDSC paid when you
sold your Class B shares.
Proceeds immediately placed in a Franklin Bank Certificate of Deposit (CD)
also may be reinvested without an initial sales charge if you reinvest them
within 365 days from the date the CD matures, including any rollover.
This privilege does not apply to shares you buy and sell under our exchange
program. Shares purchased with the proceeds from a money fund may be subject
to a sales charge.
SALES CHARGE WAIVERS Class A shares may be purchased without an initial sales
charge or CDSC by various individuals, institutions and retirement plans or
by investors who reinvest certain distributions and proceeds within 365
days. Certain investors also may buy Class C shares without an initial sales
charge. The CDSC for each class may be waived for certain redemptions and
distributions. If you would like information about available sales charge
waivers, call your investment representative or call Shareholder Services at
1-800/632-2301. For information about retirement plans, you may call
Retirement Services at 1-800/527-2020. A list of available sales charge
waivers also may be found in the Statement of Additional Information (SAI).
GROUP INVESTMENT PROGRAM Allows established groups of 11 or more investors to
invest as a group. For sales charge purposes, the group's investments are
added together. There are certain other requirements and the group must have
a purpose other than buying Fund shares at a discount.
[Insert graphic of a paper with lines
and someone writing] BUYING SHARES
MINIMUM INVESTMENTS
----------------------------------------------------------------
INITIAL ADDITIONAL
----------------------------------------------------------------
Regular accounts $1,000 $50
----------------------------------------------------------------
Automatic investment plans $50 ($25 $50 ($25
for an for an
Education Education
IRA) IRA)
----------------------------------------------------------------
UGMA/UTMA accounts $100 $50
----------------------------------------------------------------
Retirement accounts no minimum no minimum
(other than IRAs, IRA rollovers,
Education IRAs or Roth IRAs)
----------------------------------------------------------------
IRAs, IRA rollovers, Education IRAs or
Roth IRAs $250 $50
----------------------------------------------------------------
Broker-dealer sponsored wrap account
programs $250 $50
----------------------------------------------------------------
Full-time employees, officers, $100 $50
trustees and directors of Franklin
Templeton entities, and their
immediate family members
----------------------------------------------------------------
PLEASE NOTE THAT YOU MAY ONLY BUY SHARES OF A FUND ELIGIBLE FOR SALE IN YOUR
STATE OR JURISDICTION.
ACCOUNT APPLICATION If you are opening a new account, please complete and
sign the enclosed account application. Make sure you indicate the share class
you have chosen. If you do not indicate a class, we will place your purchase
in Class A shares. To save time, you can sign up now for services you may
want on your account by completing the appropriate sections of the
application (see "Investor Services" on page 28). For example, if you would
like to link one of your bank accounts to your Fund account so that you may
use electronic fund transfers to and from your bank account to buy and sell
shares, please complete the bank information section of the application. We
will keep your bank information on file for future purchases and redemptions.
BUYING SHARES OPENING AN ACCOUNT ADDING TO AN ACCOUNT
----------------------------------------------------------------------
[Insert graphic of Contact your Contact your
hands shaking] investment investment
representative representative
THROUGH YOUR
INVESTMENT
REPRESENTATIVE
----------------------------------------------------------------------
[Insert graphic of If you have another Before requesting a
phone and computer] Franklin Templeton telephone or online
fund account with purchase into an
BY PHONE/ONLINE your bank account existing account,
information on file, please make sure we
(Up to $100,000 per you may open a new have your bank account
shareholder per day) account by phone. At information on file.
this time, a new If we do not have this
1-800/632-2301 account may not be information, you will
opened online. need to send written
franklintempleton.com instructions with your
To make a same day bank's name and
NOTE: CERTAIN investment, your address, a voided
ACCOUNTS ARE NOT phone order must be check or savings
AVAILABLE FOR ONLINE received and accepted account deposit slip,
ACCOUNT ACCESS by us by 1:00 p.m. and a signature
Pacific time or the guarantee if the bank
close of the New York and Fund accounts do
Stock Exchange, not have at least one
whichever is earlier. common owner.
To make a same day
investment, your phone
or online order must
be received and
accepted by us by 1:00
p.m. Pacific time or
the close of the New
York Stock Exchange,
whichever is earlier.
----------------------------------------------------------------------
[Insert graphic of Make your check Make your check
envelope] payable to the Fund. payable to the Fund.
Include your account
BY MAIL Mail the check and number on the check.
your signed
application to Fill out the deposit
Investor Services. slip from your account
statement. If you do
not have a slip,
include a note with
your name, the Fund
name, and your account
number.
Mail the check and
deposit slip or note
to Investor Services.
----------------------------------------------------------------------
[Insert graphic of Call to receive a Call to receive a wire
three lightning bolts] wire control number control number and
and wire instructions. wire instructions.
BY WIRE
Wire the funds and To make a same day
1-800/632-2301 mail your signed wire investment,
(or 1-650/312-2000 application to please call us by 1:00
collect) Investor Services. p.m. Pacific time and
Please include the make sure your wire
wire control number arrives by 3:00 p.m.
or your new account
number on the
application.
To make a same day
wire investment,
please call us by
1:00 p.m. Pacific
time and make sure
your wire arrives by
3:00 p.m.
----------------------------------------------------------------------
[Insert graphic of two Call Shareholder Call Shareholder
arrows pointing in Services at the Services at the number
opposite directions] number below, or send below or our automated
signed written TeleFACTS system, or
BY EXCHANGE instructions. You send signed written
also may place an instructions. You also
TeleFACTS(R) online exchange may place an online
1-800/247-1753 order. The TeleFACTS exchange order.
(around-the-clock system cannot be used
access) to open a new account. (Please see page 30
for information on
Our Website (Please see page 30 exchanges.)
franklintempleton.com for information on
exchanges.)
----------------------------------------------------------------------
FRANKLIN TEMPLETON INVESTOR SERVICES P.O. BOX 997151,
SACRAMENTO, CA 95899-9983
CALL TOLL-FREE: 1-800/632-2301
(MONDAY THROUGH FRIDAY 5:30 A.M. TO 5:00 P.M., PACIFIC TIME
SATURDAY 6:30 A.M. TO 2:30 P.M., PACIFIC TIME)
[Insert graphic of person with a headset] INVESTOR SERVICES
-----------------
AUTOMATIC INVESTMENT PLAN This plan offers a convenient way for you to invest
in a Fund by automatically transferring money from your checking or savings
account each month to buy shares. To sign up, complete the appropriate
section of your account application and mail it to Investor Services. If you
are opening a new account, please include the minimum initial investment of
$50 ($25 for an Education IRA) with your application.
AUTOMATIC PAYROLL DEDUCTION You may invest in a Fund automatically by
transferring money from your paycheck to a Fund by electronic funds transfer.
If you are interested, indicate on your application that you would like to
receive an Automatic Payroll Deduction Program kit.
DISTRIBUTION OPTIONS You may reinvest distributions you receive from a Fund
in an existing account in the same share class* of the Fund or another
Franklin Templeton fund. Initial sales charges and CDSCs will not apply if
you reinvest your distributions within 365 days. You can also have your
distributions deposited in a bank account, or mailed by check. Deposits to a
bank account may be made by electronic funds transfer.
[Begin callout]
For Franklin Templeton Bank & Trust retirement plans, special forms may be
needed to receive distributions in cash. Please call 1-800/527-2020 for
information.
[End callout]
Please indicate on your application the distribution option you have chosen,
otherwise we will reinvest your distributions in the same share class of the
Fund.
*Class B and C shareholders may reinvest their distributions in Class A
shares of any Franklin Templeton money fund.
RETIREMENT PLANS Franklin Templeton Investments offers a variety of
retirement plans for individuals and businesses. These plans require separate
applications and their policies and procedures may be different than those
described in this prospectus. For more information, including a free
retirement plan brochure or application, please call Retirement Services at
1-800/527-2020.
TELEFACTS(R) Our TeleFACTS system offers around-the-clock access to information
about your account or any Franklin Templeton fund. This service is available
from touch-tone phones at 1-800/247-1753. For a free TeleFACTS brochure, call
1-800/DIAL BEN.
FRANKLIN TEMPLETON ONLINE You can visit us online at FRANKLINTEMPLETON.COM
for around-the-clock viewing of information about most Franklin Templeton
Funds or to register to view your accounts online. You may also register for
online transactions that will allow you to buy, sell, or exchange your shares
and make certain changes to your account. Some account types may not be able
to process any or all transactions online.
TELEPHONE/ONLINE PRIVILEGES You will automatically receive telephone/online
privileges when you open your account, allowing you to obtain or view your
account information, and conduct the following transactions by phone or
online: buy, sell, or exchange shares of most funds; change your address;
request a year-end statement; add or change account services (including
distribution options, systematic withdrawals, automatic investment plans,
money fund check orders).
To view your account information or request online transactions, you will
first need to register for these services at the shareholder section of our
website at FRANKLINTEMPLETON.COM. You will be asked to accept the terms of
an online agreement(s) and establish a password for online services. Using
our shareholder website means you are consenting to sending and receiving
personal financial information over the Internet so you should be sure you
are comfortable with the risks.
For accounts with more than one registered owner, telephone/online privileges
allow the Fund to accept online registration or telephone/online instructions
for transactions from only one owner. As long as you have telephone/online
exchange privileges on your account, you may exchange shares by phone or
online from a fund account requiring two or more signatures into an
identically registered money fund account requiring only one signature for
all transactions.
Additionally, if you have telephone privileges on an account with more than
one owner, a Fund will accept written instructions signed by only ONE OWNER
for transactions that could otherwise be made by phone. For all other
transactions and changes, all registered owners must sign the instructions.
As long as we follow reasonable security procedures and act on instructions
we reasonably believe are genuine, we will not be responsible for any losses
that may occur from unauthorized requests. We will request passwords or
other information, and may also record calls. To help safeguard your
account, keep your password confidential, and verify the accuracy of your
confirmation statements immediately after you receive them. Contact us
immediately if you believe someone has obtained unauthorized access to your
account or password. For transactions done over the Internet, we recommend
the use of an Internet browser with 128-bit encryption. Certain methods of
contacting us (such as by phone or by Internet) may be unavailable or delayed
during periods of unusual market activity. OF COURSE, YOU CAN DECLINE
TELEPHONE PRIVILEGES ON YOUR ACCOUNT APPLICATION, OR CHOOSE NOT TO REGISTER
FOR ONLINE PRIVILEGES. IF YOU HAVE TELEPHONE/ONLINE PRIVILEGES ON YOUR
ACCOUNT AND WANT TO DISCONTINUE THEM, PLEASE CONTACT US FOR INSTRUCTIONS.
You may reinstate these privileges at any time in writing, including online
registration with respect to online privileges.
NOTE: We discourage you from including confidential or sensitive
information in any Internet communication to us. If you do choose to send
email (encrypted or not) to us over the Internet, you are accepting the
associated risks of lack of confidentiality.
EXCHANGE PRIVILEGE You can exchange shares between most Franklin Templeton
funds within the same class*, generally without paying any additional sales
charges. If you exchange shares held for less than six months, however, you
may be charged the difference between the initial sales charge of the two
funds if the difference is more than 0.25%. If you exchange shares from a
money fund, a sales charge may apply no matter how long you have held the
shares.
[Begin callout]
An EXCHANGE is really two transactions: a sale of one fund and the purchase
of another. In general, the same policies that apply to purchases and sales
apply to exchanges, including minimum investment amounts. Exchanges also have
the same tax consequences as ordinary sales and purchases.
[End callout]
Generally exchanges may only be made between identically registered accounts,
unless you send written instructions with a signature guarantee. Any CDSC
will continue to be calculated from the date of your initial investment and
will not be charged at the time of the exchange. The purchase price for
determining a CDSC on exchanged shares will be the price you paid for the
original shares. If you exchange shares subject to a CDSC into a Class A
money fund, the time your shares are held in the money fund will not count
towards the CDSC holding period.
If you exchange your Class B shares for the same class of shares of another
Franklin Templeton fund, the time your shares are held in that fund will
count towards the eight year period for automatic conversion to Class A
shares.
Because excessive trading can hurt Fund performance, operations and
shareholders, each Fund reserves the right to revise or terminate the
exchange privilege, limit the amount or number of exchanges, reject any
exchange, or restrict or refuse purchases if (i) the Fund or its manager
believes the Fund would be harmed or unable to invest effectively, or (ii)
the Fund receives or anticipates simultaneous orders that may significantly
affect the Fund (please see "Market Timers" on page 35).
*Class Z shareholders of Franklin Mutual Series Fund Inc. may exchange into
Class A without any sales charge. Advisor Class shareholders of another
Franklin Templeton fund also may exchange into Class A without any sales
charge. Advisor Class shareholders who exchange their shares for Class A
shares and later decide they would like to exchange into another fund that
offers Advisor Class may do so.
SYSTEMATIC WITHDRAWAL PLAN This plan allows you to automatically sell your
shares and receive regular payments from your account. A CDSC may apply to
withdrawals that exceed certain amounts. Certain terms and minimums apply. To
sign up, complete the appropriate section of your application. +
[Insert graphic of a certificate] SELLING SHARES
--------------
You can sell your shares at any time. Please keep in mind that a contingent
deferred sales charge (CDSC) may apply.
SELLING SHARES IN WRITING Generally, requests to sell $100,000 or less can be
made over the phone, online or with a simple letter. Sometimes, however, to
protect you and the Fund we will need written instructions signed by all
registered owners, with a signature guarantee for each owner, if:
[Begin callout]
A SIGNATURE GUARANTEE helps protect your account against fraud. You can
obtain a signature guarantee at most banks and securities dealers.
A notary public CANNOT provide a signature guarantee.
[End callout]
o you are selling more than $100,000 worth of shares
o you want your proceeds paid to someone who is not a registered owner
o you want to send your proceeds somewhere other than the address of
record, or preauthorized bank or brokerage firm account
We also may require a signature guarantee on instructions we receive from an
agent, not the registered owners, or when we believe it would protect the
Fund against potential claims based on the instructions received.
SELLING RECENTLY PURCHASED SHARES If you sell shares recently purchased, we
may delay sending you the proceeds until your check, draft, or
wire/electronic funds transfer has cleared, which may take seven business
days or more. A certified or cashier's check may clear in less time.
REDEMPTION PROCEEDS Your redemption check will be sent within seven days
after we receive your request in proper form. We are not able to receive or
pay out cash in the form of currency. Redemption proceeds may be delayed if
we have not yet received your signed account application.
RETIREMENT PLANS You may need to complete additional forms to sell shares in
a Franklin Templeton Bank & Trust retirement plan. For participants under age
591/2, tax penalties may apply. Call Retirement Services at 1-800/527-2020
for details.
SELLING SHARES
TO SELL SOME OR ALL OF YOUR SHARES
----------------------------------------------------------------------
[Insert graphic of hands Contact your investment
shaking] representative
THROUGH YOUR
INVESTMENT
REPRESENTATIVE
----------------------------------------------------------------------
[Insert graphic of envelope] Send written instructions and
BY MAIL endorsed share certificates (if you
hold share certificates) to Investor
Services. Corporate, partnership or
trust accounts may need to send
additional documents.
Specify the Fund, the account number
and the dollar value or number of
shares you wish to sell. If you own
both Class A and B shares, also
specify the class of shares,
otherwise we will sell your Class A
shares first. Be sure to include all
necessary signatures and any
additional documents, as well as
signature guarantees if required.
A check will be mailed to the
name(s) and address on the account,
or otherwise according to your
written instructions.
----------------------------------------------------------------------
[Insert graphic of As long as your transaction is for
phone and computer] $100,000 or less, you do not hold
share certificates and you have not
BY PHONE/ONLINE changed your address by phone or
online within the last 15 days, you
1-800/632-2301 can sell your shares by phone or
online.
franklintempleton.com
A check will be mailed to the
name(s) and address on the account.
Written instructions, with a
signature guarantee, are required to
send the check to another address or
to make it payable to another person.
Please see page 29 for more
information.
----------------------------------------------------------------------
[Insert graphic of three You can call, write, or visit us
lightning bolts] online to have redemption proceeds
sent to a bank account. See the
BY ELECTRONIC FUNDS policies above for selling shares by
TRANSFER (ACH) mail, phone, or online.
Before requesting to have redemption
proceeds sent to a bank account,
please make sure we have your bank
account information on file. If we
do not have this information, you
will need to send written
instructions with your bank's name
and address, a voided check or
savings account deposit slip, and a
signature guarantee if the bank and
Fund accounts do not have at least
one common owner.
If we receive your request in proper
form by 1:00 p.m. Pacific time,
proceeds sent by ACH generally will
be available within two to three
business days.
----------------------------------------------------------------------
[Insert graphic of two Obtain a current prospectus for the
arrows pointing in fund you are considering.
opposite directions] Prospectuses are available online at
www.franklintempleton.com.
BY EXCHANGE
Call Shareholder Services at the
TeleFACTS(R) number below or our automated
1-800/247-1753 TeleFACTS system, or send signed
(around-the-clock access) written instructions. You also may
place an exchange order online. See
the policies above for selling
shares by mail, phone, or online.
If you hold share certificates, you
will need to return them to the Fund
before your exchange can be
processed. Please see page 30 for
information on exchanges.
----------------------------------------------------------------------
FRANKLIN TEMPLETON INVESTOR SERVICES P.O. BOX 997151,
SACRAMENTO, CA 95899-9983
CALL TOLL-FREE: 1-800/632-2301
(MONDAY THROUGH FRIDAY 5:30 A.M. TO 5:00 P.M., PACIFIC TIME
SATURDAY 6:30 A.M. TO 2:30 P.M., PACIFIC TIME)
[Insert graphic of paper and pen] ACCOUNT POLICIES
----------------
CALCULATING SHARE PRICE Each Fund calculates its net asset value per share
(NAV) each business day at the close of trading on the New York Stock
Exchange (normally 1:00 p.m. Pacific time). Each class's NAV is calculated by
dividing its net assets by the number of its shares outstanding.
[Begin callout]
When you buy shares, you pay the offering price. The offering price is the
NAV plus any applicable sales charge.
When you sell shares, you receive the NAV minus any applicable contingent
deferred sales charge (CDSC).
[End callout]
Each Fund's assets are generally valued at their market value. If market
prices are unavailable, or if an event occurs after the close of the trading
market that materially affects the values, assets may be valued at their fair
value. If the Fund holds securities listed primarily on a foreign exchange
that trades on days when the Fund is not open for business, the value of your
shares may change on days that you cannot buy or sell shares.
Requests to buy and sell shares are processed at the NAV next calculated
after we receive your request in proper form.
ACCOUNTS WITH LOW BALANCES If the value of your account falls below $250 ($50
for employee and UGMA/UTMA accounts) because you sell some of your shares, we
may mail you a notice asking you to bring the account back up to its
applicable minimum investment amount. If you choose not to do so within 30
days, we may close your account and mail the proceeds to the address of
record. You will not be charged a CDSC if your account is closed for this
reason.
STATEMENTS AND REPORTS You will receive quarterly account statements that
show all your account transactions during the quarter. You also will receive
written notification after each transaction affecting your account (except
for distributions and transactions made through automatic investment or
withdrawal programs, which will be reported on your quarterly statement).
You also will receive the Fund's financial reports every six months. To
reduce Fund expenses, we try to identify related shareholders in a household
and send only one copy of the financial reports. If you need additional
copies, please call 1-800/DIAL BEN. You can also review these documents
online at franklintempleton.com.
INVESTMENT REPRESENTATIVE ACCOUNT ACCESS If there is a dealer or other
investment representative of record on your account, he or she will be able
to obtain your account information, conduct transactions for your account,
and will also receive copies of all notifications and statements and other
information about your account directly from the Fund.
STREET OR NOMINEE ACCOUNTS You may transfer your shares from the street or
nominee name account of one dealer to another, as long as both dealers have
an agreement with Franklin Templeton Distributors, Inc. We will process the
transfer after we receive authorization in proper form from your delivering
securities dealer.
JOINT ACCOUNTS Unless you specify a different registration, accounts with two
or more owners are registered as "joint tenants with rights of survivorship"
(shown as "Jt Ten" on your account statement). To make any ownership changes
to a joint account, all owners must agree in writing, regardless of the law
in your state.
MARKET TIMERS Each Fund does not allow investments by Market Timers. You may
be considered a Market Timer if you have (i) requested an exchange out of any
of the Franklin Templeton funds within two weeks of an earlier exchange
request out of any fund, or (ii) exchanged shares out of any of the Franklin
Templeton funds more than twice within a rolling 90 day period, or (iii)
otherwise seem to follow a market timing pattern that may adversely affect
the Fund. Accounts under common ownership or control with an account that is
covered by (i), (ii), or (iii) are also subject to these limits.
ADDITIONAL POLICIES Please note that the Funds maintain additional policies
and reserve certain rights, including:
o The Funds may restrict or refuse any order to buy shares, including any
purchase under the exchange privilege.
o The Funds may modify, suspend, or terminate telephone/online privileges
at any time.
o At any time, the Funds may change their investment minimums or waive or
lower their minimums for certain purchases.
o The Funds may modify or discontinue the exchange privilege on 60 days'
notice.
o In unusual circumstances, we may temporarily suspend redemptions, or
postpone the payment of proceeds, as allowed by federal securities laws.
o For redemptions over a certain amount, each Fund reserves the right, in
the case of an emergency, to make payments in securities or other assets of
the Fund, if the payment of cash proceeds by check, wire or electronic
funds transfer would be harmful to existing shareholders.
o To permit investors to obtain the current price, dealers are responsible
for transmitting all orders to the Funds promptly.
DEALER COMPENSATION Qualifying dealers who sell Fund shares may receive sales
commissions and other payments. These are paid by Franklin Templeton
Distributors, Inc. (Distributors) from sales charges, distribution and
service (12b-1) fees and its other resources.
CLASS A CLASS B CLASS C
----------------------------------------------------------------------
COMMISSION (%) - 4.00 2.00
Investment under $50,000 5.00 - -
$50,000 but under $100,000 3.75 - -
$100,000 but under $250,000 2.80 - -
$250,000 but under $500,000 2.00 - -
$500,000 but under $1 million 1.60 - -
$1 million or more up to 1.00/1 - -
12B-1 FEE TO DEALER 0.25/2 0.25/3 1.00/4
A dealer commission of up to 1% may be paid on Class A NAV purchases by
certain retirement plans1 and on Class C NAV purchases. A dealer commission
of up to 0.25% may be paid on Class A NAV purchases by certain trust
companies and bank trust departments, eligible governmental authorities, and
broker-dealers or others on behalf of clients participating in comprehensive
fee programs.
MARKET TIMERS. Please note that for Class A NAV purchases by market timers,
including purchases of $1 million or more, dealers are not eligible to
receive the dealer commission. Dealers, however, may be eligible to receive
the 12b-1 fee from the date of purchase.
1. During the first year after purchase, dealers may not be eligible to
receive the 12b-1 fee.
2. Each Fund may pay up to 0.35% to Distributors or others, out of which
0.10% generally will be retained by Distributors for its distribution
expenses.
3. Dealers may be eligible to receive up to 0.25% from the date of purchase.
After 8 years, Class B shares convert to Class A shares and dealers may then
receive the 12b-1 fee applicable to Class A.
4. Dealers may be eligible to receive up to 0.25% during the first year after
purchase and may be eligible to receive the full 12b-1 fee starting in the
13th month.
[Insert graphic of question mark] QUESTIONS
---------
If you have any questions about the Funds or your account, you can write to
us at P.O. Box 997151, Sacramento, CA 95899-9983. You also can call us at one
of the following numbers. For your protection and to help ensure we provide
you with quality service, all calls may be monitored or recorded.
HOURS (PACIFIC TIME,
DEPARTMENT NAME TELEPHONE NUMBER MONDAY THROUGH FRIDAY)
-----------------------------------------------------------------
Shareholder Services 1-800/632-2301 5:30 a.m. to 5:00 p.m.
6:30 a.m. to 2:30 p.m.
(Saturday)
Fund Information 1-800/DIAL BEN 5:30 a.m. to 5:00 p.m.
(1-800/342-5236) 6:30 a.m. to 2:30 p.m.
(Saturday)
Retirement Services 1-800/527-2020 5:30 a.m. to 5:00 p.m.
Advisor Services 1-800/524-4040 5:30 a.m. to 5:00 p.m.
Institutional 1-800/321-8563 6:00 a.m. to 5:00 p.m.
Services
TDD (hearing 1-800/851-0637 5:30 a.m. to 5:00 p.m.
impaired)
TeleFACTS(R) 1-800/247-1753 (around-the-clock
(automated) access)
FOR MORE INFORMATION
You can learn more about each Fund in the following document:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
Contains more information about each Fund, its investments and policies. It
is incorporated by reference (is legally a part of this prospectus).
For a free copy of the SAI, please contact your investment representative or
call us at the number below. You can also view the current annual/semiannual
report online at franklintempleton.com.
FRANKLIN(R)TEMPLETON(R)
1-800/DIAL BEN(R) (1-800/342-5236)
TDD (Hearing Impaired) 1-800/851-0637
franklintempleton.com
You also can obtain information about each Fund by visiting the SEC's Public
Reference Room in Washington, D.C. (phone 1-202/942-8090) or the EDGAR
Database on the SEC's Internet site at http://www.sec.gov. You can obtain
copies of this information, after paying a duplicating fee, by writing to the
SEC's Public Reference Section, Washington, D.C. 20549-0102 or by electronic
request at the following E-mail address: [email protected].
Investment Company Act file #811-10157 FGG P 12/00
Prospectus
Franklin Global Trust
ADVISOR CLASS
INVESTMENT STRATEGY
GROWTH
Franklin Global Aggressive Growth Fund
Franklin Global Growth Fund
DECEMBER 29, 2000
[Insert Franklin Templeton Ben Head]
The SEC has not approved or disapproved these securities or passed upon the
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
CONTENTS
THE FUNDS
[Begin callout]
INFORMATION ABOUT EACH FUND YOU SHOULD KNOW BEFORE INVESTING
[End callout]
2 Franklin Global Aggressive Growth Fund
6 Franklin Global Growth
9 More Information on Investment Policies
and Practices
14 Management
17 Distributions and Taxes
YOUR ACCOUNT
[Begin callout]
INFORMATION ABOUT QUALIFIED INVESTORS, ACCOUNT TRANSACTIONS AND SERVICES
[End callout]
18 Qualified Investors
20 Buying Shares
22 Investor Services
26 Selling Shares
28 Account Policies
30 Questions
FOR MORE INFORMATION
[Begin callout]
WHERE TO LEARN MORE ABOUT EACH FUND
[End callout]
Back Cover
FRANKLIN GLOBAL AGGRESSIVE GROWTH FUND
[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES
-------------------
GOAL The Fund's investment goal is long term capital appreciation.
MAIN INVESTMENT STRATEGIES Under normal market conditions, the Fund invests
primarily in equity securities of companies located throughout the world that
demonstrate accelerating growth, increasing profitability, or above-average
growth or growth potential. The manager focuses on companies believed to be
poised for rapid growth through the development of next generation products,
services and technologies. Common stocks, preferred stocks and depository
receipts are examples of equity securities.
[Begin call out]
The Fund invests primarily in companies located throughout the world that
demonstrate accelerating growth, increasing profitability, or above-average
growth or growth potential.
[End callout]
The Fund invests in companies of any size located throughout the world that
the manager believes are positioned for rapid growth in revenues, earnings or
assets. When suitable opportunities are available, the Fund may invest in
initial public offerings of securities, and may invest a small portion of its
assets in private or illiquid securities, such as late stage venture capital
financing. The Fund will not invest more than 40% of its net assets in any
one country other than the U.S. The Fund expects that a significant portion
of its investments will be in securities of domestic issuers.
In choosing individual equity investments, the Fund's manager utilizes both a
"top-down" evaluation of equity market sectors and an in-depth qualitative
and quantitative analysis of individual equity securities. The manager
employs this analysis to identify themes to help focus the Fund's investments
on sectors considered to have exceptional growth potential and on fast
growing, innovative companies within these sectors. Consequently, the Fund,
from time to time, may have significant positions in particular sectors such
as technology (including electronic technology, technology services,
biotechnology and health care technology) and telecommunications.
[Insert graphic of chart with line going up and down] MAIN RISKS
----------
[Begin callout]
Because the securities the Fund holds fluctuate in price, the value of your
investment in the Fund will go up and down. This means you could lose money
over short or even extended periods.
[End callout]
STOCKS While stocks historically have outperformed other asset classes over
the long term, they tend to go up and down more dramatically over the short
term. These price movements may result from factors affecting individual
companies, industries or the securities market as a whole.
FOREIGN SECURITIES Investing in foreign securities, especially those of
companies in emerging markets, typically involves more risks than investing
in U.S. securities. Certain of these risks also may apply to securities of
U.S. companies with significant foreign operations. These risks can increase
the potential for losses in the Fund and affect its share price.
AGGRESSIVE GROWTH STYLE INVESTING The Fund's manager uses an aggressive
growth strategy in choosing the Fund's investments. As a result, an
investment in the Fund involves a greater degree of risk and its share price
may be more volatile than an investment in a conservative equity Fund or a
growth Fund investing entirely in proven growth stocks. The prices of
aggressive growth stocks are based largely on projections of the issuer's
future earnings and revenues and product development. If a company's
earnings or revenues fall short of expectations, or if its new products do
not come on line on a timely basis, its stock price may fall dramatically.
Aggressive growth stocks have performed exceptionally well in the last
several years, and investors should not expect such historically unusual
performance to continue indefinitely. Currently aggressive growth stocks are
more expensive relative to their earnings or assets compared to value or
other stocks, and if those valuations return to more historical norms, the
prices of such aggressive growth stocks may moderate or fall. Prices of
these companies' securities historically have been more volatile than other
securities, especially over the short term.
SMALLER AND MIDSIZE COMPANIES The Fund can invest without limit in smaller
and midsize companies. Such companies involve greater risks than larger,
more established companies. Historically, smaller and midsize company
securities have been more volatile in price than larger company securities,
especially over the short term. Among the reasons for the greater price
volatility are the less certain growth prospects of smaller and midsize
companies, the lower degree of liquidity in the markets for such securities,
and the greater sensitivity of smaller and midsize companies to changing
economic conditions.
In addition, smaller and midsize companies may lack depth of management, may
be unable to generate funds necessary for growth or development, or may be
developing or marketing new products or services for which markets are not
yet established and may never become established. Smaller and midsize
companies may be particularly affected by interest rate increases, as they
may find it more difficult to borrow money to continue or expand operations,
or may have difficulty in repaying any loans which have a floating interest
rate.
[Insert graphic of a bull and a bear] PERFORMANCE
-----------
Because the Fund is new, it does not have a full calendar year of performance.
[Insert graphic of percentage sign] FEES AND EXPENSES
-----------------
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
ADVISOR CLASS
--------------------------------------------------------------------
Maximum sales charge (load) imposed on None
purchases
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)1
ADVISOR CLASS
--------------------------------------------------------------------
Management fees2 0.80%
Distribution and service (12b-1) fees None
Other expenses 1.12%
------------
Total annual Fund operating expenses2 1.92%
============
1. The management fees shown are based on the Fund's maximum contractual
amount. Other expenses are estimated.
2. The manager and administrator have agreed in advance to waive or limit
their respective fees and assume as their own expense certain expenses
otherwise payable by the Fund so that total annual Fund operating expenses do
not exceed 1.40%. After July 31, 2002, the manager and administrator may end
this arrangement at any time.
EXAMPLE
This example can help you compare the cost of investing in the Fund with the
cost of investing in other mutual funds. It assumes:
o You invest $10,000 for the periods shown;
o Your investment has a 5% return each year;
o The Fund's operating expenses remain the same; and
o You sell your shares at the end of the periods shown.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
1 YEAR 3 YEARS
--------------------
$195 $603
FRANKLIN GLOBAL GROWTH FUND
[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES
-------------------
GOAL The Fund's principal investment goal is long-term capital appreciation.
MAIN INVESTMENT STRATEGIES Under normal market conditions, the Fund invests
primarily in equity securities of large and mid cap growth companies located
and doing business throughout the world. The manager focuses on established
companies who are among the global leaders in their industries in terms of
products, services, and technologies. Common stocks, preferred stocks and
depository receipts are examples of equity securities.
[Begin callout]
The Fund invests primarily in equity securities of large and mid cap growth
companies located and doing business throughout the world.
[End callout]
The Fund invests in securities of companies located throughout the world that
currently have rising profits and revenues and accelerating growth rates,
that have superior products, services, brands and technologies, that
participate in industries with above-average growth characteristics and that
are highly competitive within their industry. When suitable opportunities are
available, the Fund may also invest in initial public offerings of
securities, and may invest a small portion of its assets in private or
illiquid securities, such as late stage venture capital financings. The Fund
will not invest more than 40% of its net assets in any one country other than
the U.S. The Fund expects that a significant portion of its investments will
be in securities of domestic issuers.
In choosing individual equity investments, the Fund's manager utilizes both a
"top-down" evaluation of equity market sectors and an in-depth qualitative
and quantitative analysis of individual equity securities. The manager
employs this analysis to identify themes to help focus the Fund's investments
on sectors considered to have exceptional growth potential and on fast
growing, innovative companies within these sectors. Consequently, the Fund,
from time to time, may have significant positions in particular sectors such
as technology (including electronic technology, technology services,
biotechnology and health care technology) and telecommunications.
[Insert graphic of chart with line going up and down] MAIN RISKS
----------
[Begin callout]
Because the securities the Fund holds fluctuate in price, the value of your
investment in the Fund will go up and down. This means you could lose money
over short or even extended periods.
[End callout]
STOCKS While stocks historically have outperformed other asset classes over
the long term, they tend to go up and down more dramatically over the short
term. These price movements may result from factors affecting individual
companies, industries or the securities market as a whole.
FOREIGN SECURITIES Investing in foreign securities, especially those of
companies in emerging markets, typically involves more risks than investing
in U.S. securities. Certain of these risks also may apply to securities of
U.S. companies with significant foreign operations. These risks can increase
the potential for losses in the Fund and affect its share price.
GROWTH STYLE INVESTING Growth stock prices reflect projections of future
earnings or revenues, and can, therefore, fall dramatically if the company
fails to meet those projections. Growth stocks may also be more expensive
relative to their earnings or assets compared to other stocks. The prices of
growth stocks are based largely on projections of the issuer's future
earnings and revenues. If a company's earnings or revenues fall short of
expectations, its stock price may fall dramatically. Growth stocks have
performed exceptionally well in the last several years, and investors should
not expect such historically unusual performance to continue indefinitely.
Currently, growth stocks are more expensive relative to their earnings or
assets compared to value or other stocks, and if those valuations return to
more historical norms, the prices of such aggressive growth stocks may
moderate or fall. Prices of these companies' securities historically have
been more volatile than other securities, especially over the short term.
[Insert graphic of a bull and a bear] PERFORMANCE
-----------
Because the Fund is new, it does not have a full calendar year of performance.
[Insert graphic of percentage sign] FEES AND EXPENSES
-----------------
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
ADVISOR CLASS
--------------------------------------------------------------------
Maximum sales charge (load) imposed on None
purchases
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)1
ADVISOR CLASS
--------------------------------------------------------------------
Management fees2 0.80%
Distribution and service (12b-1) fees None
Other expenses 1.12%
--------------------
Total annual Fund operating expenses2 1.92%
====================
1. The management fees shown are based on the Fund's maximum contractual
amount. Other expenses are estimated.
2. The manager and administrator have agreed in advance to waive or limit
their respective fees and assume as their own expense certain expenses
otherwise payable by the Fund so that total annual Fund operating expenses do
not exceed 1.40%. After July 31, 2002, the manager and administrator may end
this arrangement at any time.
EXAMPLE
This example can help you compare the cost of investing in the Fund with the
cost of investing in other mutual funds. It assumes:
o You invest $10,000 for the periods shown;
o Your investment has a 5% return each year;
o The Fund's operating expenses remain the same; and
o You sell your shares at the end of the periods shown.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
1 YEAR 3 YEARS
--------------------
$195 $603
MORE INFORMATION ON INVESTMENT POLICIES AND PRACTICES APPLICABLE TO THE
FRANKLIN GLOBAL AGGRESSIVE GROWTH FUND AND FRANKLIN GLOBAL GROWTH FUND
-------------------------------------------------------------------------------
EQUITY SECURITIES Each of the Funds invests primarily in equity securities.
An equity security, or stock, represents a proportionate share of the
ownership of a company; its value is based on the success of the company's
business, any income paid to stockholders, the value of its assets, and
general market conditions.
TEMPORARY INVESTMENTS When the manager believes market or economic
conditions are unfavorable for investors, the manager may invest up to 100%
of a Fund's assets in a temporary defensive manner or hold a substantial
portion of its assets in cash, cash equivalents or other high quality
short-term investments. Temporary defensive investments generally may
include short-term U.S. government securities, commercial paper, bank
obligations, repurchase agreements and other money market instruments. The
manager also may invest in these types of securities or hold cash while
looking for suitable investment opportunities or to maintain liquidity. In
these circumstances, the Fund may be unable to achieve its investment goal.
DEPOSITARY RECEIPTS The Funds may buy American, European, and Global
Depositary Receipts. Depositary receipts are certificates typically issued by
a bank or trust company that give their holders the right to receive
securities issued by a foreign or domestic company.
INITIAL PUBLIC OFFERINGS Initial public offerings(IPOs) of securities
issued by unseasoned companies with little or no operating history are risky
and their prices are highly volatile, but they can result in very large gains
in their initial trading. Attractive IPOs are often oversubscribed and may
not be available to the Funds, or only in very limited quantities. Thus,
when the Funds' size is smaller, any gains from IPOs will have an exaggerated
impact of the Funds' performance than when the Funds are larger. There can be
no assurance that the Funds will have favorable IPO investment opportunities.
RISKS OF INVESTING IN FOREIGN SECURITIES
COUNTRY. General securities market movements in any country where a Fund has
investments are likely to affect the value of the Fund's securities that trade
in that country. These movements will affect the Fund's share price and Fund
performance.
POLITICAL AND ECONOMIC DEVELOPMENTS. The political, economic and social
structures of some foreign countries may be less stable and more volatile
than those in the U.S. Investments in these countries may be subject to the
risks of internal and external conflicts, currency devaluations, foreign
ownership limitations and tax increases. It is possible that a government may
take over the assets or operations of a company or impose restrictions on the
exchange or export of currency or other assets. Some countries also may
have different legal systems that may make it difficult for a Fund to vote
proxies, exercise shareholder rights, and pursue legal remedies with respect
to its foreign investments.
AVAILABILITY OF INFORMATION. Foreign companies may not be subject to the same
disclosure, accounting, auditing and financial reporting standards and
practices as U.S. companies. Thus, there may be less information publicly
available about foreign companies than about most U.S. companies.
TRADING PRACTICES. Brokerage commissions and other fees generally are higher
for foreign securities. Government supervision and regulation of foreign
stock exchanges, currency markets, trading systems and brokers may be less
than in the U.S. The procedures and rules governing foreign transactions and
custody (holding of the Fund's assets) also may involve delays in payment,
delivery or recovery of money or investments.
LIMITED MARKETS. Certain foreign securities may be less liquid (harder to
sell) and more volatile than many U.S. securities. This means the Fund may at
times be unable to sell foreign securities at favorable prices.
EMERGING MARKETS A Fund's investments in developing or emerging markets are
subject to all of the risks of foreign investing generally and have additional
heightened risks due to a lack of established legal, political, business and
social frameworks to support securities markets. Foreign securities markets,
including emerging markets, may have substantially lower trading volumes than
U.S. markets, resulting in less liquidity and more volatility than experienced
in the U.S. Short-term volatility in these markets is not unusual, nor are
declines in excess of 50%.
CURRENCY Many of the Funds' investments are denominated in foreign currencies.
Changes in foreign currency exchange rates will affect the value of what each
Fund owns and the Fund's share price. Generally, when the U.S. dollar rises in
value against a foreign currency, an investment in that country loses value
because that currency is worth fewer U.S. dollars. Devaluation of a currency b
a country's government or banking authority also will have a significant impact
on the value of any securities denominated in that currency. Currency markets
generally are not as regulated as securities markets.
EURO On January 1, 1999, the European Economic and Monetary Union (EMU)
introduced a new single currency called the euro. By July 1, 2002, the euro,
which will be implemented in stages, will have fully replaced the national
currencies of the following member countries: Austria, Belgium, Finland, France,
Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain.
Currently, the exchange rate of the currencies of each of these countries is
fixed to the euro and the new European Central Bank has control over each
country's monetary policies. These countries' governments, however, continue to
have the authority to set tax and spending policies and public debt levels.
Because this change to a single currency is new and untested, it is not
possible to predict the impact of the euro on currency values or on the
business or financial condition of European issuers whose securities the
Funds may hold in their portfolios and, thus, the impact, if any, this will
have on a Fund's performance. To the extent a Fund holds non-U.S. dollar
(euro or other) denominated securities, it will also be exposed to currency
risk due to fluctuations in those currencies versus the U.S. dollar.
SECTOR FOCUS - TECHNOLOGY COMPANIES To the extent that a Fund has
significant investments in one or a few sectors, it bears more risk than a
fund which always maintains broad sector diversification.
Technology company stocks can be subject to abrupt or erratic price movements
and have been volatile, especially over the short term, due to the rapid pace
of product change and development affecting such companies. Technology
companies are subject to significant competitive pressures, such as new
market entrants, aggressive pricing, and tight profit margins.
ELECTRONIC TECHNOLOGY AND TECHNOLOGY SERVICES COMPANIES These companies also
face the risks that new services, equipment or technologies will not be
accepted by consumers and businesses or will become rapidly obsolete. These
factors can affect the profitability of technology companies and, as a
result, the value of their securities. In addition, many Internet-related
companies are in the emerging stage of development and are particularly
vulnerable to the risks that their business plans will not develop as
anticipated and of rapidly changing technologies.
BIOTECHNOLOGY AND HEALTH TECHNOLOGY COMPANIES The biotechnology and health
technology industries are subject to extensive government regulation. These
industries will be affected by government regulatory requirements, regulatory
approval for new drugs and medical products, patent considerations, product
liability, and similar matters. For example, in the past several years, the
U.S. Congress has considered legislation concerning health care reform and
changes to the U.S. Food and Drug Administration's (FDA) approval process,
which would, if enacted, affect the biotechnology and health technology
industries. In addition, these industries are characterized by competition
and rapid technological developments which may make a company's products or
services obsolete in a short period of time. As these factors impact these
industries, the value of your shares may fluctuate significantly over
relatively short periods of time.
TELECOMMUNICATION COMPANIES In addition to risks faced by the technology
sector in general, telecommunication companies may be adversely affected by
international, federal, and state regulations to which they are subject. In
addition, this sector has been undergoing deregulations to enable increased
competition, which could affect the companies in these sectors.
PORTFOLIO TURNOVER Each Fund's portfolio turnover rate may be higher than
that of other mutual funds. High portfolio turnover may involve additional
expenses to the Fund, including transaction costs for purchases and sales of
securities. These transactions may result in realization of taxable capital
gains, including short-term capital gains, which are generally taxed at
ordinary income tax rates.
More detailed information about the Funds, their policies and risks can be
found in the Funds' Statement of Additional Information (SAI).
[Begin callout]
Mutual fund shares are not deposits or obligations of, or guaranteed or
endorsed by, any bank, and are not insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other agency of the U.S.
government. Mutual fund shares involve investment risks, including the
possible loss of principal.
[End callout]
[Insert graphic of briefcase] MANAGEMENT
Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo, CA
94404, is the Funds' investment manager. Advisers is a wholly owned
subsidiary of Franklin Resources, Inc. Together, Advisers and its affiliates
manage over $229 billion in assets.
Under an agreement with Advisers, Fiduciary International, Inc., (Fiduciary
or manager), an indirect wholly owned subsidiary of Fiduciary Trust Company
International (Fiduciary Trust), Two World Trade Center, New York, NY 10048
is the Funds' sub-advisor. Fiduciary provides Advisers with investment
management advice and assistance.
Resources and Fiduciary Trust have entered into a definitive agreement under
which Resources will acquire Fiduciary Trust. The acquisition, which is
subject to shareholder and regulatory approvals and other customary closing
conditions, is expected to be completed in the first quarter of 2001. Because
completion of the acquisition would have the effect of terminating the
current subadvisory agreement with Fiduciary, the Funds' Board of Trustees
and initial shareholder have approved a second sub-advisory agreement, with
terms identical to those of the initial agreement. The second agreement will
take effect if and when the acquisition of Fiduciary Trust is completed. If
the acquisition does not occur, shareholders will be notified of the status
of the subadvisory relationship.
The team responsible for each Fund's management is:
FRANKLIN GLOBAL AGGRESSIVE GROWTH FUND
JEREMY H. BIGGS, CFA, VICE Chairman and Chief Investment Officer of Fiduciary
TRUST AND Vice PRESIDENT OF FIDUCIARY
Mr. Biggs has been a manager of the Funds since inception. He joined
Fiduciary Trust in 1978.
SHEILA HARTNETT-DEVLIN, CFA, Executive Vice President of Fiduciary TRUST AND
Vice PRESIDENT OF FIDUCIARY
Ms. Hartnett-Devlin has been a manager of the Funds since inception. She
joined Fiduciary Trust in 1980.
MARGARET S. LINDSAY, Senior Vice President of Fiduciary TRUST AND Vice
PRESIDENT OF FIDUCIARY
Ms. Lindsay has been a manager of the Funds since inception. She joined
Fiduciary in 1991.
DAVID S. LEE, CFA, Vice President of Fiduciary TRUST AND FIDUCIARY
Mr. Lee has been a manager of the Funds since inception. He joined Fiduciary
in 1996. Previously, he was international equity analyst with Prudential.
FRANKLIN GLOBAL GROWTH FUND
SHEILA HARTNETT-DEVLIN, CFA, Executive Vice President of Fiduciary TRUST AND
Vice PRESIDENT OF FIDUCIARY
Ms. Hartnett-Devlin has been a manager of the Funds since inception. She
joined Fiduciary Trust in 1980.
JOSHUA A. ROSENTHAL, Senior Vice President of Fiduciary TRUST AND Vice
PRESIDENT OF FIDUCIARY
Mr. Rosenthal has been a manager of the Funds since inception. He joined
Fiduciary in 1998. Previously, he held investment positions at Grantham,
Mayo Van Otterloo, The Metropolitan Museum of Art, and Amerada Hess.
PAUL A.M. HARRIS, CFA, VICE PRESIDENT OF FIDUCIARY TRUST AND Vice PRESIDENT
OF FIDUCIARY
Mr. Harris has been a manager of the Funds since inception. He joined
Fiduciary in 2000. Previously he was with Toronto Dominion Bank for ten
years, including eight years with TD Asset Management.
Each Fund pays Advisers a fee for managing the Fund's assets. The fee is
equal to an annual rate of:
o 0.800% of the value of net assets up to and including $500 million;
o 0.700% of the value of net assets over $500 million up to and including $1
billion;
o 0.650% of the value of net assets over $1 billion up to and including $1.5
billion;
o 0.600% of the value of net assets over $1.5 billion up to and including
$6.5 billion;
o 0.575% of the value of net assets over $6.5 billion up to and including
$11.5 billion;
o 0.555% of the value of net assets over $11.5 billion up to and including
$16.5 billion;
o 0.540% of the value of net assets over $16.5 billion up to and including
$19 billion;
o 0.530% of the value of net assets over $19 billion up to and including
$21.5 billion; and
o 0.520% of the value of net assets in excess of $21.5 billion.
[Insert graphic of dollar
signs and stacks of coins] DISTRIBUTIONS AND TAXES
INCOME AND CAPITAL GAINS DISTRIBUTIONS Each Fund intends to pay a dividend at
least annually representing substantially all of its net investment income
and any net realized capital gains. The amount of this distribution will
vary and there is no guarantee any Fund will pay dividends.
To receive a distribution, you must be a shareholder on the record date. The
record dates for each Fund's distributions will vary. Please keep in mind
that if you invest in a Fund shortly before the record date of a
distribution, any distribution will lower the value of the Fund's shares by
the amount of the distribution and you will receive some of your investment
back in the form of a taxable distribution. If you would like information on
upcoming record dates for a Fund's distributions, please call 1-800/DIAL BEN(R).
TAX CONSIDERATIONS In general, Fund distributions are taxable to you as
either ordinary income or capital gain. This is true whether you reinvest
your distributions in additional Fund shares or receive them in cash. Capital
gain dividends paid by a Fund are taxable to you as long-term capital gain no
matter how long you have owned your shares.
[Begin callout]
BACKUP WITHHOLDING
By law, a Fund must withhold 31% of your taxable distributions and redemption
proceeds if you do not provide your correct social security or taxpayer
identification number and certify that you are not subject to backup
withholding, or if the IRS instructs a Fund to do so.
[End callout]
Every January, you will receive a statement that shows the tax status of
distributions you received for the previous year. Distributions declared in
December but paid in January are taxable as if they were paid in December.
When you sell your shares of a Fund, you may have a capital gain or loss. For
tax purposes, an exchange of your Fund shares for shares of a different
Franklin Templeton fund is the same as a sale.
Fund distributions and gain from the sale or exchange of your shares
generally will be subject to state and local taxes. Non-U.S. investors may be
subject to U.S. withholding and estate tax. You should consult your tax
advisor about the federal, state, local or foreign tax consequences of your
investment in a Fund.
YOUR ACCOUNT
[Insert graphic of pencil marking an "X"]QUALIFIED INVESTORS
-------------------
The following investors may qualify to buy Advisor Class shares of the Funds.
o Qualified registered investment advisors with clients invested in any
series of Franklin Mutual Series Fund Inc. on October 31, 1996, or who buy
through a broker-dealer or service agent who has an agreement with Franklin
Templeton Distributors, Inc. (Distributors). Minimum investments: $1,000
initial and $50 additional.
o Broker-dealers, registered investment advisors or certified financial
planners who have an agreement with Distributors for clients participating
in comprehensive fee programs. Minimum investments: $250,000 initial
($100,000 initial for an individual client) and $50 additional.
o Officers, trustees, directors and full-time employees of Franklin
Templeton Investments and their immediate family members. Minimum
investments: $100 initial ($50 for accounts with an automatic investment
plan) and $50 additional.
o Each series of the Franklin Templeton Fund Allocator Series. Minimum
investments: $1,000 initial and $1,000 additional.
[Begin callout]
FRANKLIN TEMPLETON FUNDS include all of the U.S. registered mutual funds of
Franklin Templeton Investments, except Franklin Templeton Variable Insurance
Products Trust and Templeton Capital Accumulator Fund, Inc.
[End callout]
o Governments, municipalities, and tax-exempt entities that meet the
requirements for qualification under section 501 of the Internal Revenue
Code. Minimum investments: $1 million initial investment in Advisor Class
or Class Z shares of any Franklin Templeton fund and $50 additional.
o Accounts managed by Franklin Templeton Investments. Minimum investments:
No initial minimum and $50 additional.
o The Franklin Templeton Profit Sharing 401(k) Plan. Minimum investments:
No initial or additional minimums.
o Defined contribution plans such as employer stock, bonus, pension or
profit sharing plans that meet the requirements for qualification under
section 401 of the Internal Revenue Code, including salary reduction plans
qualified under section 401(k) of the Internal Revenue Code, and that are
sponsored by an employer (i) with at least 10,000 employees, or (ii) with
retirement plan assets of $100 million or more. Minimum investments: No
initial or additional minimums.
o Trust companies and bank trust departments initially investing in
Franklin Templeton funds at least $1 million of assets held in a fiduciary,
agency, advisory, custodial or similar capacity and over which the trust
companies and bank trust departments or other plan fiduciaries or
participants, in the case of certain retirement plans, have full or shared
investment discretion. Minimum investments: No initial or additional
minimums.
o Individual investors. Minimum investments: $5 million initial and $50
additional. You may combine all of your shares in Franklin Templeton funds
for purposes of determining whether you meet the $5 million minimum, as
long as $1 million is in Advisor Class or Class Z shares of any Franklin
Templeton fund.
o Any other investor, including a private investment vehicle such as a
family trust or foundation, who is a member of an established group of 11
or more investors. Minimum investments: $5 million initial and $50
additional. For minimum investment purposes, the group's investments are
added together. The group may combine all of its shares in Franklin
Templeton funds for purposes of determining whether it meets the $5 million
minimum, as long as $1 million is in Advisor Class or Class Z shares of any
Franklin Templeton fund. There are certain other requirements and the group
must have a purpose other than buying Fund shares without a sales charge.
Please note that Advisor Class shares of the Funds generally are not
available to retirement plans through Franklin Templeton's ValuSelect(R)
program. Retirement plans in the ValuSelect program before January 1, 1998,
however, may invest in the Funds' Advisor Class shares.
[Insert graphic of a paper with lines
and someone writing] BUYING SHARES
-------------
ACCOUNT APPLICATION If you are opening a new account, please complete and
sign the enclosed account application. To save time, you can sign up now for
services you may want on your account by completing the appropriate sections
of the application (see "Investor Services" on page 22). For example, if you
would like to link one of your bank accounts to your Fund account so that you
may use electronic fund transfers to and from your bank account to buy and
sell shares, please complete the bank information section of the application.
We will keep your bank information on file for future purchases and
redemptions.
BUYING SHARES
---------------------------------------------------------------------
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
---------------------------------------------------------------------
[Insert graphic
of hands shaking]
Contact your investment Contact your investment
THROUGH YOUR representative representative
INVESTMENT
REPRESENTATIVE
---------------------------------------------------------------------
[Insert graphic If you have another Before requesting a
of phone and Franklin Templeton fund telephone or online
computer] account with your bank purchase into an
account information on existing account, please
BY PHONE/ONLINE file, you may open a make sure we have your
new account by phone. bank account information
(Up to $100,000 At this time a new on file. If we do not
per shareholder account may not be have this information,
per day) opened online. you will need to send
written instructions
1-800/632-2301 To make a same day with your bank's name
investment, your phone and address, a voided
franklintempleton.order must be received check or savings account
and accepted by us by deposit slip, and a
NOTE: CERTAIN 1:00 p.m. Pacific time signature guarantee if
ACCOUNTS ARE NOT or the close of the New the bank and Fund
AVAILABLE FOR York Stock Exchange, accounts do not have at
ONLINE ACCOUNT whichever is earlier. least one common owner.
ACCESS
To make a same day
investment, your phone
or online order must be
received and accepted by
us by 1:00 p.m. Pacific
time or the close of the
New York Stock Exchange,
whichever is earlier.
---------------------------------------------------------------------
Make your check payable Make your check payable
[Insert graphic to the Fund. to the Fund. Include
of envelope] your account number on
Mail the check and your the check.
BY MAIL signed application to
Investor Services. Fill out the deposit
slip from your account
statement. If you do not
have a slip, include a
note with your name, the
Fund name, and your
account number.
Mail the check and
deposit slip or note to
Investor Services.
---------------------------------------------------------------------
[Insert graphic Call to receive a wire Call to receive a wire
of three control number and wire control number and wire
lightning bolts] instructions. instructions.
Wire the funds and mail To make a same day wire
your signed application investment, please call
BY WIRE to Investor Services. us by 1:00 p.m. Pacific
Please include the wire time and make sure your
1-800/632-2301 control number or your wire arrives by 3:00
(or new account number on p.m.
1-650/312-2000 the application.
collect)
To make a same day wire
investment, please call
us by 1:00 p.m. Pacific
time and make sure your
wire arrives by 3:00
p.m.
---------------------------------------------------------------------
[Insert graphic Call Shareholder Call Shareholder
of two Services at the number Services at the number
arrows pointing below, or send signed below, or send signed
in written instructions. written instructions.
opposite You also may place an You also may place an
directions] online exchange order. online exchange
(Please see page 24 for order.(Please see page
BY EXCHANGE information on 24 for information on
exchanges.) exchanges.)
Our Website
franklintempleton.com
---------------------------------------------------------------------
FRANKLIN TEMPLETON INVESTOR SERVICES P.O. BOX 997151,
SACRAMENTO, CA 95899-9983
CALL TOLL-FREE: 1-800/632-2301
(MONDAY THROUGH FRIDAY 5:30 A.M. TO 5:00 P.M., PACIFIC TIME
SATURDAY 6:30 A.M. TO 2:30 P.M., PACIFIC TIME)
[Insert graphic of person with a headset] INVESTOR SERVICES
-----------------
AUTOMATIC INVESTMENT PLAN This plan offers a convenient way for you to
invest in the Funds by automatically transferring money from your checking or
savings account each month to buy shares. To sign up, complete the
appropriate section of your account application and mail it to Investor
Services. If you are opening a new account, please include your minimum
initial investment with your application.
AUTOMATIC PAYROLL DEDUCTION You may invest in a Fund automatically by
transferring money from your paycheck to a Fund by electronic funds transfer.
If you are interested, indicate on your application that you would like to
receive an Automatic Payroll Deduction Program kit.
DISTRIBUTION OPTIONS You may reinvest distributions you receive from a Fund
in an existing account in the same share class of the Fund or in Advisor
Class or Class A shares of another Franklin Templeton fund. To reinvest your
distributions in Advisor Class shares of another Franklin Templeton fund, you
must qualify to buy that fund's Advisor Class shares. For distributions
reinvested in Class A shares of another Franklin Templeton fund, initial
sales charges and contingent deferred sales charges (CDSCs) will not apply if
you reinvest your distributions within 365 days. You can also have your
distributions deposited in a bank account, or mailed by check. Deposits to a
bank account may be made by electronic funds transfer.
[Begin callout]
For Franklin Templeton Bank & Trust retirement plans, special forms may be
needed to receive distributions in cash. Please call 1-800/527-2020 for
information.
[End callout]
Please indicate on your application the distribution option you have chosen,
otherwise we will reinvest your distributions in the same share class of the
Fund.
RETIREMENT PLANS Franklin Templeton Investments offers a variety of
retirement plans for individuals and businesses. These plans require separate
applications and their policies and procedures may be different than those
described in this prospectus. For more information, including a free
retirement plan brochure or application, please call Retirement Services at
1-800/527-2020.
TELEFACTS(R) Our TeleFACTS system offers around-the-clock access to
information about your account or any Franklin Templeton fund. This service
is available from touch-tone phones at 1-800/247-1753. For a free TeleFACTS
brochure, call 1-800/DIAL BEN.
FRANKLIN TEMPLETON ONLINE You can visit us online at franklintempleton.com
for around-the-clock viewing of information about most Franklin Templeton
Funds or to register to view your accounts online. You may also register for
online transactions that will allow you to buy, sell, or exchange your shares
and make certain changes to your account. Some account types may not be able
to process any or all transactions online.
TELEPHONE/ONLINE PRIVILEGES You will automatically receive telephone/online
privileges when you open your account, allowing you to obtain or view your
account information, and conduct the following transactions by phone or
online: buy, sell, or exchange shares of most funds; change your address;
request a year-end statement; add or change account services (including
distribution options, systematic withdrawals, automatic investment plans,
money fund check orders).
To view your account information or request online transactions, you will
first need to register for these services at the shareholder section of our
website at franklintempleton.com. You will be asked to accept the terms of
an online agreement(s) and establish a password for online services. Using
our shareholder website means you are consenting to sending and receiving
personal financial information over the Internet so you should be sure you
are comfortable with the risks.
For accounts with more than one registered owner, telephone/online privileges
allow a Fund to accept online registration or telephone/online instructions
for transactions from only one owner. As long as you have telephone/online
exchange privileges on your account, you may exchange shares by phone or
online from a fund account requiring two or more signatures into an
identically registered money fund account requiring only one signature for
all transactions.
Additionally, if you have telephone privileges on an account with more than
one owner, the Fund will accept written instructions signed by only ONE OWNER
for transactions that could otherwise be made by phone. For all other
transactions and changes, all registered owners must sign the instructions.
As long as we follow reasonable security procedures and act on instructions
we reasonably believe are genuine, we will not be responsible for any losses
that may occur from unauthorized requests. We will request passwords or
other information, and may also record calls. To help safeguard your
account, keep your password confidential, and verify the accuracy of your
confirmation statements immediately after you receive them. Contact us
immediately if you believe someone has obtained unauthorized access to your
account or password. For transactions done over the Internet, we recommend
the use of an Internet browser with 128-bit encryption. Certain methods of
contacting us (such as by phone or by Internet) may be unavailable or delayed
during periods of unusual market activity. OF COURSE, YOU CAN DECLINE
TELEPHONE PRIVILEGES ON YOUR ACCOUNT APPLICATION, OR CHOOSE NOT TO REGISTER
FOR ONLINE PRIVILEGES. IF YOU HAVE TELEPHONE/ONLINE PRIVILEGES ON YOUR
ACCOUNT AND WANT TO DISCONTINUE THEM, PLEASE CONTACT US FOR INSTRUCTIONS.
You may reinstate these privileges at any time in writing, including online
registration with respect to online privileges.
NOTE: We discourage you from including confidential or sensitive
information in any Internet communication to us. If you do choose to send
email (encrypted or not) to us over the Internet, you are accepting the
associated risks of lack of confidentiality.
EXCHANGE PRIVILEGE You can exchange shares between most Franklin Templeton
funds within the same class. You also may exchange your Advisor Class shares
for Class A shares of a fund that does not currently offer an Advisor Class
(without any sales charge)* or for Class Z shares of Franklin Mutual Series
Fund Inc.
[Begin callout]
An EXCHANGE is really two transactions: a sale of one fund and the purchase
of another. In general, the same policies that apply to purchases and sales
apply to exchanges, including minimum investment amounts. Exchanges also have
the same tax consequences as ordinary sales and purchases.
[End callout]
If you do not qualify to buy Advisor Class shares of Templeton Developing
Markets Trust or Templeton Foreign Fund,you also may exchange your shares for
Class A shares of those funds (without any sales charge)* or for shares of
Templeton Institutional Funds, Inc.
Generally exchanges may only be made between identically registered accounts,
unless you send written instructions with a signature guarantee.
Because excessive trading can hurt fund performance, operations and
shareholders, each Fund reserves the right to revise or terminate the
exchange privilege, limit the amount or number of exchanges, reject any
exchange, or restrict or refuse purchases if (i) the Fund or its manager
believes the Fund would be harmed or unable to invest effectively, or (ii)
the Fund receives or anticipates simultaneous orders that may significantly
affect the Fund (please see "Market Timers" on page 29).
*If you exchange into Class A shares and you later decide you would like to
exchange into a fund that offers an Advisor Class, you may exchange your
Class A shares for Advisor Class shares if you otherwise qualify to buy the
fund's Advisor Class shares.
SYSTEMATIC WITHDRAWAL PLAN This plan allows you to automatically sell your
shares and receive regular payments from your account. Certain terms and
minimums apply. To sign up, complete the appropriate section of your
application.
[Insert graphic of a certificate] SELLING SHARES
--------------
You can sell your shares at any time.
SELLING SHARES IN WRITING Generally, requests to sell $100,000 or less can be
made over the phone, online or with a simple letter. Sometimes, however, to
protect you and the Fund we will need written instructions signed by all
registered owners, with a signature guarantee for each owner, if:
[Begin callout]
A SIGNATURE GUARANTEE helps protect your account against fraud.
You can obtain a signature guarantee at most banks and securities dealers.
A notary public CANNOT provide a signature guarantee.
[End callout]
o you are selling more than $100,000 worth of shares
o you want your proceeds paid to someone who is not a registered owner
o you want to send your proceeds somewhere other than the address of
record, or preauthorized bank or brokerage firm account
We also may require a signature guarantee on instructions we receive from an
agent, not the registered owners, or when we believe it would protect the
Fund against potential claims based on the instructions received.
SELLING RECENTLY PURCHASED SHARES If you sell shares recently purchased, we
may delay sending you the proceeds until your check, draft, or
wire/electronic funds transfer has cleared, which may take seven business
days or more. A certified or cashier's check may clear in less time.
REDEMPTION PROCEEDS Your redemption check will be sent within seven days
after we receive your request in proper form. We are not able to receive or
pay out cash in the form of currency. Redemption proceeds may be delayed if
we have not yet received your signed account application.
RETIREMENT PLANS You may need to complete additional forms to sell shares in
a Franklin Templeton Bank & Trust retirement plan. For participants under age
591/2, tax penalties may apply. Call Retirement Services at 1-800/527-2020
for details.
SELLING SHARES
---------------------------------------------------------------
TO SELL SOME OR ALL OF YOUR SHARES
---------------------------------------------------------------
[Insert graphic of
hands shaking]
Contact your investment representative
THROUGH YOUR
INVESTMENT
REPRESENTATIVE
---------------------------------------------------------------
[Insert graphic of Send written instructions and endorsed
envelope] share certificates (if you hold share
certificates) to Investor Services.
BY MAIL Corporate, partnership or trust
accounts may need to send additional
documents.
Specify the Fund, the account number
and the dollar value or number of
shares you wish to sell. Be sure to
include all necessary signatures and
any additional documents, as well as
signature guarantees if required.
A check will be mailed to the name(s)
and address on the account, or
otherwise according to your written
instructions.
---------------------------------------------------------------
[Insert graphic of As long as your transaction is for
phone and computer] $100,000 or less, you do not hold share
certificates and you have not changed
BY PHONE/ONLINE your address by phone or online within
the last 15 days, you can sell your
1-800/632-2301 shares by phone or online.
franklintempleton.com A check will be mailed to the name(s)
and address on the account. Written
instructions, with a signature
guarantee, are required to send the
check to another address or to make it
payable to another person.
Please see page 23 for more information.
---------------------------------------------------------------
[Insert graphic of You can call, write, or visit us online
three to have redemption proceeds sent to a
lightning bolts] bank account. See the policies above
for selling shares by mail, phone, or
BY ELECTRONIC FUNDS online.
TRANSFER (ACH)
Before requesting to have redemption
proceeds sent to a bank account, please
make sure we have your bank account
information on file. If we do not have
this information, you will need to send
written instructions with your bank's
name and address, a voided check or
savings account deposit slip, and a
signature guarantee if the bank and
Fund accounts do not have at least one
common owner.
If we receive your request in proper
form by 1:00 p.m. Pacific time,
proceeds sent by ACH generally will be
available within two to three business
days.
---------------------------------------------------------------
[Insert graphic of Obtain a current prospectus for the
two fund you are considering. Prospectuses
arrows pointing in are available online at
opposite directions] www.franklintempleton.com.
BY EXCHANGE Call Shareholder Services at the number
below, or send signed written
instructions. You also may place an
exchange order online. See the
policies above for selling shares by
mail, phone, or online.
If you hold share certificates, you
will need to return them to the Fund
before your exchange can be processed.
Please see page number 24 for
information on exchanges.
---------------------------------------------------------------
FRANKLIN TEMPLETON INVESTOR SERVICES P.O. BOX 997151,
SACRAMENTO, CA 95899-9983
CALL TOLL-FREE: 1-800/632-2301
(MONDAY THROUGH FRIDAY 5:30 A.M. TO 5:00 P.M., PACIFIC TIME
SATURDAY 6:30 A.M. TO 2:30 P.M., PACIFIC TIME)
[Insert graphic of paper and pen] ACCOUNT POLICIES
----------------
CALCULATING SHARE PRICE Each Fund calculates the net asset value per share
(NAV) each business day at the close of trading on the New York Stock
Exchange (normally 1:00 p.m. Pacific time). The NAV for Advisor Class is
calculated by dividing its net assets by the number of its shares
outstanding.
Each Fund's assets are generally valued at their market value. If market
prices are unavailable, or if an event occurs after the close of the trading
market that materially affects the values, assets may be valued at their fair
value.If the Fund holds securities listed primarily on a foreign exchange
that trades on days when the Fund is not open for business, the value of your
shares may change on days that you cannot buy or sell shares.
Requests to buy and sell shares are processed at the NAV next calculated
after we receive your request in proper form.
ACCOUNTS WITH LOW BALANCES If the value of your account falls below $250
($50 for employee accounts) because you sell some of your shares, we may mail
you a notice asking you to bring the account back up to its applicable
minimum investment amount. If you choose not to do so within 30 days, we may
close your account and mail the proceeds to the address of record.
STATEMENTS AND REPORTS You will receive quarterly account statements that
show all your account transactions during the quarter. You also will receive
written notification after each transaction affecting your account (except
for distributions and transactions made through automatic investment or
withdrawal programs, which will be reported on your quarterly statement). You
also will receive the Fund's financial reports every six months. To reduce
Fund expenses, we try to identify related shareholders in a household and
send only one copy of the financial reports. If you need additional copies,
please call 1-800/DIAL BEN. You can also review these documents online at
franklintempleton.com.
INVESTMENT REPRESENTATIVE ACCOUNT ACCESS If there is a dealer or other
investment representative of record on your account, he or she will be able
to obtain your account information, conduct transactions for your account,
and will also receive copies of all notifications and statements and other
information about your account directly from the Fund.
STREET OR NOMINEE ACCOUNTS You may transfer your shares from the street or
nominee name account of one dealer to another, as long as both dealers have
an agreement with Franklin Templeton Distributors, Inc. We will process the
transfer after we receive authorization in proper form from your delivering
securities dealer.
JOINT ACCOUNTS Unless you specify a different registration, accounts with
two or more owners are registered as "joint tenants with rights of
survivorship" (shown as "Jt Ten" on your account statement). To make any
ownership changes to a joint account, all owners must agree in writing,
regardless of the law in your state.
MARKET TIMERS Each Fund does not allow investments by Market Timers. You may
be considered a Market Timer if you have (i) requested an exchange out of any
of the Franklin Templeton funds within two weeks of an earlier exchange
request out of any fund, or (ii) exchanged shares out of any of the Franklin
Templeton funds more than twice within a rolling 90 day period, or (iii)
otherwise seem to follow a market timing pattern that may adversely affect
the Fund. Accounts under common ownership or control with an account that is
covered by (i), (ii), or (iii) are also subject to these limits.
ADDITIONAL POLICIES Please note that the Funds maintain additional policies
and reserves certain rights, including:
o The Funds may restrict or refuse any order to buy shares, including any
purchase under the exchange privilege.
o The Funds may modify, suspend, or terminate telephone/online privileges
at any time.
o At any time, the Funds may change its investment minimums or waive or
lower its minimums for certain purchases.
o The Funds may modify or discontinue the exchange privilege on 60 days'
notice.
o You may only buy shares of a fund eligible for sale in your state or
jurisdiction.
o In unusual circumstances, we may temporarily suspend redemptions, or
postpone the payment of proceeds, as allowed by federal securities laws.
o For redemptions over a certain amount, each Fund reserves the right, in
the case of an emergency, to make payments in securities or other assets of
the Fund, if the payment of cash proceeds by check, wire or electronic
funds transfer would be harmful to existing shareholders.
o To permit investors to obtain the current price, dealers are responsible
for transmitting all orders to the Funds promptly.
DEALER COMPENSATION Qualifying dealers who sell Advisor Class shares may
receive up to 0.25% of the amount invested. This amount is paid by Franklin
Templeton Distributors, Inc. from its own resources.
[Insert graphic of question mark] QUESTIONS
----------
If you have any questions about the Funds or your account, you can write to
us at P.O. Box 997151, Sacramento, CA 95899-9983. You also can call us at one
of the following numbers. For your protection and to help ensure we provide
you with quality service, all calls may be monitored or recorded.
HOURS (PACIFIC TIME, MONDAY
DEPARTMENT NAME TELEPHONE NUMBER THROUGH FRIDAY)
----------------------------------------------------------------------
Shareholder Services 1-800/632-2301 5:30 a.m. to 5:00 p.m.
6:30 a.m. to 2:30 p.m.
(Saturday)
Fund Information 1-800/DIAL BEN 5:30 a.m. to 5:00 p.m.
(1-800/342-5236) 6:30 a.m. to 2:30 p.m.
(Saturday)
Retirement Services 1-800/527-2020 5:30 a.m. to 5:00 p.m.
Advisor Services 1-800/524-4040 5:30 a.m. to 5:00 p.m.
Institutional 1-800/321-8563 6:00 a.m. to 5:00 p.m.
Services
TDD (hearing 1-800/851-0637 5:30 a.m. to 5:00 p.m.
impaired)
TeleFACTS(R) 1-800/247-1753 (around-the-clock access)
(automated)
FOR MORE INFORMATION
You can learn more about each Fund in the following documents:
ANNUAL/SEMIANNUAL REPORT TO SHAREHOLDERS
Includes a discussion of recent market conditions and Fund strategies,
financial statements, detailed performance information, portfolio holdings
and the auditor's report.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
Contains more information about each Fund, its investments and policies. It
is incorporated by reference (is legally a part of this prospectus).
For a free copy of the current annual/semiannual report or the SAI, please
contact your investment representative or call us at the number below. You
can also view the current annual/semiannual report online at
franklintempleton.com.
FRANKLIN(R)TEMPLETON(R)
1-800/DIAL BEN(R) (1-800/342-5236)
TDD (Hearing Impaired) 1-800/851-0637
franklintempleton.com
You also can obtain information about each Fund by visiting the SEC's Public
Reference Room in Washington, D.C. (phone 1-202/942-8090) or the EDGAR
Database on the SEC's Internet site at http://www.sec.gov. You can obtain
copies of this information, after paying a duplicating fee, by writing to the
SEC's Public Reference Section, Washington, D.C. 20549-0102 or by electronic
request at the following E-mail address: [email protected].
Investment Company Act file #811-10157 FGG PA 12/00
FRANKLIN GLOBAL TRUST
FRANKLIN GLOBAL AGGRESSIVE GROWTH FUND
FRANKLIN GLOBAL GROWTH FUND
CLASS A, B & C
STATEMENT OF ADDITIONAL INFORMATION
DECEMBER 29, 2000
[Insert Franklin Templeton Ben Head]
P.O. BOX 997151, SACRAMENTO, CA 95899-9983 1-800/DIAL BEN(R)
-------------------------------------------------------------------------------
This Statement of Additional Information (SAI) is not a prospectus. It
contains information in addition to the information in the Funds' prospectus.
The Funds' prospectus, dated December 29, 2000, which we may amend from time
to time, contains the basic information you should know before investing in a
Fund. You should read this SAI together with the Funds' prospectus.
For a free copy of the current prospectus, contact your investment
representative or call 1-800/DIAL BEN (1-800/342-5236).
CONTENTS
Goals, Strategies and Risks 2
Officers and Trustees 12
Management and Other Services 15
Portfolio Transactions 17
Distributions and Taxes 18
Organization, Voting Rights
and Principal Holders 19
Buying and Selling Shares 20
Pricing Shares 26
The Underwriter 27
Performance 28
Miscellaneous Information 30
Description of Ratings 30
-------------------------------------------------------------------------------
MUTUAL FUNDS, ANNUITIES, AND OTHER INVESTMENT PRODUCTS:
o ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE U.S. GOVERNMENT;
o ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY
BANK;
o ARE SUBJECT TO INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
-------------------------------------------------------------------------------
GOALS, STRATEGIES AND RISKS
-------------------------------------------------------------------------------
Generally, the policies and restrictions discussed in this SAI and in the
prospectus apply when a Fund makes an investment. In most cases, the Fund is
not required to sell a security because circumstances change and the security
no longer meets one or more of the Fund's policies or restrictions. If a
percentage restriction or limitation is met at the time of investment, a
later increase or decrease in the percentage due to a change in the value or
liquidity of portfolio securities will not be considered a violation of the
restriction or limitation.
If a bankruptcy or other extraordinary event occurs concerning a particular
security a Fund owns, the Fund may receive stock, real estate, or other
investments that the Fund would not, or could not, buy. If this happens, the
Fund intends to sell such investments as soon as practicable while trying to
maximize the return to shareholders.
Each Fund has adopted certain investment restrictions as fundamental and
non-fundamental policies. A fundamental policy may only be changed if the
change is approved by (i) more than 50% of a Fund's outstanding shares or
(ii) 67% or more of a Fund's shares present at a shareholder meeting if more
than 50% of a Fund's outstanding shares are represented at the meeting in
person or by proxy, whichever is less. A non-fundamental policy may be
changed by the Board of Trustees without the approval of shareholders.
FRANKLIN GLOBAL GROWTH FUND AND FRANKLIN GLOBAL AGGRESSIVE GROWTH FUND
FUNDAMENTAL INVESTMENT POLICIES
Each Fund's principal investment goal is long-term capital appreciation.
A Fund may not:
1. Borrow money, except that the Fund may borrow money from banks or
affiliated investment companies to the extent permitted by the 1940 Act,
or any exemptions therefrom which may be granted by the SEC, or from any
person in a private transaction not intended for public distribution, for
temporary or emergency purposes and then in an amount not exceeding 33
1/3% of the value of the Fund's total assets (including the amount
borrowed).
2. Act as an underwriter except to the extent the Fund may be deemed to be an
underwriter when disposing of securities it owns or when selling its own
shares.
3. Make loans to other persons except (a) through the lending of its
portfolio securities, (b) through the purchase of debt securities, loan
participations and/or engaging in direct corporate loans in accordance
with its investment goal and policies, and (c) to the extent the entry
into a repurchase agreement is deemed to be a loan. The Fund may also make
loans to affiliated investment companies to the extent permitted by the
1940 Act or any exemptions therefrom that may be granted by the SEC.
4. Purchase or sell real estate and commodities, except that the Fund may buy
or sell securities of real estate investment trusts, may purchase or sell
currencies, may enter into futures contracts on securities, currencies,
indices or any other financial instruments, and may purchase and sell
options on such futures contracts.
5. Issue securities senior to the Fund's presently authorized shares of
beneficial interest, except that this restriction shall not be deemed to
prohibit the Fund from (a) making any permitted borrowings, loans,
mortgages or pledges, (b) entering into options, futures contracts,
forward contracts or repurchase transactions, or (c) making short sales of
securities to the extent permitted by the 1940 Act and any rule or order
thereunder, or SEC staff interpretations thereof.
6. Concentrate (invest more than 25% of its total assets) in securities of
issuers in a particular 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).
7. Buy the securities of any one issuer (other than the U.S. government or
any of its agencies or instrumentalities or securities of other investment
companies) if immediately after such investment (a) more than 5% of the
value of the Fund's total assets would be invested in such issuer or (b)
more than 10% of the outstanding voting securities of such issuer would be
owned by the Fund, except that up to 25% of the value of such Fund's total
assets may be invested without regard to such 5% and 10% limitations.
NON-FUNDAMENTAL INVESTMENT POLICIES, TECHNIQUES, STRATEGIES AND THEIR RISKS
In trying to achieve its investment goals, each Fund may invest (unless
otherwise indicated) in the following types of securities or engage in the
following types of transactions:
EQUITY SECURITIES Each Fund invests primarily in equity securities. The
purchaser of an equity security typically receives an ownership interest in
the company as well as certain voting rights. The owner of an equity security
may participate in a company's success through the receipt of dividends,
which are distributions of earnings by the company to its owners. Equity
security owners may also participate in a company's success or lack of
success through increases or decreases in the value of the company's shares
as traded in the public trading market for such shares. Equity securities
generally take the form of common stock or preferred stock. Preferred
stockholders typically receive greater dividends but may receive less
appreciation than common stockholders and may have greater or lesser voting
rights. Equity securities may also include convertible securities, warrants,
or rights. Warrants or rights give the holder the right to purchase a common
stock at a given time for a specified price.
A significant portion of each Fund's investments in equity securities may be
securities of companies in the following particular industries:
BIOTECHNOLOGY COMPANIES The biotechnology industry is subject to extensive
government regulation. The industry will be affected by government regulatory
requirements, regulatory approval for new drugs and medical products, patent
considerations, product liability, and similar matters. For example, in the
past several years, the U.S. Congress has considered legislation concerning
healthcare reform and changes to the U.S. Food and Drug Administration's
(FDA) approval process. If such legislation is passed it may affect the
biotechnology industry. As these factors impact the biotechnology industry,
the value of your shares may fluctuate significantly over relatively short
periods of time.
Because the biotechnology industry is relatively new, investors may be quick
to react to developments that affect the industry. In the past, biotechnology
securities have exhibited considerable volatility in reaction to research and
other developments. In comparison to more developed industries, there may be
a thin trading market in biotechnology securities, and adverse developments
in the biotechnology industry may be more likely to result in decreases in
the value of biotechnology stocks.
Biotechnology companies are often small, start-up ventures whose products are
only in the research stage. Only a limited number of biotechnology companies
have reached the point of approval of products by the FDA and subsequent
commercial production and distribution of such products. Therefore, the
success of investments in the biotechnology industry is often based upon
speculation and expectations about future products, research progress, and
new product filings with regulatory authorities. Such investments are
speculative and may drop sharply in value in response to regulatory or
research setbacks.
HEALTH TECHNOLOGY COMPANIES The value of health technology companies may be
affected by a variety of government actions. For example, the activities of
some health technology companies may be funded or subsidized by federal and
state governments. If government subsidies are discontinued, the
profitability of these companies could be adversely affected. Stocks of these
companies will be affected by government policies on health technology
reimbursements, regulatory approval for new drugs and medical instruments,
and similar matters. Health technology companies are also subject to
legislative risk, which is the risk of a reform of the health technology
system through legislation. Health technology companies may face lawsuits
related to product liability issues. Also, many products and services
provided by health technology companies are subject to rapid obsolescence.
The value of an investment in a Fund may fluctuate significantly over
relatively short periods of time.
FOREIGN SECURITIES The value of foreign (and U.S.) securities is affected by
general economic conditions and individual company and industry earnings
prospects. While foreign securities may offer significant opportunities for
gain, they also involve additional risks that can increase the potential for
losses in a Fund. These risks can be significantly greater for investments in
emerging markets. Although each Fund may invest in securities of issuers in
emerging markets without limit, none of the Funds currently intend to invest
more than 10% of net assets in such securities. Investments in depositary
receipts also involve some or all of the risks described below.
The political, economic, and social structures of some countries in which the
Funds invest may be less stable and more volatile than those in the U.S. The
risks of investing in these countries include the possibility of the
imposition of exchange controls, expropriation, restrictions on removal of
currency or other assets, nationalization of assets, and punitive taxes.
There may be less publicly available information about a foreign company or
government than about a U.S. company or public entity. Certain countries'
financial markets and services are less developed than those in the U.S. or
other major economies. As a result, they may not have uniform accounting,
auditing, and financial reporting standards and may have less government
supervision of financial markets. Foreign securities markets may have
substantially lower trading volumes than U.S. markets, resulting in less
liquidity and more volatility than experienced in the U.S. Transaction costs
on foreign securities markets are generally higher than in the U.S. The
settlement practices may be cumbersome and result in delays that may affect
portfolio liquidity. The Funds may have greater difficulty voting proxies,
exercising shareholder rights, pursuing legal remedies, and obtaining
judgments with respect to foreign investments in foreign courts than with
respect to domestic issuers in U.S. courts.
The Funds' management endeavors to buy and sell foreign currencies on as
favorable a basis as practicable. Some price spread on currency exchange (to
cover service charges) may be incurred, particularly when a Fund changes
investments from one country to another or when proceeds of the sale of
shares in U.S. dollars are used for the purchase of securities in foreign
countries. Also, some countries may adopt policies that would prevent a Fund
from transferring cash out of the country or withhold portions of interest
and dividends at the source. There is the possibility of cessation of trading
on national exchanges, expropriation, nationalization, or confiscatory
taxation, withholding, and other foreign taxes on income or other amounts,
foreign exchange controls (which may include suspension of the ability to
transfer currency from a given country), default in foreign government
securities, political or social instability, or diplomatic developments that
could affect investments in securities of issuers in foreign nations.
The Funds may be affected either favorably or unfavorably by fluctuations in
the relative rates of exchange between the currencies of different nations,
by exchange control regulations, and by indigenous economic and political
developments. Some countries in which the Fund may invest may also have fixed
or managed currencies that are not free-floating against the U.S. dollar.
Further, certain currencies may not be internationally traded.
CURRENCY. Some of each Fund's investments may be denominated in foreign
currencies. Changes in foreign currency exchange rates will affect the value
of what the Fund owns and the Fund's share price. Generally, when the U.S.
dollar rises in value against a foreign currency, an investment in that
country loses value because that currency is worth fewer U.S. dollars.
EURO. On January 1, 1999, the European Economic and Monetary Union (EMU)
introduced a new single currency called the euro. By July 1, 2002, the euro,
which will be implemented in stages, will have replaced the national
currencies of the following member countries: Austria, Belgium, Finland,
France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and
Spain.
Currently, the exchange rate of the currencies of each of these countries is
fixed to the euro. The euro trades on currency exchanges and is available
for non-cash transactions. The participating countries currently issue
sovereign debt exclusively in euro. By July 1, 2002, euro-denominated bills
and coins will replace the bills and coins of the above countries.
The new European Central Bank has control over each country's monetary
policies. Therefore, the participating countries no longer control their own
monetary policies by directing independent interest rates for their
currencies. The national governments of the participating countries,
however, have retained the authority to set tax and spending policies and
public debt levels.
The change to the euro as a single currency is new and untested. It is not
possible to predict the impact of the euro on currency values or on the
business or financial condition of European countries and issuers, and
issuers in other regions, whose securities the Fund may hold, or the impact,
if any, on Fund performance. In the first two years of the euro's existence,
the exchange rates of the euro versus many of the world's major currencies
steadily declined. In this environment, U.S. and other foreign investors
experienced erosion of their investment returns on their euro-denominated
securities. The transition and the elimination of currency risk among EMU
countries may change the economic environment and behavior of investors,
particularly in European markets, but the impact of those changes cannot be
assessed at this time.
AMERICAN DEPOSITARY RECEIPTS (ADRS). European Depositary Receipts (EDRs) and
Global Depositary Receipts (GDRs) of non-U.S. issuers are interests in a pool
of non-U.S. company's securities that have been deposited with a bank or
trust company. The bank or trust company then sells interests in the pool to
investors in the form of depositary receipts. Depositary receipts can be
unsponsored or sponsored by the issuer of the underlying securities or by the
issuing bank or trust company.
ADRs are usually issued by an American bank or trust company and may be
registered for use in U.S. securities markets. Foreign banks or trust
companies also may issue them. The Funds consider investments in depositary
receipts to be investments in the equity securities of the issuers into which
the depositary receipts may be converted.
Prices of ADRs are quoted in U.S. dollars, and ADRs are traded in the U.S. on
exchanges or over-the-counter. While ADRs do not eliminate all the risks
associated with foreign investments, by investing in ADRs rather than
directly in the stock of foreign issuers, a Fund will avoid currency risks
during the settlement period for either purchases or sales and certain
foreign securities markets trading risks. In general, there is a large,
liquid market in the U.S. for ADRs quoted on a national securities exchange
or on the Nasdaq. The information available for ADRs is subject to the
accounting, auditing, and financial reporting standards of the U.S. market or
exchange on which they are traded, which standards are more uniform and more
exacting than those to which many foreign issuers may be subject.
Depositary receipts may be issued under sponsored or unsponsored programs.
In sponsored programs, an issuer has made arrangements to have its securities
traded in the form of depositary receipts. In unsponsored programs, the
issuer may not be directly involved in the creation of the program. Although
regulatory requirements with respect to sponsored and unsponsored are
generally similar, in some cases it may be easier to obtain financial
information from an issuer that has participated in the creation of a
sponsored program. Accordingly, there may be less information available
regarding issuers of securities underlying unsponsored programs, and there
may not be a correlation between such information and the market value of the
depositary receipts.
CONVERTIBLE SECURITIES Although each Fund may invest in convertible
securities without limit, none of the Funds currently intend to invest more
than 10% of net assets in such securities. The Funds may also invest in
enhanced convertible securities.
A convertible security is generally a debt obligation or preferred stock that
may be converted within a specified period of time into a certain amount of
common stock of the same or a different issuer. A convertible security
provides a fixed-income stream and the opportunity, through its conversion
feature, to participate in the capital appreciation resulting from a market
price advance in its underlying common stock. As with a straight fixed-income
security, a convertible security tends to increase in market value when
interest rates decline and decrease in value when interest rates rise. Like a
common stock, the value of a convertible security also tends to increase as
the market value of the underlying stock rises, and it tends to decrease as
the market value of the underlying stock declines. Because both interest rate
and market movements can influence its value, a convertible security is not
as sensitive to interest rates as a similar fixed-income security, nor is it
as sensitive to changes in share price as its underlying stock.
A convertible security is usually issued by an operations company or an
investment bank. When issued by an operating company, a convertible security
tends to be senior to common stock, but sub-ordinate to other types of
fixed-income securities issued by that company. When a convertible security
issued by an operating company is "converted," the operating company often
issues new stock to the holder of the convertible security, but if the parity
price of the convertible security is less than the call price, the operating
company may pay out cash instead of common stock. If the convertible security
is issued by an investment bank, the security is an obligation of and is
convertible through the issuing investment bank.
The issuer of a convertible security may be important in determining the
security's true value. This is because the holder of a convertible security
will have recourse only to the issuer. In addition, a convertible security
may be subject to redemption by the issuer, but only after a specified date
and under circumstances established at the time the security is issued.
While each Fund uses the same criteria to rate a convertible debt security
that it uses to rate a more conventional debt security, a convertible
preferred stock is treated like a preferred stock for the Fund's financial
reporting, credit rating, and investment limitation purposes. A preferred
stock is subordinated to all debt obligations in the event of insolvency, and
an issuer's failure to make a dividend payment is generally not an event of
default entitling the preferred shareholder to take action. A preferred stock
generally has no maturity date, so that its market value is dependent on the
issuer's business prospects for an indefinite period of time. In addition,
distributions from preferred stock are dividends, rather than interest
payments, and are usually treated as such for corporate tax purposes.
ENHANCED CONVERTIBLE SECURITIES. In addition to "plain vanilla" convertibles,
a number of different structures have been created to fit the characteristics
of specific investors and issuers. Examples of these enhanced characteristics
for investors include yield enhancement, increased equity exposure or
enhanced downside protection. From an issuer's perspective, enhanced
structures are designed to meet balance sheet criteria, interest/
dividend payment deductibility and reduced equity dilution. The following are
descriptions of common structures of enhanced convertible securities.
Mandatorily convertible securities (e.g., ACES, DECS, PRIDES, SAILS-each
issuer has a different acronym for their version of these securities) are
considered the most equity like of convertible securities. At maturity these
securities are mandatorily convertible into common stock offering investors
some form of yield enhancement in return for some of the upside potential in
the form of a conversion premium. Typical characteristics of mandatories
include: issued as preferred stock, convertible at premium, pay fixed
quarterly dividend (typically 500 to 600 basis points higher than common
stock dividend), and are non-callable for the life of the security (usually
three to five years). An important feature of mandatories is that the number
of shares received at maturity is determined by the difference between the
price of the common stock at maturity and the price of the common stock at
issuance.
Enhanced convertible preferred securities (e.g., QUIPS, TOPrS, and TECONS)
are, from an investor's viewpoint, essentially convertible preferred
securities, i.e. they are issued as preferred stock convertible into common
stock at a premium and pay quarterly dividends. Through this structure the
company establishes a wholly owned special purpose vehicle whose sole purpose
is to issue convertible preferred stock. The proceeds of the convertible
preferred stock offering pass through to the company. The company then issues
a convertible subordinated debenture to the special purpose vehicle. This
convertible subordinated debenture has identical terms to the convertible
preferred issued to investors. Benefits to the issuer include increased
equity credit from rating agencies and the deduction of coupon payments for
tax purposes.
A company divesting a holding in another company often uses exchangeable
securities. The primary difference between exchangeables and standard
convertible structures is that the issuing company is a different company to
that of the underlying shares.
Yield enhanced stock (YES, also known as PERCS) mandatorily converts into
common stock at maturity and offers investors a higher current dividend than
the underlying common stock. The difference between these structures and
other mandatories is that the participation in stock price appreciation is
capped.
Zero-coupon and deep-discount convertible bonds (OID and LYONs) include the
following characteristics: no or low coupon payments, imbedded put options
allowing the investor to put them on select dates prior to maturity, call
protection (usually three to five years), and lower than normal conversion
premiums at issuance. A benefit to the issuer is that while no cash interest
is actually paid, the accrued interest may be deducted for tax purposes.
Because of their put options, these bonds tend to be less sensitive to
changes in interest rates than either long maturity bonds or preferred
stocks. The put options also provide enhanced downside protection while
retaining the equity participation characteristics of traditional convertible
bonds.
An investment in an enhanced convertible security or any other security may
involve additional risks. A Fund may have difficulty disposing of such
securities because there may be a thin trading market for a particular
security at any given time. Reduced liquidity may have an adverse impact on
market price and the Fund's ability to dispose
of particular securities, when necessary, to meet the Fund's liquidity needs
or in response to a specific economic event, such as the deterioration in the
credit worthiness of an issuer. Reduced liquidity in the secondary market for
certain securities also may make it more difficult for the Fund to obtain
market quotations based on actual trades for purposes of valuing the Fund's
portfolio.
DEBT SECURITIES Each Fund may invest up to 5% of its total assets in
corporate debt securities that the manager believes have the potential for
capital appreciation. The receipt of income from debt securities is
incidental to a Fund's investment goal. A debt security typically has a
fixed payment schedule which obligates the issuer to pay interest to the
lender and to return the lender's money over a certain time period. A company
typically meets its payment obligations associated with its outstanding debt
securities before it declares and pays any dividend to holders of its equity
securities. Bonds, notes, and commercial paper differ in the length of the
issuer's payment schedule, with bonds carrying the longest repayment schedule
and commercial paper the shortest.
The market value of debt securities generally varies in response to changes
in interest rates and the financial condition of each issuer. During periods
of declining interest rates, the value of debt securities generally
increases. Conversely, during periods of rising interest rates, the value of
such securities generally declines. These changes in market value will be
reflected in a Fund's net asset value.
LOWER-RATED SECURITIES Although they may offer potentially higher returns
than do higher rated securities, debt rated lower than BBB by S&P or Baa by
Moody's and unrated debt securities of comparable quality generally involve
greater volatility of price and risk to principal, including the possibility
of default by, or bankruptcy of the issuers of the securities, than is the
case with higher-rated securities. In addition, the markets in which low
rated and unrated debt securities are traded are more limited than those in
which higher-rated securities are traded. The existence of limited markets
for particular securities may diminish a Fund's ability to sell the
securities at fair value either to meet redemption requests or to respond to
a specific economic event such as a deterioration in the creditworthiness of
the issuer. Reduced secondary market liquidity for certain low rated or
unrated debt securities may also make it more difficult for a Fund to obtain
accurate market quotations for the purposes of valuing the Fund's portfolio.
Market quotations are generally available on many low rated or unrated
securities only from a limited number of dealers and may not necessarily
represent firm bids of such dealers or prices for actual sales.
Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the values and liquidity of low rated debt
securities, especially in a thinly traded market. Analysis of the
creditworthiness of issuers of low rated debt securities may be more complex
than for issuers of higher rated securities. The ability of a Fund to achieve
its investment goal may, to the extent of investment in low rated debt
securities, be more dependent upon such creditworthiness analysis than would
be the case if the Fund were invested in higher rated securities.
Lower-rated debt securities may be more susceptible to real or perceived
adverse economic and competitive industry conditions than investment grade
securities. The prices of low rated debt securities have been found to be
less sensitive to interest rate changes than higher rated investments, but
more sensitive to adverse economic downturns or individual corporate
developments. A projection of an economic downturn or of a period of rising
interest rates, for example, could cause a decline in low rated debt
securities prices because the advent of a recession could lessen the ability
of a highly leveraged company to make principal and interest payments on its
debt securities. If the issuer of low rated debt securities defaults, a Fund
may incur additional expenses to seek recovery. Each Fund currently limits
its investment in lower-rated debt securities (including convertible debt
securities) to 5% or less of its total assets.
DERIVATIVE SECURITIES The Funds' transactions in options, futures, and
options on futures involve certain risks. These risks include, among others,
the risk that the effectiveness of a transaction depends on the degree that
price movements in the underlying securities, index, or currency correlate
with price movements in the relevant portion of the Fund's portfolio. The
Fund bears the risk that the prices of its portfolio securities will not move
in the same amount as the option or future it has purchased, or that there
may be a negative correlation that would result in a loss on both the
underlying securities and the derivative security.
In addition, adverse market movements could cause a Fund to lose up to its
full investment in a call option contract and/or to experience substantial
losses on an investment in a futures contract. There is also the risk of loss
by the Fund of margin deposits in the event of bankruptcy of a broker with
whom the Fund has an open position in a futures contract or option.
Positions in exchange traded options and futures may be closed out only on an
exchange that provides a secondary market. There can be no assurance that a
liquid secondary market will exist for any particular option or futures
contract or related option at any specific time. Thus, it may not be possible
to close an option or futures position. The inability to close options or
futures positions may have an adverse impact on a Fund's ability to
effectively hedge its securities. Furthermore, if the Fund is unable to close
out a position and if prices move adversely, the Fund will have to continue
to make daily cash payments to maintain its required margin. If a Fund does
not have sufficient cash to do this, it may have to sell portfolio securities
at a disadvantageous time. The Funds will enter into an option or futures
position only if there appears to be a liquid secondary market for the
options or futures.
There can be no assurance that a continuous liquid secondary market will
exist for any particular OTC option at any specific time. Consequently, the
Fund may be able to realize the value of an OTC option it has purchased only
by exercising it or by entering into a closing sale transaction with the
dealer that issued it. When a Fund writes an OTC option, it generally can
close out that option before its expiration only by entering into a closing
purchase transaction with the dealer to which the Fund originally wrote it.
OPTIONS, FUTURES, AND OPTIONS ON FUTURES A stock option is a contract that
provides the holder the right to buy or sell shares of the stock at a fixed
price, within a specified period of time. An option on a stock index is a
contract that allows the buyer of the option the right to receive from the
seller cash, in an amount equal to the difference between the index's closing
price and the option's exercise price. A futures contract is an obligation to
buy or sell a specified security or currency at a set price on a specified
future date. A stock index futures contract is an agreement to take or make
delivery of an amount of cash based on the difference between the value of
the index at the beginning and end of the contract period. Options, futures,
and options on futures are considered "derivative securities."
Each Fund may buy and sell options on securities and securities indices. The
Funds may only buy options if the premiums paid for such options total 5% or
less of net assets.
Each Fund may buy and sell futures contracts for securities and currencies.
Each Fund may also buy and sell securities index futures and options on
securities index futures. Each Fund may invest in futures contracts only to
hedge against changes in the value of its securities or those it intends to
buy. The Funds will not enter into a futures contract if the amounts paid for
open contracts, including required initial deposits, would exceed 5% of net
assets.
The Funds may take advantage of opportunities in the area of options,
futures, and options on futures and any other derivative investments that are
not presently contemplated for use by the Funds or that are not currently
available but which may be developed, to the extent such opportunities are
consistent with the Funds' investment goals and legally permissible for the
Funds.
OPTIONS. The Funds may buy or write (sell) put and call options on securities
listed on a national securities exchange and in the over-the-counter (OTC)
market. All options written by the Funds will be covered. The Funds may also
buy or write put and call options on securities indices. Options written by
the Funds will be for portfolio hedging purposes only.
A call option written by the Fund is covered if the Fund
(a) owns the underlying security that is subject to the call or (b) has an
absolute and immediate right to acquire that security without additional cash
consideration (or for additional cash consideration held in a segregated
account by its custodian bank) upon conversion or exchange of other
securities held in its portfolio. A call option is also covered if the Fund
holds a call on the same security and in the same principal amount as the
call written where the exercise price of the call held is (a) equal to or
less than the exercise price of the call written or (b) greater than the
exercise price of the call written if the difference is held in cash or
high-grade debt securities in a segregated account with the Fund's custodian
bank.
A put option written by the Fund is covered if the Fund maintains cash or
high-grade debt securities with a value equal to the exercise price of the
written put in a segregated account with its custodian bank. A put is also
covered if the Fund holds a put on the same security and in the same
principal amount as the put written where the exercise price of the put held
is equal to or greater than the exercise price of the put written.
The premium paid by the buyer of an option will reflect, among other things,
the relationship of the exercise price to the market price and volatility of
the underlying security, the remaining term of the option, supply and demand,
and interest rates.
The writer of an option may have no control over when the underlying
securities must be sold, in the case of a call option, or purchased, in the
case of a put option, since the writer may be assigned an exercise notice at
any time prior to the termination of the obligation. Whether or not an option
expires unexercised, the writer retains the amount of the premium. This
amount may, in the case of a covered call option, be offset by a decline in
the market value of the underlying security during the option period. If a
call option is exercised, the writer experiences a profit or loss from the
sale of the underlying security. If a put option is exercised, the writer
must fulfill the obligation to buy the underlying security at the exercise
price, which will usually exceed the market value of the underlying security
at that time.
If the writer of an option wants to terminate its obligation, the writer may
effect a "closing purchase transaction" by buying an option of the same
series as the option previously written. The effect of the purchase is that
the clearing corporation will cancel the writer's position. However, a writer
may not effect a closing purchase transaction after being notified of the
exercise of an option. Likewise, the holder of an option may liquidate its
position by effecting a "closing sale transaction" by selling an option of
the same series as the option previously purchased. There is no guarantee
that either a closing purchase or a closing sale transaction may be made at
the time desired by the Fund.
Effecting a closing transaction in the case of a written call option allows
the Fund to write another call option on the underlying security with a
different exercise price, expiration date or both. In the case of a written
put option, a closing transaction allows the Fund to write another covered
put option. Effecting a closing transaction also allows the cash or proceeds
from the sale of any securities subject to the option to be used for other
Fund investments. If the Fund wants to sell a particular security from its
portfolio on which it has written a call option, it will effect a closing
transaction prior to or at the same time as the sale of the security.
The Fund will realize a profit from a closing transaction if the price of the
transaction is less than the premium received from writing the option or is
more than the premium paid to buy the option. Likewise, the Fund will realize
a loss from a closing transaction if the price of the transaction is more
than the premium received from writing the option or is less than the premium
paid to buy the option. Increases in the market price of a call option will
generally reflect increases in the market price of the underlying security.
As a result, any loss resulting from the repurchase of a call option is
likely to be offset in whole or in part by appreciation of the underlying
security owned by the Fund.
The writing of covered put options involves certain risks. For example, if
the market price of the underlying security rises or otherwise is above the
exercise price, the put option will expire worthless and the Fund's gain will
be limited to the premium received. If the market price of the underlying
security declines or otherwise is below the exercise price, the Fund may
elect to close the position or take delivery of the security at the exercise
price. The Fund's return will be the premium received from the put option
minus the amount by which the market price of the security is below the
exercise price.
A Fund may buy call options on securities it intends to buy in order to limit
the risk of a substantial increase in the market price of the security before
the purchase is effected. A Fund may also buy call options on securities held
in its portfolio and on which it has written call options. Prior to its
expiration, a call option may be sold in a closing sale transaction. Profit
or loss from the sale will depend on whether the amount received is more or
less than the premium paid for the call option plus any related transaction
costs.
A Fund may buy put options on securities in an attempt to protect against a
decline in the market value of the underlying security below the exercise
price less the premium paid for the option. The ability to buy put options
allows the Fund to protect the unrealized gain in an appreciated security in
its portfolio without actually selling the security. In addition, the Fund
continues to receive interest or dividend income on the security. The Fund
may sell a put option it has previously purchased prior to the sale of the
security underlying the option. The sale of the option will result in a net
gain or loss depending on whether the amount received on the sale is more or
less than the premium and other transaction costs paid for the put option.
Any gain or loss may be wholly or partially offset by a change in the value
of the underlying security that the Fund owns or has the right to acquire.
A Fund may write covered put and call options and buy put and call options
that trade in the OTC market to the same extent that it may engage in
exchange traded options. Like exchange traded options, OTC options give the
holder the right to buy, in the case of OTC call options, or sell, in the
case of OTC put options, an underlying security from or to the writer at a
stated exercise price. However, OTC options differ from exchange traded
options in certain material respects.
OTC options are arranged directly with dealers and not with a clearing
corporation. Thus, there is a risk of non-performance by the dealer. Because
there is no exchange, pricing is typically done based on information from
market makers. OTC options are available for a greater variety of securities
and in a wider range of expiration dates and exercise prices, however, than
exchange traded options, and the writer of an OTC option is paid the premium
in advance by the dealer.
Call and put options on stock indices are similar to options on securities
except, rather than the right to buy or sell stock at a specified price,
options on a stock index give the holder the right to receive, upon exercise
of the option, an amount of cash if the closing level of the underlying stock
index is greater than (or less than, in the case of a put) the exercise price
of the option, expressed in dollars multiplied by a specified number. Thus,
unlike stock options, all settlements are in cash, and gain or loss depends
on price movements in the stock market generally (or in a particular industry
or segment of the market) rather than price movements in individual stocks.
When a Fund writes an option on a stock index, the Fund will establish a
segregated account with its custodian bank containing cash or high quality
fixed-income securities in an amount at least equal to the market value of
the underlying stock index. The Fund will maintain the account while the
option is open or will otherwise cover the transaction.
FINANCIAL FUTURES. The Funds may enter into contracts for the purchase or
sale of futures contracts based upon financial indices (financial futures).
Financial futures contracts are commodity contracts that obligate the long or
short holder to take or make delivery of the cash value of a securities index
during a specified future period at a specified price. A "sale" of a futures
contract means the acquisition of a contractual obligation to deliver such
cash value called for by the contract on a specified date. A "purchase" of a
futures contract means the acquisition of a contractual obligation to take
delivery of the cash value called for by the contract at a specified date.
The purpose of the acquisition or sale of a futures contract is to attempt to
protect the Fund from fluctuations in price of portfolio securities without
actually buying or selling the underlying security. Futures contracts have
been designed by exchanges designated "contracts markets" by the Commodity
Futures Trading Commission (CFTC) and must be executed through a futures
commission merchant, or brokerage firm, which is a member of the relevant
contract market.
The Funds will not engage in transactions in futures contracts or related
options for speculation, but only as a hedge against changes resulting from
market conditions in the values of its securities or securities that they
intend to buy and, to the extent consistent therewith, to accommodate cash
flows. The Funds will not enter into any stock index or financial futures
contract or related option if, immediately thereafter, more than one third of
total assets would be represented by futures contracts or related options. In
addition, the Funds may not buy or sell futures contracts or buy or sell
related options if, immediately thereafter, the sum of the amount of initial
deposits on existing financial futures and premiums paid on options on
financial futures contracts would exceed 5% of total assets (taken at current
value). If a Fund enters into a futures contract or related call option, it
will maintain with its custodian bank, to the extent required by the rules of
the SEC, assets in a segregated account to cover its obligations with respect
to such contract which will consist of cash, cash equivalents or high quality
debt securities from its portfolio in an amount equal to the market value of
such futures contract or related option.
STOCK INDEX FUTURES. The Funds may buy and sell stock index futures
contracts. A stock index futures contract obligates the seller to deliver
(and the buyer to take) an amount of cash equal to a specific dollar amount
times the difference between the value of a specific stock index at the close
of the last trading day of the contract and the price at which the agreement
is made. No physical delivery of the underlying stocks in the index is made.
The Funds may sell stock index futures contracts in anticipation of or during
a market decline to attempt to offset the decrease in market value of their
equity securities that might otherwise result. When a Fund is not fully
invested in stocks and anticipates a significant market advance, it may buy
stock index futures in order to gain rapid market exposure that may in part
or entirely offset increases in the cost of common stocks that it intends to
buy.
OPTIONS ON STOCK INDEX FUTURES. The Funds may buy and sell call and put
options on stock index futures to hedge against risks of market price
movements. The need to hedge against these risks will depend on the extent of
diversification of the Fund's common stock portfolio and the sensitivity of
such investments to factors influencing the stock market as a whole.
Call and put options on stock index futures are similar to options on
securities except that, rather than the right to buy or sell stock at a
specified price, options on stock index futures give the holder the right to
receive cash. Upon exercise of the option, the delivery of the futures
position by the writer of the option to the holder of the option will be
accompanied by delivery of the accumulated balance in the writer's futures
margin account which represents the amount by which the market price of the
futures contract, at exercise, exceeds, in the case of a call, or is less
than, in the case of a put, the exercise price of the option on the futures
contract. If an option is exercised on the last trading day before the
expiration date of the option, the settlement will be made entirely in cash
equal to the difference between the exercise price of the option and the
closing price of the futures contract on the expiration date.
BOND INDEX FUTURES AND RELATED OPTIONS. The Funds may buy and sell futures
contracts based on an index of debt securities and options on such futures
contracts to the extent they currently exist and, in the future, may be
developed. The Funds reserve the right to conduct futures and options
transactions based on an index that may be developed in the future to
correlate with price movements in certain categories of debt securities. The
Funds' investment strategies in employing futures contracts based on an index
of debt securities will be similar to that used in other financial futures
transactions. They may also buy and write put and call options on bond index
futures and enter into closing transactions with respect to such options.
FUTURES CONTRACTS FOR SECURITIES AND CURRENCIES. The Funds may buy and sell
futures contracts for securities, and currencies. These Funds may also enter
into closing purchase and sale transactions with respect to these futures
contracts. The Funds will engage in futures transactions only for bona fide
hedging or other appropriate risk management purposes. All futures contracts
entered into by the Funds are traded on U.S. exchanges or boards of trade
licensed and regulated by the CFTC or on foreign exchanges.
When securities prices are falling, a Fund may offset a decline in the value
of its current portfolio securities through the sale of futures contracts.
When prices are rising, a Fund can attempt to secure better prices than might
be available when it intends to buy securities through the purchase of
futures contracts. Similarly, a Fund can sell futures contracts on a
specified currency in an attempt to protect against a decline in the value of
that currency and its portfolio securities denominated in that currency. A
Fund can buy futures contracts on a foreign currency to fix the price in U.S.
dollars of a security denominated in that currency that the Fund has
purchased or expects to buy.
Positions taken in the futures markets are not normally held to maturity, but
are liquidated through offsetting transactions that may result in a profit or
a loss. While the Funds' futures contracts on securities and currencies will
usually be liquidated in this manner, the Funds may instead make or take
delivery of the underlying securities or currencies whenever it appears
economically advantageous to do so. A clearing corporation associated with
the exchange on which futures on securities or currencies are traded
guarantees that, if still open, the sale or purchase will be performed on the
settlement date.
To the extent a Fund enters into a futures contract, it will deposit in a
segregated account with its custodian bank cash or U.S. Treasury obligations
equal to a specified percentage of the value of the futures contract (the
initial margin), as required by the relevant contract market and futures
commission merchant. The futures contract will be marked-to-market daily.
Should the value of the futures contract decline relative to the Fund's
position, the Fund, if required by law, will pay the futures commission
merchant an amount equal to the change in value.
FINANCIAL FUTURES CONTRACTS - GENERAL. Although financial futures contracts
by their terms call for the actual delivery or acquisition of securities, or
the cash value of the index, in most cases the contractual obligation is
fulfilled before the date of the contract without having to make or take
delivery of the securities or cash. A contractual obligation is offset by
buying (or selling, as the case may be) on a commodities exchange an
identical financial futures contract calling for delivery in the same month.
This transaction, which is effected through a member of an exchange, cancels
the obligation to make or take delivery of the securities or cash. Since all
transactions in the futures market are made, offset or fulfilled through a
clearinghouse associated with the exchange on which the contracts are traded,
the Funds will incur brokerage fees when they buy or sell financial futures
contracts.
ILLIQUID SECURITIES Each Fund's policy is not to invest more than 15% (10% in
the case of the Global Growth Fund) of its net assets in illiquid securities.
Illiquid securities are generally any security that cannot be sold within
seven days in the normal course of business at approximately the amount at
which the Fund has valued them.
Each Fund does not consider securities that it acquires outside of the U.S.
and that are publicly traded in the U.S. or on a foreign securities market to
be illiquid assets if: (a) the Fund reasonably believes it can readily
dispose of the securities for cash in the U.S. or foreign market, or (b)
current market quotations are readily available. Each Fund will not acquire
the securities of foreign issuers outside of the U.S. if, at the time of
acquisition, the Fund has reason to believe that it could not resell the
securities in a public trading market.
The Funds' board of trustees has authorized the Funds to invest in legally
restricted securities (such as those issued pursuant to an exemption from the
registration requirements of the federal securities laws) where such
investments are consistent with a Fund's investment objective. To the extent
the manager determines there is a liquid institutional or other market for
these securities, the Fund considers them to be liquid securities. An example
of these securities are restricted securities that may be freely transferred
among qualified institutional buyers under Rule 144A of the Securities Act of
1933, as amended, and for which a liquid institutional market has developed.
The Funds' board of trustees will review any determination by the manager to
treat a restricted security as a liquid security on an ongoing basis,
including the manager's assessment of current trading activity and the
availability of reliable price information. In determining whether a
restricted security is properly considered a liquid security, the manager and
the Funds' board of trustees will take into account the following factors:
(i) the frequency of trades and quotes for the security; (ii) the number of
dealers willing to buy or sell the security and the number of other potential
buyers; (iii) dealer undertakings to make a market in the security; and (iv)
the nature of the security and marketplace trades (e.g., the time needed to
dispose of the security, the method of soliciting offers, and the mechanics
of transfer). To the extent a Fund invests in restricted securities that are
deemed liquid, the general level of illiquidity in the Fund may increase if
qualified institutional buyers become uninterested in buying these securities
or the market for these securities contracts.
The sale of restricted or illiquid securities often requires more time and
results in higher brokerage charges or dealer discounts and other selling
expenses than the sale of securities eligible for trading on national
securities exchanges or in the OTC markets. Restricted securities often sell
at a price lower than similar securities that are not subject to restrictions
on resale.
144A SECURITIES. Subject to its liquidity limitation, each Fund may invest in
certain unregistered securities which may be sold under Rule 144A of the
Securities Act of 1933 (144A securities). Due to changing market or other
factors, 144A securities may be subject to a greater possibility of becoming
illiquid than securities that have been registered with the SEC for sale. In
addition, a Fund's purchase of 144A securities may increase the level of the
security's illiquidity, as some institutional buyers may become uninterested
in purchasing such securities after the Fund has purchased them.
LOANS OF PORTFOLIO SECURITIES To generate additional income, each Fund may
lend certain of its portfolio securities to qualified banks and
broker-dealers. These loans may not exceed 33 1/3% of the value of the Fund's
total assets, measured at the time of the most recent loan. For each loan,
the borrower must maintain with the Fund's custodian collateral (consisting
of any combination of cash, securities issued by the U.S. government and its
agencies and instrumentalities, or irrevocable letters of credit) with a
value at least equal to 100% of the current market value of the loaned
securities. A Fund retains all or a portion of the interest received on
investment of the cash collateral or receives a fee from the borrower. A
Fund also continues to receive any distributions paid on the loaned
securities. A Fund may terminate a loan at any time and obtain the return of
the securities loaned within the normal settlement period for the security
involved.
Where voting rights with respect to the loaned securities pass with the
lending of the securities, the manager intends to call the loaned securities
to vote proxies, or to use other practicable and legally enforceable means to
obtain voting rights, when the manager has knowledge that, in its opinion, a
material event affecting the loaned securities will occur or the manager
otherwise believes it necessary to vote. As with other extensions of credit,
there are risks of delay in recovery or even loss of rights in collateral in
the event of default or insolvency of the borrower. A Fund will loan its
securities only to parties who meet creditworthiness standards approved by
the Fund's board of trustees, i.e., banks or broker-dealers that the manager
has determined present no serious risk of becoming involved in bankruptcy
proceedings within the time frame contemplated by the loan.
PRIVATE INVESTMENTS Consistent with their respective investment goals and
policies, each Fund may from time to time make private investments in
companies whose securities are not publicly traded, including late stage
private placements. These investments typically will take the form of letter
stock or convertible preferred stock. Because these securities are not
publicly traded, there is no secondary market for the securities. Each Fund
will treat these securities as illiquid.
Late stage private placements are sales of securities made in non-public,
unregistered transactions shortly before a company expects to go public. The
Fund may make such investments in order to participate in companies whose
initial public offerings are expected to be "hot" issues. There is no public
market for shares sold in these private placements and it is possible that
initial public offerings will never be completed. Moreover, even after an
initial public offering, there may be a limited trading market for the
securities or the Fund may be subject to contractual limitations on its
ability to sell the shares.
REAL ESTATE SECURITIES Investments in real estate securities are subject to
the risks associated with the real estate industry. Economic, regulatory, and
social factors that affect the value of real estate will affect the value of
real estate securities. These factors include overbuilding and increased
competition, increases in property taxes and operating expenses, changes in
zoning laws, casualty or condemnation losses, variations in rental income,
changes in neighborhood values, the appeal of properties to tenants, and
increases in interest rates. REITs are subject to risks related to the skill
of their management, changes in value of the properties the REITs own, the
quality of any credit extended by the REITs, and general economic and other
factors.
REPURCHASE AGREEMENTS Each Fund generally will have a portion of its assets
in cash or cash equivalents for a variety of reasons, including waiting for a
suitable investment opportunity or taking a defensive position. To earn
income on this portion of its assets, the Fund may enter into repurchase
agreements. Under a repurchase agreement, the Fund agrees to buy securities
guaranteed as to payment of principal and interest by the U.S. government or
its agencies from a qualified bank or broker-dealer and then to sell the
securities back to the bank or broker-dealer after a short period of time
(generally, less than seven days) at a higher price. The bank or
broker-dealer must transfer to the Fund's custodian securities with an
initial market value of at least 102% of the dollar amount invested by the
Fund in each repurchase agreement. The manager will monitor the value of such
securities daily to determine that the value equals or exceeds the repurchase
price.
Repurchase agreements may involve risks in the event of default or insolvency
of the bank or broker-dealer, including possible delays or restrictions upon
the Fund's ability to sell the underlying securities. The Fund will enter
into repurchase agreements only with parties who meet certain
creditworthiness standards, i.e., banks or broker-dealers that the manager
has determined present no serious risk of becoming involved in bankruptcy
proceedings within the time frame contemplated by the repurchase transaction.
The Funds may also enter into reverse repurchase agreements. Under a reverse
repurchase agreement, these Funds agree to sell a security in its portfolio
and then to repurchase the security at an agreed-upon price, date, and
interest payment. Each Fund will maintain cash or high-grade liquid debt
securities with a value equal to the value of the Fund's obligation under the
agreement, including accrued interest, in a segregated account with the
Fund's custodian bank. The securities subject to the reverse repurchase
agreement will be marked-to-market daily. Although reverse repurchase
agreements are borrowings under federal securities laws, the Funds do not
treat them as borrowings for purposes of its investment restrictions,
provided the segregated account is properly maintained.
JOINT TRANSACTIONS Each Fund may participate in joint repurchase agreement
arrangements with, and combine orders to buy or sell securities with orders
from, other funds managed by the manager and its affiliates. Each Fund may
also invest in shares of one or more money market funds managed by the
manager or its affiliates, to the extent permitted by exemptions granted
under the 1940 Act.
SECURITIES INDUSTRY RELATED INVESTMENTS To the extent it is consistent with
their respective investment goals and certain limitations under the 1940 Act,
the Funds may invest their assets in securities issued by companies engaged
in securities related businesses, including companies that are securities
brokers, dealers, underwriters or investment advisors. These companies are
considered to be part of the financial services industry. Generally, under
the 1940 Act, a Fund may not acquire a security or any interest in a
securities related business to the extent such acquisition would result in
the Fund acquiring in excess of 5% of a class of an issuer's outstanding
equity securities or 10% of the outstanding principal amount of an issuer's
debt securities, or investing more than 5% of the value of the Fund's total
assets in securities of the issuer. In addition, any equity security of a
securities-related business must be a marginable security under Federal
Reserve Board regulations and any debt security of a securities-related
business must be investment grade as determined by the Board. The Funds do
not believe that these limitations will impede the attainment of their
investment goals.
TEMPORARY INVESTMENTS When the manager believes a market or economic
conditions are unfavorable for investors, the manager may invest up to 100%
of a Fund's assets in a temporary defensive manner or hold a substantial
portion of its assets in cash, cash equivalents or other high quality
short-term investments. Unfavorable market or economic conditions may
include excessive volatility or a prolonged general decline in the securities
markets, the securities in which a Fund normally invests, or economies of the
countries where a Fund invests.
Temporary defensive investments generally may include high-grade commercial
paper, repurchase agreements, and other money market equivalents. To the
extent allowed by exemptions granted under the Investment Company Act of
1940, as amended, and a Fund's other investment policies and restrictions,
the manager also may invest a Fund's assets in shares of one or more money
market funds managed by the manager or its affiliates. The manager also may
invest in these types of securities or hold cash while looking for suitable
investment opportunities or to maintain liquidity.
UNSEASONED COMPANIES To the extent that a Fund may invest in smaller
capitalization companies or other companies, it may have significant
investments in relatively new or unseasoned companies that are in their early
stages of development, or in new and emerging industries where the
opportunity for rapid growth is expected to be above average. Securities of
unseasoned companies present greater risks than securities of larger, more
established companies.
OFFICERS AND TRUSTEES
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Franklin Global Trust has a board of trustees. The board is responsible for
the overall management of the Trust, including general supervision and review
of each Fund's investment activities. The board, in turn, elects the officers
of the Trust who are responsible for administering the Trust's day-to-day
operations. The board also monitors each Fund to ensure no material conflicts
exist among share classes. While none is expected, the board will act
appropriately to resolve any material conflict that may arise.
The name, age and address of the officers and board members, as well as their
affiliations, positions held with the Trust, and principal occupations during
the past five years are shown below.
Frank H. Abbott, III (79)
1045 Sansome Street, San Francisco, CA 94111
TRUSTEE
President and Director, Abbott Corporation (an investment company); director
or trustee, as the case may be, of 28 of the investment companies in Franklin
Templeton Investments; and FORMERLY, Director, MotherLode Gold Mines
Consolidated (gold mining) (until 1996) and Vacu-Dry Co. (food processing)
(until 1996).
Harris J. Ashton (68)
191 Clapboard Ridge Road, Greenwich, CT 06830
TRUSTEE
Director, RBC Holdings, Inc. (bank holding company) and Bar-S Foods (meat
packing company); director or trustee, as the case may be, of 47 of the
investment companies in Franklin Templeton Investments; and FORMERLY,
President, Chief Executive Officer and Chairman of the Board, General Host
Corporation (nursery and craft centers) (until 1998).
*Harmon E. Burns (55)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT AND TRUSTEE
Vice Chairman, Member - Office of the Chairman and Director, Franklin
Resources, Inc.; Executive Vice President and Director, Franklin Templeton
Distributors, Inc.; Executive Vice President, Franklin Advisers, Inc.;
Director, Franklin Investment Advisory Services, Inc., Franklin/Templeton
Investor Services, Inc. and Franklin Templeton Services, Inc.; and officer
and/or director or trustee, as the case may be, of most of the other
subsidiaries of Franklin Resources, Inc. and of 51 of the investment
companies in Franklin Templeton Investments.
Robert F. Carlson (72)
2120 Lambeth Way, Carmichael, CA 95608
TRUSTEE
Vice President and past President, Board of Administration, California Public
Employees Retirement Systems (CALPERS); director or trustee, as the case may
be, of 11 of the investment companies in Franklin Templeton Investments; and
FORMERLY, member and Chairman of the Board, Sutter Community Hospitals,
member, Corporate Board, Blue Shield of California, and Chief Counsel,
California Department of Transportation.
S. Joseph Fortunato (68)
Park Avenue at Morris County, P.O. Box 1945
Morristown, NJ 07962-1945
TRUSTEE
Member of the law firm of Pitney, Hardin, Kipp & Szuch; and director or
trustee, as the case may be, of 49 of the investment companies in Franklin
Templeton Investments.
Edith E. Holiday (48)
3239 38th Street, N.W., Washington, DC 20016
TRUSTEE
Director, Amerada Hess Corporation (exploration and refining of oil and gas)
(1993-present), Hercules Incorporated (chemicals, fibers and resins)
(1993-present), Beverly Enterprises, Inc. (health care) (1995-present), H.J.
Heinz Company (processed foods and allied products) (1994-present) and RTI
International Metals, Inc. (manufacture and distribution of titanium) (July
1999-present); director or trustee, as the case may be, of 25 of the
investment companies in Franklin Templeton Investments; and FORMERLY,
Assistant to the President of the United States and Secretary of the Cabinet
(1990-1993), General Counsel to the United States Treasury Department
(1989-1990), and Counselor to the Secretary and Assistant Secretary for Public
Affairs and Public Liaison-United States Treasury Department (1988-1989).
*Charles B. Johnson (67)
777 Mariners Island Blvd., San Mateo, CA 94404
CHAIRMAN OF THE BOARD AND TRUSTEE
Chairman of the Board, Chief Executive Officer, Member - Office of the
Chairman and Director, Franklin Resources, Inc.; Chairman of the Board and
Director, Franklin Investment Advisory Services, Inc.; Vice President,
Franklin Templeton Distributors, Inc.; Director, Franklin/Templeton Investor
Services, Inc. and Franklin Templeton Services, Inc.; officer and/or director
or trustee, as the case may be, of most of the other subsidiaries of Franklin
Resources, Inc. and of 48 of the investment companies in Franklin Templeton
Investments.
*Rupert H. Johnson, Jr. (60)
777 Mariners Island Blvd., San Mateo, CA 94404
PRESIDENT AND TRUSTEE
Vice Chairman, Member - Office of the Chairman and Director, Franklin
Resources, Inc.; Executive Vice President and Director, Franklin Templeton
Distributors, Inc.; Director, Franklin Advisers, Inc., Franklin Investment
Advisory Services, Inc. and Franklin/Templeton Investor Services, Inc.;
Senior Vice President, Franklin Advisory Services, LLC; and officer and/or
director or trustee, as the case may be, of most of the other subsidiaries of
Franklin Resources, Inc. and of 51 of the investment companies in Franklin
Templeton Investments.
Frank W.T. LaHaye (71)
20833 Stevens Creek Blvd., Suite 102, Cupertino, CA 95014
TRUSTEE
Chairman, Peregrine Venture Management Company (venture capital); Director,
The California Center for Land Recycling (redevelopment); director or
trustee, as the case may be, of 28 of the investment companies in Franklin
Templeton Investments; and FORMERLY, General Partner, Miller & LaHaye and
Peregrine Associates, the general partners of Peregrine Venture funds.
Gordon S. Macklin (72)
8212 Burning Tree Road, Bethesda, MD 20817
TRUSTEE
Director, Martek Biosciences Corporation, WorldCom, Inc. (communications
services), MedImmune, Inc. (biotechnology), Overstock.com (internet
services), White Mountains Insurance Group, Ltd. (holding company) and
Spacehab, Inc. (aerospace services); director or trustee, as the case may be,
of 47 of the investment companies in Franklin Templeton Investments; and
FORMERLY, Chairman, White River Corporation (financial services) (until 1998)
and Hambrecht & Quist Group (investment banking) (until 1992), and President,
National Association of Securities Dealers, Inc. (until 1987).
Martin L. Flanagan (40)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
President, Member - Office of the President, Chief Financial Officer and
Chief Operating Officer, Franklin Resources, Inc.; Executive Vice President
and Director, Franklin/Templeton Investor Services, Inc.; President and Chief
Financial Officer, Franklin Mutual Advisers, LLC; Executive Vice President,
Chief Financial Officer and Director, Templeton Worldwide, Inc.; Executive
Vice President, Chief Operating Officer and Director, Templeton Investment
Counsel, Inc.; Executive Vice President, Franklin Advisers, Inc. and Franklin
Investment Advisory Services, Inc.; Chief Financial Officer, Franklin
Advisory Services, LLC; Chairman and Director, Franklin Templeton Services,
Inc.; officer and/or director of some of the other subsidiaries of Franklin
Resources, Inc.; and officer and/or director or trustee, as the case may be,
of 51 of the investment companies in Franklin Templeton Investments.
David P. Goss (53)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
Associate General Counsel, Franklin Templeton Investments; President, Chief
Executive Officer and Director, Franklin Select Realty Trust, Property
Resources, Inc., Property Resources Equity Trust, Franklin Real Estate
Management, Inc. and Franklin Properties, Inc.; officer and director of some
of the other subsidiaries of Franklin Resources, Inc.; officer of 52 of the
investment companies in Franklin Templeton Investments; and FORMERLY,
President, Chief Executive Officer and Director, Franklin Real Estate Income
Fund and Franklin Advantage Real Estate Income Fund (until 1996).
Barbara J. Green (52)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
Vice President and Deputy General Counsel, Franklin Resources, Inc.; Senior
Vice President, Templeton Worldwide, Inc. and Templeton Global Investors,
Inc.; officer of 52 of the investment companies in Franklin Templeton
Investments; and FORMERLY, Deputy Director, Division of Investment
Management, Executive Assistant and Senior Advisor to the Chairman, Counselor
to the Chairman, Special Counsel and Attorney Fellow, U.S. Securities and
Exchange Commission (1986-1995), Attorney, Rogers & Wells (until 1986), and
Judicial Clerk, U.S. District Court (District of Massachusetts) (until 1979).
Edward B. Jamieson (52)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
Executive Vice President and Portfolio Manager, Franklin Advisers, Inc.;
officer of other subsidiaries of Franklin Resources, Inc.; and officer and
trustee of five of the investment companies in Franklin Templeton
Investments.
Charles E. Johnson (44)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
President, Member - Office of the President and Director, Franklin Resources,
Inc.; Senior Vice President, Franklin Templeton Distributors, Inc.; President
and Director, Templeton Worldwide, Inc. and Franklin Advisers, Inc.;
Director, Templeton Investment Counsel, Inc.; President, Franklin Investment
Advisory Services, Inc.; officer and/or director of some of the other
subsidiaries of Franklin Resources, Inc.; and officer and/or director or
trustee, as the case may be, of 32 of the investment companies in Franklin
Templeton Investments.
Edward V. McVey (63)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
Senior Vice President, Franklin Templeton Distributors, Inc.; officer of one
of the other subsidiaries of Franklin Resources, Inc. and of 29 of the
investment companies in Franklin Templeton Investments.
Christopher J. Molumphy (38)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
Executive Vice President, Franklin Advisers, Inc.
Kimberley Monasterio (36)
777 Mariners Island Blvd., San Mateo, CA 94404
TREASURER AND PRINCIPAL ACCOUNTING OFFICER
Senior Vice President, Franklin Templeton Services, Inc.; and officer of 33
of the investment companies in Franklin Templeton Investments.
Murray L. Simpson (63)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT AND SECRETARY
Executive Vice President and General Counsel, Franklin Resources, Inc.;
officer and/or director of some of the subsidiaries of Franklin Resources,
Inc.; officer of 52 of the investment companies in Franklin Templeton
Investments; and FORMERLY, Chief Executive Officer and Managing Director,
Templeton Franklin Investment Services (Asia) Limited (until January 2000)
and Director, Templeton Asset Management Ltd. (until 1999).
*This board member is considered an "interested person" under federal
securities laws.
Note: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers and the
father and uncle, respectively, of Charles E. Johnson.
The Trust currently does not pay fees to noninterested board members. Board
members who serve on the audit committee of the Trust and other funds in
Franklin Templeton Investments receive a flat fee of $2,000 per committee
meeting attended, a portion of which is allocated to the Trust. Members of a
committee are not compensated for any committee meeting held on the day of a
board meeting. Noninterested board members also may serve as directors or
trustees of other funds in Franklin Templeton Investments and may receive
fees from these funds for their services. The fees payable to noninterested
board members by the Trust are subject to reductions resulting from fee caps
limiting the amount of fees payable to board members who serve on other
boards within Franklin Templeton Investments. The following table provides
the total fees paid to noninterested board members by the Trust and by
Franklin Templeton Investments.
TOTAL FEES NUMBER OF BOARDS
RECEIVED FROM IN FRANKLIN
FRANKLIN TEMPLETON
TEMPLETON INVESTMENTS ON
INVESTMENTS/1 WHICH EACH
NAME ($) SERVES/2
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Frank H. Abbott 156,953 28
Harris J. Ashton 359,404 47
S. Joseph Fortunato 359,629 49
Edith E. Holiday 248,305 27
Frank W.T. LaHaye 165,529 28
Gordon S. Macklin 359,504 47
1. For the calendar year ended December 29,2000.
2. We base the number of boards on the number of registered investment
companies in Franklin Templeton Investments. This number does not include the
total number of series or funds within each investment company for which the
board members are responsible. Franklin Templeton Investments currently
includes 52 registered investment companies, with approximately 156 U.S.
based funds or series.
Noninterested board members are reimbursed for expenses incurred in
connection with attending board meetings, paid pro rata by each fund in
Franklin Templeton Investments for which they serve as director or trustee.
No officer or board member received any other compensation, including pension
or retirement benefits, directly or indirectly from the Fund or other funds
in Franklin Templeton Investments. Certain officers or board members who are
shareholders of Franklin Resources, Inc. may be deemed to receive indirect
remuneration by virtue of their participation, if any, in the fees paid to
its subsidiaries.
Board members historically have followed a policy of having substantial
investments in one or more of the funds in Franklin Templeton Investments, as
is consistent with their individual financial goals. In February 1998, this
policy was formalized through adoption of a requirement that each board
member invest one-third of fees received for serving as a director or trustee
of a Templeton fund in shares of one or more Templeton funds and one-third of
fees received for serving as a director or trustee of a Franklin fund in
shares of one or more Franklin funds until the value of such investments
equals or exceeds five times the annual fees paid such board member.
Investments in the name of family members or entities controlled by a board
member constitute fund holdings of such board member for purposes of this
policy, and a three year phase-in period applies to such investment
requirements for newly elected board members. In implementing such policy, a
board member's fund holdings existing on February 27, 1998, are valued as of
such date with subsequent investments valued at cost.
MANAGEMENT AND OTHER SERVICES
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MANAGER AND SERVICES PROVIDED Each Fund's manager is Franklin Advisers, Inc.
(Advisers). The manager is a wholly owned subsidiary of Franklin Resources,
Inc. (Resources), a publicly owned company engaged in the financial services
industry through its subsidiaries. Charles B. Johnson and Rupert H. Johnson,
Jr. are the principal shareholders of Resources.
The manager provides investment research and portfolio management services,
and selects the securities for each Fund to buy, hold or sell. The manager
also selects the brokers who execute the Funds' portfolio transactions. The
manager provides periodic reports to the board, which reviews and supervises
the manager's investment activities. To protect the Funds, the manager and
its officers, directors and employees are covered by fidelity insurance.
The manager and its affiliates manage numerous other investment companies and
accounts. The manager may give advice and take action with respect to any of
the other funds it manages, or for its own account, that may differ from
action taken by the manager on behalf of each Fund. Similarly, with respect
to each Fund, the manager is not obligated to recommend, buy or sell, or to
refrain from recommending, buying or selling any security that the manager
and access persons, as defined by applicable federal securities laws, may buy
or sell for its or their own account or for the accounts of any other fund.
The manager is not obligated to refrain from investing in securities held by
the Fund or other funds it manages.
The Funds, their manager, sub-advisor and principal underwriter have each
adopted a code of ethics, as required by federal securities laws. Under the
code of ethics, employees who are designated as access persons may engage in
personal securities transactions, including transactions involving securities
that are being considered for a Fund or that are currently held by a Fund,
subject to certain general restrictions and procedures. The personal
securities transactions of access persons of the Funds, their manager,
sub-advisor and principal underwriter will be governed by the codes of
ethics. The codes of ethics are on file with, and available from, the U.S.
Securities and Exchange Commission (SEC).
The Funds' sub-advisor is Fiduciary International, Inc., an indirect, wholly
owned subsidiary of Fiduciary Trust Company International. The sub-advisor
has an agreement with the manager to provide portfolio management services to
the Funds. The sub-advisor recommends the optimal equity allocation and
provides advice regarding the Funds' investments. The sub-advisor also
determines which securities will be purchased, retained or sold and executes
these transactions. The sub-advisor is a research driven, fundamental
investor whose strategy is based on a top-down evaluation of the equity
markets, a thematic approach to stock selection which divides the market into
broad economic sectors and an analysis of specific industry fundamentals. It
will identify themes, often including more than one market sector, which
provide the best opportunities for growth. The sub-advisor relies on a team
of analysts to provide in-depth industry expertise and uses both qualitative
and quantitative analysis to identify companies with superior products,
research capabilities and quality of management and determine those companies
with superior earning power and expected growth rates. Such advantages as a
particular marketing niche, proven technology, sound financial records,
strong management, and industry leadership are all factors the sub-advisor
believes point to strong growth potential. The sub-advisor projects growth
rates and stock price targets for the short, medium and long term, and
considers both absolute and relative price/earnings ratios in evaluating
stocks. The sub-advisor's activities are subject to the board's review and
control, as well as the manager's instruction and supervision.
MANAGEMENT FEES Each Fund pays the manager a fee equal to an annual rate of:
o 0.800% of the value of net assets up to and including $500 million;
o 0.700% of the value of net assets over $500 million up to and including $1
billion;
o 0.650% of the value of net assets over $1 billion up to and including $1.5
billion;
o 0.600% of the value of net assets over $1.5 billion up to and including
$6.5 billion;
o 0.575% of the value of net assets over $6.5 billion up to and including
$11.5 billion;
o 0.555% of the value of net assets over $11.5 billion up to and including
$16.5 billion;
o 0.540% of the value of net assets over $16.5 billion up to and including
$19 billion;
o 0.530% of the value of net assets over $19 billion up to and including
$21.5 billion; and
o 0.520% of the value of net assets in excess of $21.5 billion.
The fee is computed at the close of business on the last business day of each
month according to the terms of the management agreement. Each class of each
Fund's shares pays its proportionate share of the fee.
The manager pays the sub-advisor a fee equal to an annual rate of:
FRANKLIN GLOBAL AGGRESSIVE GROWTH FUND
o 0.600% of the value of net assets up to and including $100 million;
o 0.500% of the value of net assets over $100 million up to and including
$250 million;
o 0.450% of the value of net assets over $250 million up to and including
$500 million;
o 0.400% of the value of net assets over $500 million.
FRANKLIN GLOBAL GROWTH FUND
o 0.550% of the value of net assets up to and including $100 million;
o 0.500% of the value of net assets over $100 million up to an including
$250 million;
o 0.450% of the value of net assets over $250 million up to and including
$500 million;
o 0.400% of the value of net assets over $500 million.
ADMINISTRATOR AND SERVICES PROVIDED Franklin Templeton Services, Inc. (FT
Services) has an agreement with each Fund to provide certain administrative
services and facilities for the Fund. FT Services is wholly owned by
Resources and is an affiliate of each Fund's manager and principal
underwriter.
The administrative services FT Services provides include preparing and
maintaining books, records, and tax and financial reports, and monitoring
compliance with regulatory requirements.
ADMINISTRATION FEES Each Fund pays FT Services a monthly fee equal to an
annual rate of 0.20% of each Fund's average daily net assets.
SHAREHOLDER SERVICING AND TRANSFER AGENT Franklin/Templeton Investor
Services, Inc. (Investor Services) is each Fund's shareholder servicing agent
and acts as the Funds' transfer agent and dividend-paying agent. Investor
Services is located at 777 Mariners Island Blvd., San Mateo, CA 94404. Please
send all correspondence to Investor Services to P.O. Box 997151, Sacramento,
CA 95899-9983.
For its services, Investor Services receives a fixed fee per account. Each
Fund also will reimburse Investor Services for certain out-of-pocket
expenses, which may include payments by Investor Services to entities,
including affiliated entities, that provide sub-shareholder services,
recordkeeping and/or transfer agency services to beneficial owners of the
Funds. The amount of reimbursements for these services per benefit plan
participant Fund account per year will not exceed the per account fee payable
by the Fund to Investor Services in connection with maintaining shareholder
accounts.
CUSTODIAN The Chase Manhattan Bank, at its principal office at MetroTech
Center, Brooklyn, NY 11245, and at the offices of its branches and agencies
throughout the world, acts as custodian of each Fund's assets. As foreign
custody manager, the bank selects and monitors foreign sub-custodian banks,
selects and evaluates non-compulsory foreign depositories, and furnishes
information relevant to the selection of compulsory depositories.
AUDITOR PricewaterhouseCoopers LLP, 333 Market Street, San Francisco, CA
94105, is the Funds' independent auditor. The auditor gives an opinion on the
financial statements included in the Trust's Annual Report to Shareholders
and reviews the Trust's registration statement filed with the SEC.
PORTFOLIO TRANSACTIONS
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The manager selects brokers and dealers to execute the Funds' portfolio
transactions in accordance with criteria set forth in the management
agreement and any directions that the board may give.
When placing a portfolio transaction, the manager seeks to obtain prompt
execution of orders at the most favorable net price. For portfolio
transactions on a securities exchange, the amount of commission paid is
negotiated between the manager and the broker executing the transaction. The
determination and evaluation of the reasonableness of the brokerage
commissions paid are based to a large degree on the professional opinions of
the persons responsible for placement and review of the transactions. These
opinions are based on the experience of these individuals in the securities
industry and information available to them about the level of commissions
being paid by other institutional investors of comparable size. The manager
will ordinarily place orders to buy and sell over-the-counter securities on a
principal rather than agency basis with a principal market maker unless, in
the opinion of the manager, a better price and execution can otherwise be
obtained. Purchases of portfolio securities from underwriters will include a
commission or concession paid by the issuer to the underwriter, and purchases
from dealers will include a spread between the bid and ask price.
The manager may pay certain brokers commissions that are higher than those
another broker may charge, if the manager determines in good faith that the
amount paid is reasonable in relation to the value of the brokerage and
research services it receives. This may be viewed in terms of either the
particular transaction or the manager's overall responsibilities to client
accounts over which it exercises investment discretion. The services that
brokers may provide to the manager include, among others, supplying
information about particular companies, markets, countries, or local,
regional, national or transnational economies, statistical data, quotations
and other securities pricing information, and other information that provides
lawful and appropriate assistance to the manager in carrying out its
investment advisory responsibilities. These services may not always directly
benefit the Funds. They must, however, be of value to the manager in carrying
out its overall responsibilities to its clients.
It is not possible to place a dollar value on the special executions or on
the research services the manager receives from dealers effecting
transactions in portfolio securities. The allocation of transactions to
obtain additional research services allows the manager to supplement its own
research and analysis activities and to receive the views and information of
individuals and research staffs of other securities firms. As long as it is
lawful and appropriate to do so, the manager and its affiliates may use this
research and data in their investment advisory capacities with other clients.
If the Funds' officers are satisfied that best execution is obtained, the
sale of Fund shares, as well as shares of other funds in Franklin Templeton
Investments, also may be considered a factor in the selection of
broker-dealers to execute the Funds' portfolio transactions.
Because Franklin Templeton Distributors, Inc. (Distributors) is a member of
the National Association of Securities Dealers, Inc., it may sometimes
receive certain fees when the Funds tender portfolio securities pursuant to a
tender-offer solicitation. To recapture brokerage for the benefit of the
Funds, any portfolio securities tendered by a Fund will be tendered through
Distributors if it is legally permissible to do so. In turn, the next
management fee payable to the manager will be reduced by the amount of any
fees received by Distributors in cash, less any costs and expenses incurred
in connection with the tender.
If purchases or sales of securities of the Funds and one or more other
investment companies or clients supervised by the manager are considered at
or about the same time, transactions in these securities will be allocated
among the several investment companies and clients in a manner deemed
equitable to all by the manager, taking into account the respective sizes of
the funds and the amount of securities to be purchased or sold. In some cases
this procedure could have a detrimental effect on the price or volume of the
security so far as the Funds are concerned. In other cases it is possible
that the ability to participate in volume transactions may improve execution
and reduce transaction costs to the Funds.
Because the Funds may, from time to time, invest in broker-dealers, it is
possible that the Funds will own more than 5% of the voting securities of one
or more broker-dealers through whom each Fund places portfolio brokerage
transactions. In such circumstances, the broker-dealer would be considered an
affiliated person of the Funds. To the extent the Funds place brokerage
transactions through such a broker-dealer at a time when the broker-dealer is
considered to be an affiliate of the Funds, the Funds will be required to
adhere to certain rules relating to the payment of commissions to an
affiliated broker-dealer. These rules require the Funds to adhere to
procedures adopted by the board relating to ensuring that the commissions
paid to such broker-dealers do not exceed what would otherwise be the usual
and customary brokerage commissions for similar transactions.
DISTRIBUTIONS AND TAXES
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The Funds calculate dividends and capital gains the same way for each class.
The amount of any income dividends per share will differ, however, generally
due to the difference in the distribution and service (Rule 12b-1) fees of
each class. Distributions are subject to approval by the board. The Funds do
not pay "interest" or guarantee any fixed rate of return on an investment in
their shares.
DISTRIBUTIONS OF NET INVESTMENT INCOME The Funds receive income generally in
the form of dividends and interest on their investments. This income, less
expenses incurred in the operation of a Fund, constitutes a Fund's net
investment income from which dividends may be paid to you. Any distributions
by a Fund from such income will be taxable to you as ordinary income, whether
you receive them in cash or in additional shares.
DISTRIBUTIONS OF CAPITAL GAIN The Funds may derive capital gain and loss in
connection with sales or other dispositions of their portfolio securities.
Distributions from net short-term capital gain will be taxable to you as
ordinary income. Distributions from net long-term capital gain will be
taxable to you as long-term capital gain, regardless of how long you have
held your shares in a Fund. Any net capital gain realized by a Fund generally
will be distributed once each year, and may be distributed more frequently,
if necessary, to reduce or eliminate excise or income taxes on a Fund.
Beginning in the year 2001 for shareholders in the 15% federal income tax
bracket (or in the year 2006 for shareholders in the 28% or higher bracket),
capital gain dividends from a Fund's sale of securities held for more than
five years may be subject to a reduced rate of tax.
EFFECT OF FOREIGN INVESTMENTS ON DISTRIBUTIONS Most foreign exchange gain
realized on the sale of debt securities is treated as ordinary income by a
Fund. Similarly, foreign exchange loss realized on the sale of debt
securities generally is treated as ordinary loss. This gain, when
distributed, will be taxable to you as ordinary income, and any loss will
reduce a Fund's ordinary income otherwise available for distribution to you.
This treatment could increase or decrease a Fund's ordinary income
distributions to you, and may cause some or all of a Fund's previously
distributed income to be classified as a return of capital.
A Fund may be subject to foreign withholding taxes on income from certain
foreign securities. This, in turn, could reduce ordinary income distributions
to you.
INFORMATION ON THE TAX CHARACTER OF DISTRIBUTIONS The Funds will inform you
of the amount of your ordinary income and capital gain dividends at the time
they are paid, and will advise you of their tax status for federal income tax
purposes shortly after the close of each calendar year. If you have not held
Fund shares for a full year, a Fund may designate and distribute to you, as
ordinary income or capital gain, a percentage of income that is not equal to
the actual amount of such income earned during the period of your investment
in the Fund.
ELECTION TO BE TAXED AS A REGULATED INVESTMENT COMPANY Each Fund intends to
elect and qualify during the current fiscal year to be treated as regulated
investment companies under Subchapter M of the Internal Revenue Code (Code).
As regulated investment companies, the Funds generally pay no federal income
tax on the income and gains they distribute to you. The board reserves the
right not to maintain the qualification of a Fund as a regulated investment
company if it determines such course of action to be beneficial to
shareholders. In such case, a Fund will be subject to federal, and possibly
state, corporate taxes on its taxable income and gain, and distributions to
you will be taxed as ordinary dividend income to the extent of such Fund's
earnings and profits.
EXCISE TAX DISTRIBUTION REQUIREMENTS To avoid federal excise taxes, the Code
requires a Fund to distribute to you by December 31 of each year, at a
minimum, the following amounts: 98% of its taxable ordinary income earned
during the calendar year; 98% of its capital gain net income earned during
the twelve-month period ending October 31; and 100% of any undistributed
amounts from the prior year. Each Fund intends to declare and pay these
distributions in December (or to pay them in January, in which case you must
treat them as received in December) but can give no assurances that its
distributions will be sufficient to eliminate all taxes.
REDEMPTION OF FUND SHARES Redemptions (including redemptions in kind) and
exchanges of Fund shares are taxable transactions for federal and state
income tax purposes. If you redeem your Fund shares, or exchange your Fund
shares for shares of a different Franklin Templeton fund, the IRS will
require that you report any gain or loss on your redemption or exchange. If
you hold your shares as a capital asset, the gain or loss that you realize
will be capital gain or loss and will be long-term or short-term, generally
depending on how long you hold your shares.
Beginning in the year 2001 for shareholders in the 15% federal income tax
bracket (or in the year 2006 for shareholders in the 28% or higher bracket),
gain from the sale of Fund shares held for more than five years may be
subject to a reduced rate of tax.
Any loss incurred on the redemption or exchange of shares held for six months
or less will be treated as a long-term capital loss to the extent of any
long-term capital gain distributed to you by a Fund on those shares. All or a
portion of any loss that you realize upon the redemption of your Fund shares
will be disallowed to the extent that you buy other shares in such Fund
(through reinvestment of dividends or otherwise) within 30 days before or
after your share redemption. Any loss disallowed under these rules will be
added to your tax basis in the new shares you buy.
DEFERRAL OF BASIS If you redeem some or all of your shares in a Fund, and
then reinvest the sales proceeds in such Fund or in another Franklin
Templeton fund within 90 days of buying the original shares, the sales charge
that would otherwise apply to your reinvestment may be reduced or eliminated.
The IRS will require you to report any gain or loss on the redemption of your
original shares in a Fund. In doing so, all or a portion of the sales charge
that you paid for your original shares in a Fund will be excluded from your
tax basis in the shares sold (for the purpose of determining gain or loss
upon the sale of such shares). The portion of the sales charge excluded will
equal the amount that the sales charge is reduced on your reinvestment. Any
portion of the sales charge excluded from your tax basis in the shares sold
will be added to the tax basis of the shares you acquire from your
reinvestment.
U.S. GOVERNMENT SECURITIES States grant tax-free status to dividends paid to
you from interest earned on certain U.S. government securities, subject in
some states to minimum investment or reporting requirements that must be met
by a Fund. Investments in Government National Mortgage Association or
Federal National Mortgage Association securities, bankers' acceptances,
commercial paper and repurchase agreements collateralized by U.S. government
securities generally do not qualify for tax-free treatment. The rules on
exclusion of this income are different for corporations.
DIVIDENDS-RECEIVED DEDUCTION FOR CORPORATIONS Each Fund anticipates that a
portion of the dividends it pays will qualify for the dividends-received
deduction. You may be allowed to deduct these qualified dividends, thereby
reducing the tax that you would otherwise be required to pay on these
dividends. The dividends-received deduction will be available only with
respect to dividends designated by a Fund as eligible for such treatment. All
dividends (including the deducted portion) must be included in your
alternative minimum taxable income calculation.
INVESTMENT IN COMPLEX SECURITIES The Funds may invest in complex securities.
These investments may be subject to numerous special and complex tax rules.
These rules could affect whether gain or loss recognized by a Fund is treated
as ordinary or capital or as interest or dividend income, accelerate the
recognition of income to a Fund (possibly causing a Fund to sell securities
to raise the cash for necessary distributions) and/or defer a Fund's ability
to recognize a loss and, in limited cases, subject a Fund to U.S. federal
income tax on income from certain foreign securities. These rules may affect
the amount, timing or character of the income distributed to you by a Fund.
ORGANIZATION, VOTING RIGHTS AND PRINCIPAL HOLDERS
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Each Fund is a diversified series of Franklin Global Trust, an open-end
management investment company, commonly called a mutual fund. The Trust was
organized as a Delaware business trust on September 26, 2000 and is
registered with the SEC.
Each Fund currently offers four classes of shares, Class A, Class B, Class C
and Advisor Class. Each Fund may offer additional classes of shares in the
future. The full title of each class of each Fund is:
o Franklin Global Aggressive Growth Fund - Class A
o Franklin Global Aggressive Growth Fund - Class B
o Franklin Global Aggressive Growth Fund - Class C
o Franklin Global Aggressive Growth Fund - Advisor Class
o
o Franklin Global Growth Fund - Class A
o Franklin Global Growth Fund - Class B
o Franklin Global Growth Fund - Class C
o Franklin Global Growth Fund - Advisor Class
Shares of each class represent proportionate interests in each Fund's assets.
On matters that affect each Fund as a whole, each class has the same voting
and other rights and preferences as any other class. On matters that affect
only one class, only shareholders of that class may vote. Each class votes
separately on matters affecting only that class, or expressly required to be
voted on separately by state or federal law. Shares of each class of a series
have the same voting and other rights and preferences as the other classes
and series of the Trust for matters that affect the Trust as a whole.
Additional series may be offered in the future.
The Trust has noncumulative voting rights. For board member elections, this
gives holders of more than 50% of the shares voting the ability to elect all
of the members of the board. If this happens, holders of the remaining shares
voting will not be able to elect anyone to the board.
The Trust does not intend to hold annual shareholder meetings. The Trust or a
series of the Trust may hold special meetings, however, for matters requiring
shareholder approval. A meeting may be called by the board to consider the
removal of a board member if requested in writing by shareholders holding at
least 10% of the outstanding shares. In certain circumstances, we are
required to help you communicate with other shareholders about the removal of
a board member. A special meeting also may be called by the board in its
discretion.
From time to time, the number of Fund shares held in the "street name"
accounts of various securities dealers for the benefit of their clients or in
centralized securities depositories may exceed 5% of the total shares
outstanding.
The board members may own shares in other funds in Franklin Templeton
Investments.
BUYING AND SELLING SHARES
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The Funds continuously offer their shares through securities dealers who have
an agreement with Franklin Templeton Distributors, Inc. (Distributors). A
securities dealer includes any financial institution that, either directly or
through affiliates, has an agreement with Distributors to handle customer
orders and accounts with the Funds. This reference is for convenience only
and does not indicate a legal conclusion of capacity. Banks and financial
institutions that sell shares of the Funds may be required by state law to
register as securities dealers.
For investors outside the U.S., the offering of Fund shares may be limited in
many jurisdictions. An investor who wishes to buy shares of a Fund should
determine, or have a broker-dealer determine, the applicable laws and
regulations of the relevant jurisdiction. Investors are responsible for
compliance with tax, currency exchange or other regulations applicable to
redemption and purchase transactions in any jurisdiction to which they may be
subject. Investors should consult appropriate tax and legal advisors to
obtain information on the rules applicable to these transactions.
All checks, drafts, wires and other payment mediums used to buy or sell
shares of the Funds must be denominated in U.S. dollars. We may, in our sole
discretion, either (a) reject any order to buy or sell shares denominated in
any other currency or (b) honor the transaction or make adjustments to your
account for the transaction as of a date and with a foreign currency exchange
factor determined by the drawee bank. We may deduct any applicable banking
charges imposed by the bank from your account.
When you buy shares, if you submit a check or a draft that is returned unpaid
to the Fund we may impose a $10 charge against your account for each returned
item.
If you buy shares through the reinvestment of dividends, the shares will be
purchased at the net asset value determined on the business day following the
dividend record date (sometimes known as the "ex-dividend date"). The
processing date for the reinvestment of dividends may vary and does not
affect the amount or value of the shares acquired.
INITIAL SALES CHARGES The maximum initial sales charge is 5.75% for Class A
and 1% for Class C. There is no initial sales charge for Class B.
The initial sales charge for Class A shares may be reduced for certain large
purchases, as described in the prospectus. We offer several ways for you to
combine your purchases in Franklin Templeton funds to take advantage of the
lower sales charges for large purchases. Franklin Templeton funds include the
U.S. registered mutual funds in Franklin Templeton Investments except
Franklin Templeton Variable Insurance Products Trust and Templeton Capital
Accumulator Fund, Inc.
CUMULATIVE QUANTITY DISCOUNT. For purposes of calculating the sales charge on
Class A shares, you may combine the amount of your current purchase with the
cost or current value, whichever is higher, of your existing shares in
Franklin Templeton funds. You also may combine the shares of your spouse,
children under the age of 21 or grandchildren under the age of 21. If you are
the sole owner of a company, you also may add any company accounts, including
retirement plan accounts. Companies with one or more retirement plans may add
together the total plan assets invested in Franklin Templeton funds to
determine the sales charge that applies.
LETTER OF INTENT (LOI). You may buy Class A shares at a reduced sales charge
by completing the letter of intent section of your account application. A
letter of intent is a commitment by you to invest a specified dollar amount
during a 13 month period. The amount you agree to invest determines the sales
charge you pay. By completing the letter of intent section of the
application, you acknowledge and agree to the following:
o You authorize Distributors to reserve 5% of your total intended purchase
in Class A shares registered in your name until you fulfill your LOI. Your
periodic statements will include the reserved shares in the total shares
you own, and we will pay or reinvest dividend and capital gain
distributions on the reserved shares according to the distribution option
you have chosen.
o You give Distributors a security interest in the reserved shares and
appoint Distributors as attorney-in-fact.
o Distributors may sell any or all of the reserved shares to cover any
additional sales charge if you do not fulfill the terms of the LOI.
o Although you may exchange your shares, you may not sell reserved shares
until you complete the LOI or pay the higher sales charge.
After you file your LOI with the Fund, you may buy Class A shares at the
sales charge applicable to the amount specified in your LOI. Sales charge
reductions based on purchases in more than one Franklin Templeton fund will
be effective only after notification to Distributors that the investment
qualifies for a discount. Any Class A purchases you made within 90 days
before you filed your LOI also may qualify for a retroactive reduction in the
sales charge. If you file your LOI with the Fund before a change in the
Fund's sales charge, you may complete the LOI at the lower of the new sales
charge or the sales charge in effect when the LOI was filed.
Your holdings in Franklin Templeton funds acquired more than 90 days before
you filed your LOI will be counted towards the completion of the LOI, but
they will not be entitled to a retroactive reduction in the sales charge. Any
redemptions you make during the 13 month period, except in the case of
certain retirement plans, will be subtracted from the amount of the purchases
for purposes of determining whether the terms of the LOI have been completed.
If the terms of your LOI are met, the reserved shares will be deposited to an
account in your name or delivered to you or as you direct. If the amount of
your total purchases, less redemptions, is more than the amount specified in
your LOI and is an amount that would qualify for a further sales charge
reduction, a retroactive price adjustment will be made by Distributors and
the securities dealer through whom purchases were made. The price adjustment
will be made on purchases made within 90 days before and on those made after
you filed your LOI and will be applied towards the purchase of additional
shares at the offering price applicable to a single purchase or the dollar
amount of the total purchases.
If the amount of your total purchases, less redemptions, is less than the
amount specified in your LOI, the sales charge will be adjusted upward,
depending on the actual amount purchased (less redemptions) during the
period. You will need to send Distributors an amount equal to the difference
in the actual dollar amount of sales charge paid and the amount of sales
charge that would have applied to the total purchases if the total of the
purchases had been made at one time. Upon payment of this amount, the
reserved shares held for your account will be deposited to an account in your
name or delivered to you or as you direct. If within 20 days after written
request the difference in sales charge is not paid, we will redeem an
appropriate number of reserved shares to realize the difference. If you
redeem the total amount in your account before you fulfill your LOI, we will
deduct the additional sales charge due from the sale proceeds and forward the
balance to you.
For LOIs filed on behalf of certain retirement plans, the level and any
reduction in sales charge for these plans will be based on actual plan
participation and the projected investments in Franklin Templeton funds under
the LOI. These plans are not subject to the requirement to reserve 5% of the
total intended purchase or to the policy on upward adjustments in sales
charges described above, or to any penalty as a result of the early
termination of a plan, nor are these plans entitled to receive retroactive
adjustments in price for investments made before executing the LOI.
GROUP PURCHASES. If you are a member of a qualified group, you may buy Class
A shares at a reduced sales charge that applies to the group as a whole. The
sales charge is based on the combined dollar value of the group members'
existing investments, plus the amount of the current purchase.
A qualified group is one that:
o Was formed at least six months ago,
o Has a purpose other than buying Fund shares at a discount,
o Has more than 10 members,
o Can arrange for meetings between our representatives and group members,
o Agrees to include Franklin Templeton fund sales and other materials in
publications and mailings to its members at reduced or no cost to
Distributors,
o Agrees to arrange for payroll deduction or other bulk transmission of
investments to the Fund, and
o Meets other uniform criteria that allow Distributors to achieve cost
savings in distributing shares.
A qualified group generally does not include a 403(b) plan that only allows
salary deferral contributions.
WAIVERS FOR INVESTMENTS FROM CERTAIN PAYMENTS. Class A shares may be
purchased without an initial sales charge or contingent deferred sales charge
(CDSC) by investors who reinvest within 365 days:
o Dividend and capital gain distributions from any Franklin Templeton
fund. The distributions generally must be reinvested in the same share
class. Certain exceptions apply, however, to Advisor Class or Class Z
shareholders of a Franklin Templeton fund who may reinvest their
distributions in the Fund's Class A shares. This waiver category also
applies to Class B and C shares.
o Annuity payments received under either an annuity option or from death
benefit proceeds, if the annuity contract offers as an investment option
the Franklin Templeton Variable Insurance Products Trust. You should
contact your tax advisor for information on any tax consequences that may
apply.
o Redemption proceeds from a repurchase of shares of Franklin Floating
Rate Trust, if the shares were continuously held for at least 12 months.
o If you immediately placed your redemption proceeds in a Franklin Bank CD
or a Franklin Templeton money fund, you may reinvest them as described
above. The proceeds must be reinvested within 365 days from the date the CD
matures, including any rollover, or the date you redeem your money fund
shares.
o Redemption proceeds from the sale of Class A shares of any of the
Templeton Global Strategy Funds if you are a qualified investor.
If you paid a CDSC when you redeemed your Class A shares from a Templeton
Global Strategy Fund, a new CDSC will apply to your purchase of Fund shares
and the CDSC holding period will begin again. We will, however, credit your
Fund account with additional shares based on the CDSC you previously paid
and the amount of the redemption proceeds that you reinvest.
If you immediately placed your redemption proceeds in a Franklin Templeton
money fund, you may reinvest them as described above. The proceeds must be
reinvested within 365 days from the date they are redeemed from the money
fund.
o Distributions from an existing retirement plan invested in Franklin
Templeton funds
WAIVERS FOR CERTAIN INVESTORS. Class A shares also may be purchased without
an initial sales charge or CDSC by various individuals and institutions due
to anticipated economies in sales efforts and expenses, including:
o Trust companies and bank trust departments investing assets held in a
fiduciary, agency, advisory, custodial or similar capacity and over which
the trust companies and bank trust departments or other plan fiduciaries or
participants, in the case of certain retirement plans, have full or shared
investment discretion. We may accept orders for these accounts by telephone
or other means of electronic data transfer directly from the bank or trust
company, with payment by federal funds received by the close of business on
the next business day following the order.
o Any state or local government or any instrumentality, department,
authority or agency thereof that has determined the Fund is a legally
permissible investment and that can only buy Fund shares without paying
sales charges. Please consult your legal and investment advisors to
determine if an investment in the Fund is permissible and suitable for you
and the effect, if any, of payments by the Fund on arbitrage rebate
calculations.
o Broker-dealers, registered investment advisors or certified financial
planners who have entered into an agreement with Distributors for clients
participating in comprehensive fee programs
o Qualified registered investment advisors who buy through a broker-dealer
or service agent who has entered into an agreement with Distributors
o Registered securities dealers and their affiliates, for their investment
accounts only
o Current employees of securities dealers and their affiliates and their
family members, as allowed by the internal policies of their employer
o Officers, trustees, directors and full-time employees of Franklin
Templeton Investments, and their family members, consistent with our
then-current policies
o Any investor who is currently a Class Z shareholder of Franklin Mutual
Series Fund Inc. (Mutual Series), or who is a former Mutual Series Class Z
shareholder who had an account in any Mutual Series fund on October 31,
1996, or who sold his or her shares of Mutual Series Class Z within the
past 365 days
o Investment companies exchanging shares or selling assets pursuant to a
merger, acquisition or exchange offer
o Accounts managed by Franklin Templeton Investments
o Certain unit investment trusts and their holders reinvesting
distributions from the trusts
o Group annuity separate accounts offered to retirement plans
o Chilean retirement plans that meet the requirements described under
"Retirement plans" below
In addition, Class C shares may be purchased without an initial sales charge
by any investor who buys Class C shares through an omnibus account with
Merrill Lynch Pierce Fenner & Smith, Inc. A CDSC may apply, however, if the
shares are sold within 18 months of purchase.
RETIREMENT PLANS. Retirement plans sponsored by an employer (i) with at least
100 employees, or (ii) with retirement plan assets of $1 million or more, or
(iii) that agrees to invest at least $500,000 in Franklin Templeton funds
over a 13 month period may buy Class A shares without an initial sales
charge. Retirement plans that are not qualified retirement plans (employer
sponsored pension or profit-sharing plans that qualify under section 401 of
the Internal Revenue Code, including 401(k), money purchase pension, profit
sharing and defined benefit plans), SIMPLEs (savings incentive match plans
for employees) or SEPs (employer sponsored simplified employee pension plans
established under section 408(k) of the Internal Revenue Code) must also meet
the group purchase requirements described above to be able to buy Class A
shares without an initial sales charge. We may enter into a special
arrangement with a securities dealer, based on criteria established by the
Fund, to add together certain small qualified retirement plan accounts for
the purpose of meeting these requirements.
For retirement plan accounts opened on or after May 1, 1997, a CDSC may apply
if the retirement plan is transferred out of Franklin Templeton funds or
terminated within 365 days of the retirement plan account's initial purchase
in Franklin Templeton funds.
SALES IN TAIWAN. Under agreements with certain banks in Taiwan, Republic of
China, each Fund's shares are available to these banks' trust accounts
without a sales charge. The banks may charge service fees to their customers
who participate in the trusts. A portion of these service fees may be paid to
Distributors or one of its affiliates to help defray expenses of maintaining
a service office in Taiwan, including expenses related to local literature
fulfillment and communication facilities.
Each Fund's Class A shares may be offered to investors in Taiwan through
securities advisory firms known locally as Securities Investment Consulting
Enterprises. In conformity with local business practices in Taiwan, Class A
shares may be offered with the following schedule of sales charges:
SIZE OF PURCHASE - U.S. DOLLARS SALES CHARGE (%)
---------------------------------------------------------------
Under $30,000 3.0
$30,000 but less than $50,000 2.5
$50,000 but less than $100,000 2.0
$100,000 but less than $200,000 1.5
$200,000 but less than $400,000 1.0
$400,000 or more 0
DEALER COMPENSATION Securities dealers may at times receive the entire sales
charge. A securities dealer who receives 90% or more of the sales charge may
be deemed an underwriter under the Securities Act of 1933, as amended.
Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages indicated in the dealer compensation table
in the Funds' prospectus.
Distributors may pay the following commissions, out of its own resources, to
securities dealers who initiate and are responsible for purchases of Class A
shares of $1 million or more: 1% on sales of $1 million to $2 million, plus
0.80% on sales over $2 million to $3 million, plus 0.50% on sales over $3
million to $50 million, plus 0.25% on sales over $50 million to $100 million,
plus 0.15% on sales over $100 million.
These breakpoints are reset every 12 months for purposes of additional
purchases.
Distributors or one of its affiliates may pay up to 1%, out of its own
resources, to securities dealers who initiate and are responsible for
purchases of Class A shares by certain retirement plans without an initial
sales charge. These payments may be made in the form of contingent advance
payments, which may be recovered from the securities dealer or set off
against other payments due to the dealer if shares are sold within 12 months
of the calendar month of purchase. Other conditions may apply. All terms and
conditions may be imposed by an agreement between Distributors, or one of its
affiliates, and the securities dealer.
In addition to the payments above, Distributors and/or its affiliates may
provide financial support to securities dealers that sell shares of Franklin
Templeton Investments. This support is based primarily on the amount of sales
of fund shares and/or total assets with Franklin Templeton Investments. The
amount of support may be affected by: total sales; net sales; levels of
redemptions; the proportion of a securities dealer's sales and marketing
efforts in Franklin Templeton Investments; a securities dealer's support of,
and participation in, Distributors' marketing programs; a securities dealer's
compensation programs for its registered representatives; and the extent of a
securities dealer's marketing programs relating to Franklin Templeton
Investments. Financial support to securities dealers may be made by payments
from Distributors' resources, from Distributors' retention of underwriting
concessions and, in the case of funds that have Rule 12b-1 plans, from
payments to Distributors under such plans. In addition, certain securities
dealers may receive brokerage commissions generated by fund portfolio
transactions in accordance with the rules of the National Association of
Securities Dealers, Inc.
Distributors routinely sponsors due diligence meetings for registered
representatives during which they receive updates on various Franklin
Templeton funds and are afforded the opportunity to speak with portfolio
managers. Invitation to these meetings is not conditioned on selling a
specific number of shares. Those who have shown an interest in Franklin
Templeton funds, however, are more likely to be considered. To the extent
permitted by their firm's policies and procedures, registered
representatives' expenses in attending these meetings may be covered by
Distributors.
CONTINGENT DEFERRED SALES CHARGE (CDSC) If you invest $1 million or more in
Class A shares, either as a lump sum or through our cumulative quantity
discount or letter of intent programs, a CDSC may apply on any shares you
sell within 12 months of purchase. For Class C shares, a CDSC may apply if
you sell your shares within 18 months of purchase. The CDSC is 1% of the
value of the shares sold or the net asset value at the time of purchase,
whichever is less.
Certain retirement plan accounts opened on or after May 1, 1997, and that
qualify to buy Class A shares without an initial sales charge also may be
subject to a CDSC if the retirement plan is transferred out of Franklin
Templeton funds or terminated within 365 days of the account's initial
purchase in Franklin Templeton funds.
For Class B shares, there is a CDSC if you sell your shares within six years,
as described in the table below. The charge is based on the value of the
shares sold or the net asset value at the time of purchase, whichever is less.
IF YOU SELL YOUR CLASS B SHARES WITHIN THIS % IS DEDUCTED FROM
THIS MANY YEARS AFTER BUYING THEM YOUR PROCEEDS AS A CDSC
-----------------------------------------------------------------
1 Year 4
2 Years 4
3 Years 3
4 Years 3
5 Years 2
6 Years 1
7 Years 0
CDSC WAIVERS. The CDSC for any share class generally will be waived for:
o Account fees
o Sales of Class A shares purchased without an initial sales charge by
certain retirement plan accounts if (i) the account was opened before May
1, 1997, or (ii) the securities dealer of record received a payment from
Distributors of 0.25% or less, or (iii) Distributors did not make any
payment in connection with the purchase, or (iv) the securities dealer of
record has entered into a supplemental agreement with Distributors
o Redemptions of Class A shares by investors who purchased $1 million or
more without an initial sales charge if the securities dealer of record
waived its commission in connection with the purchase
o Redemptions by the Funds when an account falls below the minimum
required account size
o Redemptions following the death of the shareholder or beneficial owner
o Redemptions through a systematic withdrawal plan up to 1% monthly, 3%
quarterly, 6% semiannually or 12% annually of your account's net asset
value depending on the frequency of your plan
o Redemptions by an employee benefit plan: (i) that is a customer of
Franklin Templeton Defined Contribution Services; and/or (ii) whose assets
are held by Franklin Templeton Bank & Trust as trustee or custodian (not
applicable to Class B)
o Distributions from individual retirement accounts (IRAs) due to death or
disability or upon periodic distributions based on life expectancy (for
Class B, this applies to all retirement plan accounts, not only IRAs)
o Returns of excess contributions (and earnings, if applicable) from
retirement plan accounts
o Participant initiated distributions from employee benefit plans or
participant initiated exchanges among investment choices in employee
benefit plans (not applicable to Class B)
EXCHANGE PRIVILEGE If you request the exchange of the total value of your
account, declared but unpaid income dividends and capital gain distributions
will be reinvested in the Fund and exchanged into the new fund at net asset
value when paid. Backup withholding and information reporting may apply.
If a substantial number of shareholders should, within a short period, sell
their Fund shares under the exchange privilege, the Fund might have to sell
portfolio securities it might otherwise hold and incur the additional costs
related to such transactions. On the other hand, increased use of the
exchange privilege may result in periodic large inflows of money. If this
occurs, it is each Fund's general policy to initially invest this money in
short-term, interest-bearing money market instruments, unless it is believed
that attractive investment opportunities consistent with the Fund's
investment goals exist immediately. This money will then be withdrawn from
the short-term, interest-bearing money market instruments and invested in
portfolio securities in as orderly a manner as is possible when attractive
investment opportunities arise.
The proceeds from the sale of shares of an investment company generally are
not available until the seventh day following the sale. The funds you are
seeking to exchange into may delay issuing shares pursuant to an exchange
until that seventh day. The sale of Fund shares to complete an exchange will
be effected at net asset value at the close of business on the day the
request for exchange is received in proper form.
SYSTEMATIC WITHDRAWAL PLAN Our systematic withdrawal plan allows you to sell
your shares and receive regular payments from your account on a monthly,
quarterly, semiannual or annual basis. The value of your account must be at
least $5,000 and the minimum payment amount for each withdrawal must be at
least $50. For retirement plans subject to mandatory distribution
requirements, the $50 minimum will not apply. There are no service charges
for establishing or maintaining a systematic withdrawal plan.
Each month in which a payment is scheduled, we will redeem an equivalent
amount of shares in your account on the day of the month you have indicated
on your account application or, if no day is indicated, on the 20th day of
the month. If that day falls on a weekend or holiday, we will process the
redemption on the next business day. For plans set up before June 1, 2000, we
will continue to process redemptions on the 25th day of the month (or the
next business day) unless you instruct us to change the processing date.
Available processing dates currently are the 1st, 5th, 10th, 15th, 20th and
25th days of the month. When you sell your shares under a systematic
withdrawal plan, it is a taxable transaction.
To avoid paying sales charges on money you plan to withdraw within a short
period of time, you may not want to set up a systematic withdrawal plan if
you plan to buy shares on a regular basis. Shares sold under the plan also
may be subject to a CDSC.
Redeeming shares through a systematic withdrawal plan may reduce or exhaust
the shares in your account if payments exceed distributions received from the
Fund. This is especially likely to occur if there is a market decline. If a
withdrawal amount exceeds the value of your account, your account will be
closed and the remaining balance in your account will be sent to you. Because
the amount withdrawn under the plan may be more than your actual yield or
income, part of the payment may be a return of your investment.
To discontinue a systematic withdrawal plan, change the amount and schedule
of withdrawal payments, or suspend one payment, we must receive instructions
from you at least three business days before a scheduled payment. The Fund
may discontinue a systematic withdrawal plan by notifying you in writing and
will discontinue a systematic withdrawal plan automatically if all shares in
your account are withdrawn or if the Fund receives notification of the
shareholder's death or incapacity.
REDEMPTIONS IN KIND In the case of redemption requests, the board reserves
the right to make payments in whole or in part in securities or other assets
of the Fund, in case of an emergency, or if the payment of such a redemption
in cash would be detrimental to the existing shareholders of the Fund. In
these circumstances, the securities distributed would be valued at the price
used to compute the Fund's net assets and you may incur brokerage fees in
converting the securities to cash. The Fund does not intend to redeem
illiquid securities in kind. If this happens, however, you may not be able to
recover your investment in a timely manner.
SHARE CERTIFICATES We will credit your shares to your Fund account. We do not
issue share certificates unless you specifically request them. This
eliminates the costly problem of replacing lost, stolen or destroyed
certificates. If a certificate is lost, stolen or destroyed, you may have to
pay an insurance premium of up to 2% of the value of the certificate to
replace it.
Any outstanding share certificates must be returned to the Fund if you want
to sell or exchange those shares or if you would like to start a systematic
withdrawal plan. The certificates should be properly endorsed. You can do
this either by signing the back of the certificate or by completing a share
assignment form. For your protection, you may prefer to complete a share
assignment form and to send the certificate and assignment form in separate
envelopes.
GENERAL INFORMATION If dividend checks are returned to the Fund marked
"unable to forward" by the postal service, we will consider this a request by
you to change your dividend option to reinvest all distributions. The
proceeds will be reinvested in additional shares at net asset value until we
receive new instructions.
Distribution or redemption checks sent to you do not
earn interest or any other income during the time the checks remain uncashed.
Neither the Funds nor their affiliates will be liable for any loss caused by
your failure to cash such checks. The Funds are not responsible for tracking
down uncashed checks, unless a check is returned as undeliverable.
In most cases, if mail is returned as undeliverable we are required to take
certain steps to try to find you free of charge. If these attempts are
unsuccessful, however, we may deduct the costs of any additional efforts to
find you from your account. These costs may include a percentage of the
account when a search company charges a percentage fee in exchange for its
location services.
Sending redemption proceeds by wire or electronic funds transfer (ACH) is a
special service that we make available whenever possible. By offering this
service to you, the Funds are not bound to meet any redemption request in
less than the seven day period prescribed by law. Neither the Funds nor their
agents shall be liable to you or any other person if, for any reason, a
redemption request by wire or ACH is not processed as described in the
prospectus.
Franklin Templeton Investor Services, Inc. (Investor Services) may pay
certain financial institutions that maintain omnibus accounts with the Funds
on behalf of numerous beneficial owners for recordkeeping operations
performed with respect to such owners. For each beneficial owner in the
omnibus account, the Fund may reimburse Investor Services an amount not to
exceed the per account fee that the Fund normally pays Investor Services.
These financial institutions also may charge a fee for their services
directly to their clients.
There are special procedures for banks and other institutions that wish to
open multiple accounts. An institution may open a single master account by
filing one application form with the Fund, signed by personnel authorized to
act for the institution. Individual sub-accounts may be opened when the
master account is opened by listing them on the application, or by providing
instructions to the Fund at a later date. These sub-accounts may be
registered either by name or number. The Fund's investment minimums apply to
each sub-account. The Fund will send confirmation and account statements for
the sub-accounts to the institution.
If you buy or sell shares through your securities dealer, we use the net
asset value next calculated after your securities dealer receives your
request, which is promptly transmitted to the Fund. If you sell shares
through your securities dealer, it is your dealer's responsibility to
transmit the order to the Fund in a timely fashion. Your redemption proceeds
will not earn interest between the time we receive the order from your dealer
and the time we receive any required documents. Any loss to you resulting
from your dealer's failure to transmit your redemption order to the Fund in a
timely fashion must be settled between you and your securities dealer.
Certain shareholder servicing agents may be authorized to accept your
transaction request.
For institutional accounts, there may be additional methods of buying or
selling Fund shares than those described in this SAI or in the prospectus.
In the event of disputes involving multiple claims of ownership or authority
to control your account, the Fund has the right (but has no obligation) to:
(a) freeze the account and require the written agreement of all persons
deemed by the Fund to have a potential property interest in the account,
before executing instructions regarding the account; (b) interplead disputed
funds or accounts with a court of competent jurisdiction; or (c) surrender
ownership of all or a portion of the account to the IRS in response to a
notice of levy.
PRICING SHARES
-------------------------------------------------------------------------------
When you buy shares, you pay the offering price. The offering price is the
net asset value (NAV) per share plus any applicable sales charge, calculated
to two decimal places using standard rounding criteria. When you sell shares,
you receive the NAV minus any applicable CDSC.
The value of a mutual fund is determined by deducting the fund's liabilities
from the total assets of the portfolio. The net asset value per share is
determined by dividing the net asset value of the fund by the number of
shares outstanding.
Each Fund calculates the NAV per share of each class each business day at the
close of trading on the New York Stock Exchange (normally 1:00 p.m. Pacific
time). The Funds do not calculate the NAV on days the New York Stock Exchange
(NYSE) is closed for trading, which include New Year's Day, Martin Luther
King Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day.
When determining its NAV, each Fund values cash and receivables at their
realizable amounts, and records interest as accrued and dividends on the
ex-dividend date. If market quotations are readily available for portfolio
securities listed on a securities exchange or on the Nasdaq National Market
System, each Fund values those securities at the last quoted sale price of
the day or, if there is no reported sale, within the range of the most recent
quoted bid and ask prices. Each Fund values over-the-counter portfolio
securities within the range of the most recent quoted bid and ask prices. If
portfolio securities trade both in the over-the-counter market and on a stock
exchange, each Fund values them according to the broadest and most
representative market as determined by the manager.
The Fund values portfolio securities underlying actively traded call options
at their market price as determined above. The current market value of any
option the Fund holds is its last sale price on the relevant exchange before
the Fund values its assets. If there are no sales that day or if the last
sale price is outside the bid and ask prices, the Fund values options within
the range of the current closing bid and ask prices if the Fund believes the
valuation fairly reflects the contract's market value.
Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed well before the close of
business of the NYSE on each day that the NYSE is open. Trading in European
or Far Eastern securities generally, or in a particular country or countries,
may not take place on every NYSE business day. Furthermore, trading takes
place in various foreign markets on days that are not business days for the
NYSE and on which a Fund's NAV is not calculated. Thus, the calculation of
the Fund's NAV does not take place contemporaneously with the determination
of the prices of many of the portfolio securities used in the calculation
and, if events materially affecting the values of these foreign securities
occur, the securities will be valued at fair value as determined by
management and approved in good faith by the board.
Generally, trading in corporate bonds, U.S. government securities and money
market instruments is substantially completed each day at various times
before the close of the NYSE. The value of these securities used in computing
the NAV is determined as of such times. Occasionally, events affecting the
values of these securities may occur between the times at which they are
determined and the close of the NYSE that will not be reflected in the
computation of the NAV. If events materially affecting the values of these
securities occur during this period, the securities will be valued at their
fair value as determined in good faith by the board.
Other securities for which market quotations are readily available are valued
at the current market price, which may be obtained from a pricing service,
based on a variety of factors including recent trades, institutional size
trading in similar types of securities (considering yield, risk and maturity)
and/or developments related to specific issues. Securities and other assets
for which market prices are not readily available are valued at fair value as
determined following procedures approved by the board. With the approval of
the board, each Fund may use a pricing service, bank or securities dealer to
perform any of the above described functions.
THE UNDERWRITER
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Franklin Templeton Distributors, Inc. (Distributors) acts
as the principal underwriter in the continuous public offering of each Fund's
shares. Distributors is located at 777 Mariners Island Blvd., San Mateo, CA
94404.
Distributors pays the expenses of the distribution of Fund shares, including
advertising expenses and the costs of printing sales material and
prospectuses used to offer shares to the public. Each Fund pays the expenses
of preparing and printing amendments to its registration statements and
prospectuses (other than those necessitated by the activities of
Distributors) and of sending prospectuses to existing shareholders.
Distributors may be entitled to payments from the Funds under the Rule 12b-1
plans, as discussed below.
DISTRIBUTION AND SERVICE (12B-1) FEES The board has adopted a separate plan
pursuant to Rule 12b-1 for each class. Although the plans differ in some ways
for each class, each plan is designed to benefit the Fund and its
shareholders. The plans are expected to, among other things, increase
advertising of the Fund, encourage sales of the Fund and service to its
shareholders, and increase or maintain assets of the Fund so that certain
fixed expenses may be spread over a broader asset base, resulting in lower
per share expense ratios. In addition, a positive cash flow into the Fund is
useful in managing the Fund because the manager has more flexibility in
taking advantage of new investment opportunities and handling shareholder
redemptions.
Under each plan, the Fund pays Distributors or others for the expenses of
activities that are primarily intended to sell shares of the class. These
expenses also may include service fees paid to securities dealers or others
who have executed a servicing agreement with the Fund, Distributors or its
affiliates and who provide service or account maintenance to shareholders
(service fees); the expenses of printing prospectuses and reports used for
sales purposes, and of preparing and distributing sales literature and
advertisements; and a prorated portion of Distributors' overhead expenses
related to these activities. Together, these expenses, including the service
fees, are "eligible expenses." The 12b-1 fees charged to each class are based
only on the fees attributable to that particular class.
THE CLASS A, B AND C PLANS. Each Fund pays Distributors up to 0.35% per year
of Class A's average daily net assets, out of which 0.25% may be paid for
services to shareholders (service fees). Each Fund pay Distributors up to 1%
per year of the class's average daily net assets, out of which 0.25% may be
used for service fees. The Class B and C plans also may be used to pay
Distributors for advancing commissions to securities dealers with respect to
the initial sale of Class B and C shares. Class B plan fees payable to
Distributors are used by Distributors to pay third party financing entities
that have provided financing to Distributors in connection with advancing
commissions to securities dealers. Franklin Resources owns a minority
interest in one of the third party financing entities.
The Class B and C plans are compensation plans. They allow each Fund to pay a
fee to Distributors that may be more than the eligible expenses Distributors
has incurred at the time of the payment. Distributors must, however,
demonstrate to the board that it has spent or has near-term plans to spend
the amount received on eligible expenses. The Fund will not pay more than the
maximum amount allowed under the plans.
In addition to the payments that Distributors or others are entitled to under
each plan, each plan also provides that to the extent the Fund, the manager
or Distributors or other parties on behalf of the Fund, the manager or
Distributors make payments that are deemed to be for the financing of any
activity primarily intended to result in the sale of Fund shares within the
context of Rule 12b-1 under the Investment Company Act of 1940, as amended,
then such payments shall be deemed to have been made pursuant to the plan.
To the extent fees are for distribution or marketing functions, as
distinguished from administrative servicing or agency transactions, certain
banks may not participate in the plans because of applicable federal law
prohibiting certain banks from engaging in the distribution of mutual fund
shares. These banks, however, are allowed to receive fees under the plans for
administrative servicing or for agency transactions.
Distributors must provide written reports to the board at least quarterly on
the amounts and purpose of any payment made under the plans and any related
agreements, and furnish the board with such other information as the board
may reasonably request to enable it to make an informed determination of
whether the plans should be continued.
Each plan has been approved according to the provisions of Rule 12b-1. The
terms and provisions of each plan also are consistent with Rule 12b-1.
PERFORMANCE
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Performance quotations are subject to SEC rules. These rules require the use
of standardized performance quotations or, alternatively, that every
non-standardized performance quotation furnished by the Funds be accompanied
by certain standardized performance information computed as required by the
SEC.
Average annual total return quotations used by the Funds are based on the
standardized methods of computing performance mandated by the SEC.
Performance figures reflect Rule 12b-1 fees from the date of the plan's
implementation. An explanation of these and other methods used by the Funds
to compute or express performance follows. Regardless of the method used,
past performance does not guarantee future results, and is an indication of
the return to shareholders only for the limited historical period used.
Because the Funds are new, they have no performance history and thus no
performance quotations have been provided.
AVERAGE ANNUAL TOTAL RETURN Average annual total return is determined by
finding the average annual rates of return over certain periods that would
equate an initial hypothetical $1,000 investment to its ending redeemable
value. The calculation assumes the maximum initial sales charge is deducted
from the initial $1,000 purchase, and income dividends and capital gain
distributions are reinvested at net asset value. The quotation assumes the
account was completely redeemed at the end of each period and the deduction
of all applicable charges and fees. If a change is made to the sales charge
structure, historical performance information will be restated to reflect the
maximum initial sales charge currently in effect.
When considering the average annual total return quotations for Class A and C
shares, you should keep in mind that the maximum initial sales charge
reflected in each quotation is a one time fee charged on all direct
purchases, which will have its greatest impact during the early stages of
your investment. This charge will affect actual performance less the longer
you retain your investment in the Fund.
The following SEC formula is used to calculate these figures:
n
P(1+T) = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of each period at the end of each period
CUMULATIVE TOTAL RETURN Like average annual total return, cumulative total
return assumes the maximum initial sales charge is deducted from the initial
$1,000 purchase, income dividends and capital gain distributions are
reinvested at net asset value, the account was completely redeemed at the end
of each period and the deduction of all applicable charges and fees.
Cumulative total return, however, is based on the actual return for a
specified period rather than on the average return over the periods indicated
above.
VOLATILITY Occasionally statistics may be used to show a Fund's volatility or
risk. Measures of volatility or risk are generally used to compare a Fund's
net asset value or performance to a market index. One measure of volatility
is beta. Beta is the volatility of a fund relative to the total market, as
represented by an index considered representative of the types of securities
in which the fund invests. A beta of more than 1.00 indicates volatility
greater than the market and a beta of less than 1.00 indicates volatility
less than the market. Another measure of volatility or risk is standard
deviation. Standard deviation is used to measure variability of net asset
value or total return around an average over a specified period of time. The
idea is that greater volatility means greater risk undertaken in achieving
performance.
OTHER PERFORMANCE QUOTATIONS The Funds also may quote the performance of
shares without a sales charge. Sales literature and advertising may quote a
cumulative total return, average annual total return and other measures of
performance with the substitution of net asset value for the public offering
price.
Sales literature referring to the use of the Fund as a potential investment
for IRAs, business retirement plans, and other tax-advantaged retirement
plans may quote a total return based upon compounding of dividends on which
it is presumed no federal income tax applies.
Each Fund may include in its advertising or sales material information
relating to investment goals and performance results of funds belonging to
Franklin Templeton Investments. Franklin Resources, Inc. is the parent
company of the advisors and underwriter of Franklin Templeton funds.
COMPARISONS To help you better evaluate how an investment in the Fund may
satisfy your investment goal, advertisements and other materials about the
Fund may discuss certain measures of Fund performance as reported by various
financial publications. Materials also may compare performance (as calculated
above) to performance as reported by other investments, indices, and
averages. These comparisons may include, but are not limited to, the
following examples:
o Dow Jones(R) Composite Average and its component averages - a
price-weighted average of 65 stocks that trade on the New York Stock
Exchange. The average is a combination of the Dow Jones Industrial Average
(30 blue-chip stocks that are generally leaders in their industry), the Dow
Jones Transportation Average (20 transportation stocks), and the Dow Jones
Utilities Average (15 utility stocks involved in the production of
electrical energy).
o Standard & Poor's(R) 500 Stock Index or its component indices - a
capitalization-weighted index designed to measure performance of the broad
domestic economy through changes in the aggregate market value of 500
stocks representing all major industries.
o The New York Stock Exchange composite or component indices - an
unmanaged index of all industrial, utilities, transportation, and finance
stocks listed on the NYSE.
o Wilshire 5000 Equity Index - represents the return on the market value
of all common equity securities for which daily pricing is available.
Comparisons of performance assume reinvestment of dividends.
o Lipper - Mutual Fund Performance Analysis and Lipper - Equity Fund
Performance Analysis - measure total return and average current yield for
the mutual fund industry and rank individual mutual fund performance over
specified time periods, assuming reinvestment of all distributions,
exclusive of any applicable sales charges.
o CDA Mutual Fund Report, published by CDA Investment Technologies, Inc. -
analyzes price, current yield, risk, total return, and average rate of
return (average annual compounded growth rate) over specified time periods
for the mutual fund industry.
o Mutual Fund Source Book, published by Morningstar, Inc. - analyzes
price, yield, risk, and total return for mutual funds.
o Financial publications: The WALL STREET JOURNAL, and BUSINESS WEEK,
CHANGING TIMES, FINANCIAL WORLD, FORBES, FORTUNE, and MONEY magazines -
provide performance statistics over specified time periods.
o Consumer Price Index (or Cost of Living Index), published by the U.S.
Bureau of Labor Statistics - a statistical measure of change, over time, in
the price of goods and services in major expenditure groups.
o STOCKS, BONDS, BILLS, AND INFLATION, published by Ibbotson Associates -
historical measure of yield, price, and total return for common and small
company stock, long-term government bonds, Treasury bills, and inflation.
o Historical data supplied by the research departments of CS First Boston
Corporation, the J.P. Morgan(R)companies, Salomon Smith Barney Inc., Merrill
Lynch, Lehman Brothers(R)and Bloomberg(R)L.P.
o Morningstar - information published by Morningstar, Inc., including
Morningstar proprietary mutual fund ratings. The ratings reflect
Morningstar's assessment of the historical risk-adjusted performance of a
fund over specified time periods relative to other funds within its
category.
ADDITIONAL COMPARISONS - FRANKLIN GLOBAL AGGRESSIVE GROWTH FUND
o Savings and Loan Historical Interest Rates - as published in the U.S.
Savings & Loan League Fact Book.
o Russell 3000(R) Growth Index - measures the performance of those Russell
3000 Index companies with higher price-to-book ratios and higher forecasted
growth values. The stocks in this index are also members of either the
Russell 1000 Growth or the Russell 2000 Growth indexes.
o Standard & Poor's(R) MidCap 400 Index - consists of 400 domestic stocks
chosen for market size (median market capitalization of $676 million),
liquidity and industry group representation. It is a market-value weighted
index, with each stock affecting the index in proportion to its market
value. This index, calculated by S&P, is a total return index with
dividends reinvested.
ADDITIONAL COMPARISONS - FRANKLIN GLOBAL GROWTH FUND
o Valueline Index - an unmanaged index which follows the stock of
approximately 1,700 companies.
o Russell 3000(R)-Index measures the performance of the 3,000 largest U.S.
companies based on total market capitalization.
o Russell 2000 Small Stock Index - consists of the smallest 2,000
companies in the Russell 3000 Index, representing approximately 11% of the
Russell 3000 total market capitalization.
From time to time, advertisements or information for each Fund may include a
discussion of certain attributes or benefits to be derived from an investment
in the Fund. The advertisements or information may include symbols,
headlines, or other material that highlights or summarizes the information
discussed in more detail in the communication.
Advertisements or information also may compare each Fund's performance to the
return on certificates of deposit (CDs) or other investments. You should be
aware, however, that an investment in the Fund involves the risk of
fluctuation of principal value, a risk generally not present in an investment
in a CD issued by a bank. CDs are frequently insured by an agency of the U.S.
government. An investment in a Fund is not insured by any federal, state or
private entity.
In assessing comparisons of performance, you should keep in mind that the
composition of the investments in the reported indices and averages is not
identical to any Fund's portfolio, the indices and averages are generally
unmanaged, and the items included in the calculations of the averages may not
be identical to the formula used by a Fund to calculate its figures. In
addition, there can be no assurance that a Fund will continue their
performance as compared to these other averages.
MISCELLANEOUS INFORMATION
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The Funds may help you achieve various investment goals such as accumulating
money for retirement, saving for a down payment on a home, college costs and
other long-term goals. The Franklin College Costs Planner may help you in
determining how much money must be invested on a monthly basis to have a
projected amount available in the future to fund a child's college education.
(Projected college cost estimates are based upon current costs published by
the College Board.) The Franklin Retirement Planning Guide leads you through
the steps to start a retirement savings program. Of course, an investment in
a Fund cannot guarantee that these goals will be met.
The Funds are members of Franklin Templeton Investments, one of the largest
mutual fund organizations in the U.S., and may be considered in a program for
diversification of assets. Founded in 1947, Franklin is one of the oldest
mutual fund organizations and now services approximately 3 million
shareholder accounts. In 1992, Franklin, a leader in managing fixed-income
mutual funds and an innovator in creating domestic equity funds, joined
forces with Templeton, a pioneer in international investing. The Mutual
Series team, known for its value-driven approach to domestic equity
investing, became part of the organization four years later. Together,
Franklin Templeton Investments has over $229 billion in assets under
management for more than 5 million U.S. based mutual fund shareholder and
other accounts. Franklin Templeton Investments offers 107 U.S. based open-end
investment companies to the public. Each Fund may identify itself by its
Nasdaq symbol or CUSIP number.
Currently, there are more mutual funds than there are stocks listed on the
New York Stock Exchange. While many of them have similar investment goals, no
two are exactly alike. Shares of the Funds are generally sold through
securities dealers, whose investment representatives are experienced
professionals who can offer advice on the type of investments suitable to
your unique goals and needs, as well as the risks associated with such
investments.
DESCRIPTION OF RATINGS
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PREFERRED STOCKS RATINGS
STANDARD & POOR'S RATINGS GROUP (S&P(R))
AAA: This is the highest rating that may be assigned by S&P to a preferred
stock issue and indicates an extremely strong capacity to pay the preferred
stock obligations.
AA: A preferred stock issue rated AA also qualifies as a high quality
fixed-income security. The capacity to pay preferred stock obligations is
very strong, although not as overwhelming as for issues rated AAA.
A: An issue rated A is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions.
BBB: An issue rated BBB is regarded as backed by an adequate capacity to pay
the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to make payments for a
preferred stock in this category than for issues in the A category.
BB, B and CCC: Preferred stock rated BB, B, and CCC are regarded, on balance,
as predominately speculative with respect to the issuer's capacity to pay
preferred stock obligations. BB indicates the lowest degree of speculation
and CCC the highest degree of speculation. While these issues will likely
have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.
CC: The rating CC is reserved for a preferred stock issue in arrears on
dividends or sinking fund payments but that is currently paying.
C: A preferred stock rated C is a non-paying issue.
D: A preferred stock rated D is a non-paying issue with the issuer in default
on debt instruments.
NR: Indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy.
Plus (+) or Minus (-): To provide more detailed indications of preferred
stock quality, the ratings from "AA" to "CCC" may be modified by the addition
of a plus or minus sign to show relative standing within the major rating
categories.
CORPORATE BOND RATINGS
MOODY'S INVESTORS SERVICE, INC. (MOODY'S)
INVESTMENT GRADE
Aaa: Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or exceptionally
stable margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa: Bonds rated Aa are judged to be high quality by all standards. Together
with the Aaa group, they comprise what are generally known as high-grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large, fluctuation of protective elements may be of greater
amplitude, or there may be other elements present that make the long-term
risks appear somewhat larger.
A: Bonds rated A possess many favorable investment attributes and are
considered upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
that suggest a susceptibility to impairment sometime in the future.
Baa: Bonds rated Baa are considered medium-grade obligations. They are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may
be lacking or may be characteristically unreliable over any great length of
time. These bonds lack outstanding investment characteristics and, in fact,
have speculative characteristics as well.
BELOW INVESTMENT GRADE
Ba: Bonds rated Ba are judged to have predominantly speculative elements and
their future cannot be considered well assured. Often the protection of
interest and principal payments is very moderate and, thereby, not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B: Bonds rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms
of the contract over any long period of time may be small.
Caa: Bonds rated Caa are of poor standing. These issues may be in default or
there may be present elements of danger with respect to principal or interest.
Ca: Bonds rated Ca represent obligations that are speculative to a high
degree. These issues are often in default or have other marked shortcomings.
C: Bonds rated C are the lowest rated class of bonds and can be regarded as
having extremely poor prospects of ever attaining any real investment
standing.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond ratings. The modifier
1 indicates that the security ranks in the higher end of its generic rating
category; modifier 2 indicates a mid-range ranking; and modifier 3 indicates
that the issue ranks in the lower end of its generic rating category.
S&P
INVESTMENT GRADE
AAA: This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.
AA: Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong and, in the majority of instances,
differ from AAA issues only in a small degree.
A: Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions.
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay principal and interest for bonds in this
category than for bonds in the A category.
BELOW INVESTMENT GRADE
BB, B, CCC, CC: Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of the obligations.
BB indicates the lowest degree of speculation and CC the highest degree of
speculation. While these bonds will likely have some quality and protective
characteristics, they are outweighed by large uncertainties or major risk
exposures to adverse conditions.
C: Bonds rated C are typically subordinated debt to senior debt that is
assigned an actual or implied CCC- rating. The C rating also may reflect the
filing of a bankruptcy petition under circumstances where debt service
payments are continuing. The C1 rating is reserved for income bonds on which
no interest is being paid.
D: Debt rated D is in default and payment of interest and/or repayment of
principal is in arrears.
Plus (+) or minus (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
SHORT-TERM DEBT & COMMERCIAL PAPER RATINGS
MOODY'S
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations. These obligations have an original
maturity not exceeding one year, unless explicitly noted. Moody's commercial
paper ratings are opinions of the ability of issuers to repay punctually
their promissory obligations not having an original maturity in excess of
nine months. Moody's employs the following designations for both short-term
debt and commercial paper, all judged to be investment grade, to indicate the
relative repayment capacity of rated issuers:
P-1 (Prime-1): Superior capacity for repayment.
P-2 (Prime-2): Strong capacity for repayment.
S&P
S&P's ratings are a current assessment of the likelihood of timely payment of
debt having an original maturity of no more than 365 days. Ratings are graded
into four categories, ranging from "A" for the highest quality obligations to
"D" for the lowest. Issues within the "A" category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety, as follows:
A-1: This designation indicates the degree of safety regarding timely payment
is very strong. A "plus" (+) designation indicates an even stronger
likelihood of timely payment.
A-2: Capacity for timely payment on issues with this designation is strong.
The relative degree of safety, however, is not as overwhelming as for issues
designated A-1.
A-3: Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects
of changes in circumstances than obligations carrying the higher designations.
FRANKLIN GLOBAL TRUST
FRANKLIN GLOBAL AGGRESSIVE GROWTH FUND
FRANKLIN GLOBAL GROWTH FUND
ADVISOR CLASS
STATEMENT OF ADDITIONAL INFORMATION
DECEMBER 29, 2000
[Insert Franklin Templeton Ben Head]
P.O. BOX 997151, SACRAMENTO, CA 95899-9983 1-800/DIAL BEN(R)
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This Statement of Additional Information (SAI) is not a prospectus. It
contains information in addition to the information in the Funds' prospectus.
The Funds' prospectus, dated December 29, 2000, which we may amend from time
to time, contains the basic information you should know before investing in a
Fund. You should read this SAI together with the Funds' prospectus.
For a free copy of the current prospectus contact your investment
representative or call 1-800/DIAL BEN (1-800/342-5236).
CONTENTS
Goals, Strategies and Risks 2
Officers and Trustees 12
Management and Other Services 15
Portfolio Transactions 17
Distributions and Taxes 18
Organization, Voting Rights
and Principal Holders 19
Buying and Selling Shares 20
Pricing Shares 22
The Underwriter 23
Performance 23
Miscellaneous Information 25
Description of Ratings 25
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MUTUAL FUNDS, ANNUITIES, AND OTHER INVESTMENT PRODUCTS:
o ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE U.S. GOVERNMENT;
o ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY
BANK;
o ARE SUBJECT TO INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
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GOALS, STRATEGIES AND RISKS
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Generally, the policies and restrictions discussed in this SAI and in the
prospectus apply when a Fund makes an investment. In most cases, the Fund is
not required to sell a security because circumstances change and the security
no longer meets one or more of the Fund's policies or restrictions. If a
percentage restriction or limitation is met at the time of investment, a
later increase or decrease in the percentage due to a change in the value or
liquidity of portfolio securities will not be considered a violation of the
restriction or limitation.
If a bankruptcy or other extraordinary event occurs concerning a particular
security a Fund owns, the Fund may receive stock, real estate, or other
investments that the Fund would not, or could not, buy. If this happens, the
Fund intends to sell such investments as soon as practicable while trying to
maximize the return to shareholders.
Each Fund has adopted certain investment restrictions as fundamental and
non-fundamental policies. A fundamental policy may only be changed if the
change is approved by (i) more than 50% of a Fund's outstanding shares or
(ii) 67% or more of a Fund's shares present at a shareholder meeting if more
than 50% of a Fund's outstanding shares are represented at the meeting in
person or by proxy, whichever is less. A non-fundamental policy may be
changed by the Board of Trustees without the approval of shareholders.
FRANKLIN GLOBAL GROWTH FUND AND FRANKLIN GLOBAL AGGRESSIVE GROWTH FUND
FUNDAMENTAL INVESTMENT POLICIES
Each Fund's principal investment goal is long-term capital appreciation.
A Fund may not:
1. Borrow money, except that the Fund may borrow money from banks or
affiliated investment companies to the extent permitted by the 1940 Act,
or any exemptions therefrom which may be granted by the SEC, or from any
person in a private transaction not intended for public distribution, for
temporary or emergency purposes and then in an amount not exceeding 33
1/3% of the value of the Fund's total assets (including the amount
borrowed).
2. Act as an underwriter except to the extent the Fund may be deemed to be an
underwriter when disposing of securities it owns or when selling its own
shares.
3. Make loans to other persons except (a) through the lending of its
portfolio securities, (b) through the purchase of debt securities, loan
participations and/or engaging in direct corporate loans in accordance
with its investment goal and policies, and (c) to the extent the entry
into a repurchase agreement is deemed to be a loan. The Fund may also make
loans to affiliated investment companies to the extent permitted by the
1940 Act or any exemptions therefrom that may be granted by the SEC.
4. Purchase or sell real estate and commodities, except that the Fund may buy
or sell securities of real estate investment trusts, may purchase or sell
currencies, may enter into futures contracts on securities, currencies,
indices or any other financial instruments, and may purchase and sell
options on such futures contracts.
5. Issue securities senior to the Fund's presently authorized shares of
beneficial interest, except that this restriction shall not be deemed to
prohibit the Fund from (a) making any permitted borrowings, loans,
mortgages or pledges, (b) entering into options, futures contracts,
forward contracts or repurchase transactions, or (c) making short sales of
securities to the extent permitted by the 1940 Act and any rule or order
thereunder, or SEC staff interpretations thereof.
6. Concentrate (invest more than 25% of its total assets) in securities of
issuers in a particular 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).
7. Buy the securities of any one issuer (other than the U.S. government or
any of its agencies or instrumentalities or securities of other investment
companies) if immediately after such investment (a) more than 5% of the
value of the Fund's total assets would be invested in such issuer or (b)
more than 10% of the outstanding voting securities of such issuer would be
owned by the Fund, except that up to 25% of the value of such Fund's total
assets may be invested without regard to such 5% and 10% limitations.
NON-FUNDAMENTAL INVESTMENT POLICIES, TECHNIQUES, STRATEGIES AND THEIR RISKS
In trying to achieve its investment goals, each Fund may invest (unless
otherwise indicated) in the following types of securities or engage in the
following types of transactions:
EQUITY SECURITIES Each Fund invests primarily in equity securities. The
purchaser of an equity security typically receives an ownership interest in
the company as well as certain voting rights. The owner of an equity security
may participate in a company's success through the receipt of dividends,
which are distributions of earnings by the company to its owners. Equity
security owners may also participate in a company's success or lack of
success through increases or decreases in the value of the company's shares
as traded in the public trading market for such shares. Equity securities
generally take the form of common stock or preferred stock. Preferred
stockholders typically receive greater dividends but may receive less
appreciation than common stockholders and may have greater or lesser voting
rights. Equity securities may also include convertible securities, warrants,
or rights. Warrants or rights give the holder the right to purchase a common
stock at a given time for a specified price.
A significant portion of each Fund's investments in equity securities may be
securities of companies in the following particular industries:
BIOTECHNOLOGY COMPANIES The biotechnology industry is subject to extensive
government regulation. The industry will be affected by government regulatory
requirements, regulatory approval for new drugs and medical products, patent
considerations, product liability, and similar matters. For example, in the
past several years, the U.S. Congress has considered legislation concerning
healthcare reform and changes to the U.S. Food and Drug Administration's
(FDA) approval process. If such legislation is passed it may affect the
biotechnology industry. As these factors impact the biotechnology industry,
the value of your shares may fluctuate significantly over relatively short
periods of time.
Because the biotechnology industry is relatively new, investors may be quick
to react to developments that affect the industry. In the past, biotechnology
securities have exhibited considerable volatility in reaction to research and
other developments. In comparison to more developed industries, there may be
a thin trading market in biotechnology securities, and adverse developments
in the biotechnology industry may be more likely to result in decreases in
the value of biotechnology stocks.
Biotechnology companies are often small, start-up ventures whose products are
only in the research stage. Only a limited number of biotechnology companies
have reached the point of approval of products by the FDA and subsequent
commercial production and distribution of such products. Therefore, the
success of investments in the biotechnology industry is often based upon
speculation and expectations about future products, research progress, and
new product filings with regulatory authorities. Such investments are
speculative and may drop sharply in value in response to regulatory or
research setbacks.
HEALTH TECHNOLOGY COMPANIES The value of health technology companies may be
affected by a variety of government actions. For example, the activities of
some health technology companies may be funded or subsidized by federal and
state governments. If government subsidies are discontinued, the
profitability of these companies could be adversely affected. Stocks of these
companies will be affected by government policies on health technology
reimbursements, regulatory approval for new drugs and medical instruments,
and similar matters. Health technology companies are also subject to
legislative risk, which is the risk of a reform of the health technology
system through legislation. Health technology companies may face lawsuits
related to product liability issues. Also, many products and services
provided by health technology companies are subject to rapid obsolescence.
The value of an investment in a Fund may fluctuate significantly over
relatively short periods of time.
FOREIGN SECURITIES The value of foreign (and U.S.) securities is affected by
general economic conditions and individual company and industry earnings
prospects. While foreign securities may offer significant opportunities for
gain, they also involve additional risks that can increase the potential for
losses in a Fund. These risks can be significantly greater for investments in
emerging markets. Although each Fund may invest in securities of issuers in
emerging markets without limit, none of the Funds currently intend to invest
more than 10% of net assets in such securities. Investments in depositary
receipts also involve some or all of the risks described below.
The political, economic, and social structures of some countries in which the
Funds invest may be less stable and more volatile than those in the U.S. The
risks of investing in these countries include the possibility of the
imposition of exchange controls, expropriation, restrictions on removal of
currency or other assets, nationalization of assets, and punitive taxes.
There may be less publicly available information about a foreign company or
government than about a U.S. company or public entity. Certain countries'
financial markets and services are less developed than those in the U.S. or
other major economies. As a result, they may not have uniform accounting,
auditing, and financial reporting standards and may have less government
supervision of financial markets. Foreign securities markets may have
substantially lower trading volumes than U.S. markets, resulting in less
liquidity and more volatility than experienced in the U.S. Transaction costs
on foreign securities markets are generally higher than in the U.S. The
settlement practices may be cumbersome and result in delays that may affect
portfolio liquidity. The Funds may have greater difficulty voting proxies,
exercising shareholder rights, pursuing legal remedies, and obtaining
judgments with respect to foreign investments in foreign courts than with
respect to domestic issuers in U.S. courts.
The Funds' management endeavors to buy and sell foreign currencies on as
favorable a basis as practicable. Some price spread on currency exchange (to
cover service charges) may be incurred, particularly when a Fund changes
investments from one country to another or when proceeds of the sale of
shares in U.S. dollars are used for the purchase of securities in foreign
countries. Also, some countries may adopt policies that would prevent a Fund
from transferring cash out of the country or withhold portions of interest
and dividends at the source. There is the possibility of cessation of trading
on national exchanges, expropriation, nationalization, or confiscatory
taxation, withholding, and other foreign taxes on income or other amounts,
foreign exchange controls (which may include suspension of the ability to
transfer currency from a given country), default in foreign government
securities, political or social instability, or diplomatic developments that
could affect investments in securities of issuers in foreign nations.
The Funds may be affected either favorably or unfavorably by fluctuations in
the relative rates of exchange between the currencies of different nations,
by exchange control regulations, and by indigenous economic and political
developments. Some countries in which the Fund may invest may also have fixed
or managed currencies that are not free-floating against the U.S. dollar.
Further, certain currencies may not be internationally traded.
CURRENCY. Some of each Fund's investments may be denominated in foreign
currencies. Changes in foreign currency exchange rates will affect the value
of what the Fund owns and the Fund's share price. Generally, when the U.S.
dollar rises in value against a foreign currency, an investment in that
country loses value because that currency is worth fewer U.S. dollars.
EURO. On January 1, 1999, the European Economic and Monetary Union (EMU)
introduced a new single currency called the euro. By July 1, 2002, the euro,
which will be implemented in stages, will have replaced the national
currencies of the following member countries: Austria, Belgium, Finland,
France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and
Spain.
Currently, the exchange rate of the currencies of each of these countries is
fixed to the euro. The euro trades on currency exchanges and is available
for non-cash transactions. The participating countries currently issue
sovereign debt exclusively in euro. By July 1, 2002, euro-denominated bills
and coins will replace the bills and coins of the above countries.
The new European Central Bank has control over each country's monetary
policies. Therefore, the participating countries no longer control their own
monetary policies by directing independent interest rates for their
currencies. The national governments of the participating countries,
however, have retained the authority to set tax and spending policies and
public debt levels.
The change to the euro as a single currency is new and untested. It is not
possible to predict the impact of the euro on currency values or on the
business or financial condition of European countries and issuers, and
issuers in other regions, whose securities the Fund may hold, or the impact,
if any, on Fund performance. In the first two years of the euro's existence,
the exchange rates of the euro versus many of the world's major currencies
steadily declined. In this environment, U.S. and other foreign investors
experienced erosion of their investment returns on their euro-denominated
securities. The transition and the elimination of currency risk among EMU
countries may change the economic environment and behavior of investors,
particularly in European markets, but the impact of those changes cannot be
assessed at this time.
AMERICAN DEPOSITARY RECEIPTS (ADRS). European Depositary Receipts (EDRs) and
Global Depositary Receipts (GDRs) of non-U.S. issuers are interests in a pool
of non-U.S. company's securities that have been deposited with a bank or
trust company. The bank or trust company then sells interests in the pool to
investors in the form of depositary receipts. Depositary receipts can be
unsponsored or sponsored by the issuer of the underlying securities or by the
issuing bank or trust company.
ADRs are usually issued by an American bank or trust company and may be
registered for use in U.S. securities markets. Foreign banks or trust
companies also may issue them. The Funds consider investments in depositary
receipts to be investments in the equity securities of the issuers into which
the depositary receipts may be converted.
Prices of ADRs are quoted in U.S. dollars, and ADRs are traded in the U.S. on
exchanges or over-the-counter. While ADRs do not eliminate all the risks
associated with foreign investments, by investing in ADRs rather than
directly in the stock of foreign issuers, a Fund will avoid currency risks
during the settlement period for either purchases or sales and certain
foreign securities markets trading risks. In general, there is a large,
liquid market in the U.S. for ADRs quoted on a national securities exchange
or on the Nasdaq. The information available for ADRs is subject to the
accounting, auditing, and financial reporting standards of the U.S. market or
exchange on which they are traded, which standards are more uniform and more
exacting than those to which many foreign issuers may be subject.
Depositary receipts may be issued under sponsored or unsponsored programs.
In sponsored programs, an issuer has made arrangements to have its securities
traded in the form of depositary receipts. In unsponsored programs, the
issuer may not be directly involved in the creation of the program. Although
regulatory requirements with respect to sponsored and unsponsored are
generally similar, in some cases it may be easier to obtain financial
information from an issuer that has participated in the creation of a
sponsored program. Accordingly, there may be less information available
regarding issuers of securities underlying unsponsored programs, and there
may not be a correlation between such information and the market value of the
depositary receipts.
CONVERTIBLE SECURITIES Although each Fund may invest in convertible
securities without limit, none of the Funds currently intend to invest more
than 10% of net assets in such securities. The Funds may also invest in
enhanced convertible securities.
A convertible security is generally a debt obligation or preferred stock that
may be converted within a specified period of time into a certain amount of
common stock of the same or a different issuer. A convertible security
provides a fixed-income stream and the opportunity, through its conversion
feature, to participate in the capital appreciation resulting from a market
price advance in its underlying common stock. As with a straight fixed-income
security, a convertible security tends to increase in market value when
interest rates decline and decrease in value when interest rates rise. Like a
common stock, the value of a convertible security also tends to increase as
the market value of the underlying stock rises, and it tends to decrease as
the market value of the underlying stock declines. Because both interest rate
and market movements can influence its value, a convertible security is not
as sensitive to interest rates as a similar fixed-income security, nor is it
as sensitive to changes in share price as its underlying stock.
A convertible security is usually issued by an operations company or an
investment bank. When issued by an operating company, a convertible security
tends to be senior to common stock, but sub-ordinate to other types of
fixed-income securities issued by that company. When a convertible security
issued by an operating company is "converted," the operating company often
issues new stock to the holder of the convertible security, but if the parity
price of the convertible security is less than the call price, the operating
company may pay out cash instead of common stock. If the convertible security
is issued by an investment bank, the security is an obligation of and is
convertible through the issuing investment bank.
The issuer of a convertible security may be important in determining the
security's true value. This is because the holder of a convertible security
will have recourse only to the issuer. In addition, a convertible security
may be subject to redemption by the issuer, but only after a specified date
and under circumstances established at the time the security is issued.
While each Fund uses the same criteria to rate a convertible debt security
that it uses to rate a more conventional debt security, a convertible
preferred stock is treated like a preferred stock for the Fund's financial
reporting, credit rating, and investment limitation purposes. A preferred
stock is subordinated to all debt obligations in the event of insolvency, and
an issuer's failure to make a dividend payment is generally not an event of
default entitling the preferred shareholder to take action. A preferred stock
generally has no maturity date, so that its market value is dependent on the
issuer's business prospects for an indefinite period of time. In addition,
distributions from preferred stock are dividends, rather than interest
payments, and are usually treated as such for corporate tax purposes.
ENHANCED CONVERTIBLE SECURITIES. In addition to "plain vanilla" convertibles,
a number of different structures have been created to fit the characteristics
of specific investors and issuers. Examples of these enhanced characteristics
for investors include yield enhancement, increased equity exposure or
enhanced downside protection. From an issuer's perspective, enhanced
structures are designed to meet balance sheet criteria, interest/
dividend payment deductibility and reduced equity dilution. The following are
descriptions of common structures of enhanced convertible securities.
Mandatorily convertible securities (e.g., ACES, DECS, PRIDES, SAILS-each
issuer has a different acronym for their version of these securities) are
considered the most equity like of convertible securities. At maturity these
securities are mandatorily convertible into common stock offering investors
some form of yield enhancement in return for some of the upside potential in
the form of a conversion premium. Typical characteristics of mandatories
include: issued as preferred stock, convertible at premium, pay fixed
quarterly dividend (typically 500 to 600 basis points higher than common
stock dividend), and are non-callable for the life of the security (usually
three to five years). An important feature of mandatories is that the number
of shares received at maturity is determined by the difference between the
price of the common stock at maturity and the price of the common stock at
issuance.
Enhanced convertible preferred securities (e.g., QUIPS, TOPrS, and TECONS)
are, from an investor's viewpoint, essentially convertible preferred
securities, i.e. they are issued as preferred stock convertible into common
stock at a premium and pay quarterly dividends. Through this structure the
company establishes a wholly owned special purpose vehicle whose sole purpose
is to issue convertible preferred stock. The proceeds of the convertible
preferred stock offering pass through to the company. The company then issues
a convertible subordinated debenture to the special purpose vehicle. This
convertible subordinated debenture has identical terms to the convertible
preferred issued to investors. Benefits to the issuer include increased
equity credit from rating agencies and the deduction of coupon payments for
tax purposes.
A company divesting a holding in another company often uses exchangeable
securities. The primary difference between exchangeables and standard
convertible structures is that the issuing company is a different company to
that of the underlying shares.
Yield enhanced stock (YES, also known as PERCS) mandatorily converts into
common stock at maturity and offers investors a higher current dividend than
the underlying common stock. The difference between these structures and
other mandatories is that the participation in stock price appreciation is
capped.
Zero-coupon and deep-discount convertible bonds (OID and LYONs) include the
following characteristics: no or low coupon payments, imbedded put options
allowing the investor to put them on select dates prior to maturity, call
protection (usually three to five years), and lower than normal conversion
premiums at issuance. A benefit to the issuer is that while no cash interest
is actually paid, the accrued interest may be deducted for tax purposes.
Because of their put options, these bonds tend to be less sensitive to
changes in interest rates than either long maturity bonds or preferred
stocks. The put options also provide enhanced downside protection while
retaining the equity participation characteristics of traditional convertible
bonds.
An investment in an enhanced convertible security or any other security may
involve additional risks. A Fund may have difficulty disposing of such
securities because there may be a thin trading market for a particular
security at any given time. Reduced liquidity may have an adverse impact on
market price and the Fund's ability to dispose
of particular securities, when necessary, to meet the Fund's liquidity needs
or in response to a specific economic event, such as the deterioration in the
credit worthiness of an issuer. Reduced liquidity in the secondary market for
certain securities also may make it more difficult for the Fund to obtain
market quotations based on actual trades for purposes of valuing the Fund's
portfolio.
DEBT SECURITIES Each Fund may invest up to 5% of its total assets in
corporate debt securities that the manager believes have the potential for
capital appreciation. The receipt of income from debt securities is
incidental to a Fund's investment goal. A debt security typically has a
fixed payment schedule which obligates the issuer to pay interest to the
lender and to return the lender's money over a certain time period. A company
typically meets its payment obligations associated with its outstanding debt
securities before it declares and pays any dividend to holders of its equity
securities. Bonds, notes, and commercial paper differ in the length of the
issuer's payment schedule, with bonds carrying the longest repayment schedule
and commercial paper the shortest.
The market value of debt securities generally varies in response to changes
in interest rates and the financial condition of each issuer. During periods
of declining interest rates, the value of debt securities generally
increases. Conversely, during periods of rising interest rates, the value of
such securities generally declines. These changes in market value will be
reflected in a Fund's net asset value.
LOWER-RATED SECURITIES Although they may offer potentially higher returns
than do higher rated securities, debt rated lower than BBB by S&P or Baa by
Moody's and unrated debt securities of comparable quality generally involve
greater volatility of price and risk to principal, including the possibility
of default by, or bankruptcy of the issuers of the securities, than is the
case with higher-rated securities. In addition, the markets in which low
rated and unrated debt securities are traded are more limited than those in
which higher-rated securities are traded. The existence of limited markets
for particular securities may diminish a Fund's ability to sell the
securities at fair value either to meet redemption requests or to respond to
a specific economic event such as a deterioration in the creditworthiness of
the issuer. Reduced secondary market liquidity for certain low rated or
unrated debt securities may also make it more difficult for a Fund to obtain
accurate market quotations for the purposes of valuing the Fund's portfolio.
Market quotations are generally available on many low rated or unrated
securities only from a limited number of dealers and may not necessarily
represent firm bids of such dealers or prices for actual sales.
Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the values and liquidity of low rated debt
securities, especially in a thinly traded market. Analysis of the
creditworthiness of issuers of low rated debt securities may be more complex
than for issuers of higher rated securities. The ability of a Fund to achieve
its investment goal may, to the extent of investment in low rated debt
securities, be more dependent upon such creditworthiness analysis than would
be the case if the Fund were invested in higher rated securities.
Lower-rated debt securities may be more susceptible to real or perceived
adverse economic and competitive industry conditions than investment grade
securities. The prices of low rated debt securities have been found to be
less sensitive to interest rate changes than higher rated investments, but
more sensitive to adverse economic downturns or individual corporate
developments. A projection of an economic downturn or of a period of rising
interest rates, for example, could cause a decline in low rated debt
securities prices because the advent of a recession could lessen the ability
of a highly leveraged company to make principal and interest payments on its
debt securities. If the issuer of low rated debt securities defaults, a Fund
may incur additional expenses to seek recovery. Each Fund currently limits
its investment in lower-rated debt securities (including convertible debt
securities) to 5% or less of its total assets.
DERIVATIVE SECURITIES The Funds' transactions in options, futures, and
options on futures involve certain risks. These risks include, among others,
the risk that the effectiveness of a transaction depends on the degree that
price movements in the underlying securities, index, or currency correlate
with price movements in the relevant portion of the Fund's portfolio. The
Fund bears the risk that the prices of its portfolio securities will not move
in the same amount as the option or future it has purchased, or that there
may be a negative correlation that would result in a loss on both the
underlying securities and the derivative security.
In addition, adverse market movements could cause a Fund to lose up to its
full investment in a call option contract and/or to experience substantial
losses on an investment in a futures contract. There is also the risk of loss
by the Fund of margin deposits in the event of bankruptcy of a broker with
whom the Fund has an open position in a futures contract or option.
Positions in exchange traded options and futures may be closed out only on an
exchange that provides a secondary market. There can be no assurance that a
liquid secondary market will exist for any particular option or futures
contract or related option at any specific time. Thus, it may not be possible
to close an option or futures position. The inability to close options or
futures positions may have an adverse impact on a Fund's ability to
effectively hedge its securities. Furthermore, if the Fund is unable to close
out a position and if prices move adversely, the Fund will have to continue
to make daily cash payments to maintain its required margin. If a Fund does
not have sufficient cash to do this, it may have to sell portfolio securities
at a disadvantageous time. The Funds will enter into an option or futures
position only if there appears to be a liquid secondary market for the
options or futures.
There can be no assurance that a continuous liquid secondary market will
exist for any particular OTC option at any specific time. Consequently, the
Fund may be able to realize the value of an OTC option it has purchased only
by exercising it or by entering into a closing sale transaction with the
dealer that issued it. When a Fund writes an OTC option, it generally can
close out that option before its expiration only by entering into a closing
purchase transaction with the dealer to which the Fund originally wrote it.
OPTIONS, FUTURES, AND OPTIONS ON FUTURES. A stock option is a contract that
provides the holder the right to buy or sell shares of the stock at a fixed
price, within a specified period of time. An option on a stock index is a
contract that allows the buyer of the option the right to receive from the
seller cash, in an amount equal to the difference between the index's closing
price and the option's exercise price. A futures contract is an obligation to
buy or sell a specified security or currency at a set price on a specified
future date. A stock index futures contract is an agreement to take or make
delivery of an amount of cash based on the difference between the value of
the index at the beginning and end of the contract period. Options, futures,
and options on futures are considered "derivative securities."
Each Fund may buy and sell options on securities and securities indices. The
Funds may only buy options if the premiums paid for such options total 5% or
less of net assets.
Each Fund may buy and sell futures contracts for securities and currencies.
Each Fund may also buy and sell securities index futures and options on
securities index futures. Each Fund may invest in futures contracts only to
hedge against changes in the value of its securities or those it intends to
buy. The Funds will not enter into a futures contract if the amounts paid for
open contracts, including required initial deposits, would exceed 5% of net
assets.
The Funds may take advantage of opportunities in the area of options,
futures, and options on futures and any other derivative investments that are
not presently contemplated for use by the Funds or that are not currently
available but which may be developed, to the extent such opportunities are
consistent with the Funds' investment goals and legally permissible for the
Funds.
OPTIONS. The Funds may buy or write (sell) put and call options on securities
listed on a national securities exchange and in the over-the-counter (OTC)
market. All options written by the Funds will be covered. The Funds may also
buy or write put and call options on securities indices. Options written by
the Funds will be for portfolio hedging purposes only.
A call option written by the Fund is covered if the Fund
(a) owns the underlying security that is subject to the call or (b) has an
absolute and immediate right to acquire that security without additional cash
consideration (or for additional cash consideration held in a segregated
account by its custodian bank) upon conversion or exchange of other
securities held in its portfolio. A call option is also covered if the Fund
holds a call on the same security and in the same principal amount as the
call written where the exercise price of the call held is (a) equal to or
less than the exercise price of the call written or (b) greater than the
exercise price of the call written if the difference is held in cash or
high-grade debt securities in a segregated account with the Fund's custodian
bank.
A put option written by the Fund is covered if the Fund maintains cash or
high-grade debt securities with a value equal to the exercise price of the
written put in a segregated account with its custodian bank. A put is also
covered if the Fund holds a put on the same security and in the same
principal amount as the put written where the exercise price of the put held
is equal to or greater than the exercise price of the put written.
The premium paid by the buyer of an option will reflect, among other things,
the relationship of the exercise price to the market price and volatility of
the underlying security, the remaining term of the option, supply and demand,
and interest rates.
The writer of an option may have no control over when the underlying
securities must be sold, in the case of a call option, or purchased, in the
case of a put option, since the writer may be assigned an exercise notice at
any time prior to the termination of the obligation. Whether or not an option
expires unexercised, the writer retains the amount of the premium. This
amount may, in the case of a covered call option, be offset by a decline in
the market value of the underlying security during the option period. If a
call option is exercised, the writer experiences a profit or loss from the
sale of the underlying security. If a put option is exercised, the writer
must fulfill the obligation to buy the underlying security at the exercise
price, which will usually exceed the market value of the underlying security
at that time.
If the writer of an option wants to terminate its obligation, the writer may
effect a "closing purchase transaction" by buying an option of the same
series as the option previously written. The effect of the purchase is that
the clearing corporation will cancel the writer's position. However, a writer
may not effect a closing purchase transaction after being notified of the
exercise of an option. Likewise, the holder of an option may liquidate its
position by effecting a "closing sale transaction" by selling an option of
the same series as the option previously purchased. There is no guarantee
that either a closing purchase or a closing sale transaction may be made at
the time desired by the Fund.
Effecting a closing transaction in the case of a written call option allows
the Fund to write another call option on the underlying security with a
different exercise price, expiration date or both. In the case of a written
put option, a closing transaction allows the Fund to write another covered
put option. Effecting a closing transaction also allows the cash or proceeds
from the sale of any securities subject to the option to be used for other
Fund investments. If the Fund wants to sell a particular security from its
portfolio on which it has written a call option, it will effect a closing
transaction prior to or at the same time as the sale of the security.
The Fund will realize a profit from a closing transaction if the price of the
transaction is less than the premium received from writing the option or is
more than the premium paid to buy the option. Likewise, the Fund will realize
a loss from a closing transaction if the price of the transaction is more
than the premium received from writing the option or is less than the premium
paid to buy the option. Increases in the market price of a call option will
generally reflect increases in the market price of the underlying security.
As a result, any loss resulting from the repurchase of a call option is
likely to be offset in whole or in part by appreciation of the underlying
security owned by the Fund.
The writing of covered put options involves certain risks. For example, if
the market price of the underlying security rises or otherwise is above the
exercise price, the put option will expire worthless and the Fund's gain will
be limited to the premium received. If the market price of the underlying
security declines or otherwise is below the exercise price, the Fund may
elect to close the position or take delivery of the security at the exercise
price. The Fund's return will be the premium received from the put option
minus the amount by which the market price of the security is below the
exercise price.
A Fund may buy call options on securities it intends to buy in order to limit
the risk of a substantial increase in the market price of the security before
the purchase is effected. A Fund may also buy call options on securities held
in its portfolio and on which it has written call options. Prior to its
expiration, a call option may be sold in a closing sale transaction. Profit
or loss from the sale will depend on whether the amount received is more or
less than the premium paid for the call option plus any related transaction
costs.
A Fund may buy put options on securities in an attempt to protect against a
decline in the market value of the underlying security below the exercise
price less the premium paid for the option. The ability to buy put options
allows the Fund to protect the unrealized gain in an appreciated security in
its portfolio without actually selling the security. In addition, the Fund
continues to receive interest or dividend income on the security. The Fund
may sell a put option it has previously purchased prior to the sale of the
security underlying the option. The sale of the option will result in a net
gain or loss depending on whether the amount received on the sale is more or
less than the premium and other transaction costs paid for the put option.
Any gain or loss may be wholly or partially offset by a change in the value
of the underlying security that the Fund owns or has the right to acquire.
A Fund may write covered put and call options and buy put and call options
that trade in the OTC market to the same extent that it may engage in
exchange traded options. Like exchange traded options, OTC options give the
holder the right to buy, in the case of OTC call options, or sell, in the
case of OTC put options, an underlying security from or to the writer at a
stated exercise price. However, OTC options differ from exchange traded
options in certain material respects.
OTC options are arranged directly with dealers and not with a clearing
corporation. Thus, there is a risk of non-performance by the dealer. Because
there is no exchange, pricing is typically done based on information from
market makers. OTC options are available for a greater variety of securities
and in a wider range of expiration dates and exercise prices, however, than
exchange traded options, and the writer of an OTC option is paid the premium
in advance by the dealer.
Call and put options on stock indices are similar to options on securities
except, rather than the right to buy or sell stock at a specified price,
options on a stock index give the holder the right to receive, upon exercise
of the option, an amount of cash if the closing level of the underlying stock
index is greater than (or less than, in the case of a put) the exercise price
of the option, expressed in dollars multiplied by a specified number. Thus,
unlike stock options, all settlements are in cash, and gain or loss depends
on price movements in the stock market generally (or in a particular industry
or segment of the market) rather than price movements in individual stocks.
When a Fund writes an option on a stock index, the Fund will establish a
segregated account with its custodian bank containing cash or high quality
fixed-income securities in an amount at least equal to the market value of
the underlying stock index. The Fund will maintain the account while the
option is open or will otherwise cover the transaction.
FINANCIAL FUTURES. The Funds may enter into contracts for the purchase or
sale of futures contracts based upon financial indices (financial futures).
Financial futures contracts are commodity contracts that obligate the long or
short holder to take or make delivery of the cash value of a securities index
during a specified future period at a specified price. A "sale" of a futures
contract means the acquisition of a contractual obligation to deliver such
cash value called for by the contract on a specified date. A "purchase" of a
futures contract means the acquisition of a contractual obligation to take
delivery of the cash value called for by the contract at a specified date.
The purpose of the acquisition or sale of a futures contract is to attempt to
protect the Fund from fluctuations in price of portfolio securities without
actually buying or selling the underlying security. Futures contracts have
been designed by exchanges designated "contracts markets" by the Commodity
Futures Trading Commission (CFTC) and must be executed through a futures
commission merchant, or brokerage firm, which is a member of the relevant
contract market.
The Funds will not engage in transactions in futures contracts or related
options for speculation, but only as a hedge against changes resulting from
market conditions in the values of its securities or securities that they
intend to buy and, to the extent consistent therewith, to accommodate cash
flows. The Funds will not enter into any stock index or financial futures
contract or related option if, immediately thereafter, more than one third of
total assets would be represented by futures contracts or related options. In
addition, the Funds may not buy or sell futures contracts or buy or sell
related options if, immediately thereafter, the sum of the amount of initial
deposits on existing financial futures and premiums paid on options on
financial futures contracts would exceed 5% of total assets (taken at current
value). If a Fund enters into a futures contract or related call option, it
will maintain with its custodian bank, to the extent required by the rules of
the SEC, assets in a segregated account to cover its obligations with respect
to such contract which will consist of cash, cash equivalents or high quality
debt securities from its portfolio in an amount equal to the market value of
such futures contract or related option.
STOCK INDEX FUTURES. The Funds may buy and sell stock index futures
contracts. A stock index futures contract obligates the seller to deliver
(and the buyer to take) an amount of cash equal to a specific dollar amount
times the difference between the value of a specific stock index at the close
of the last trading day of the contract and the price at which the agreement
is made. No physical delivery of the underlying stocks in the index is made.
The Funds may sell stock index futures contracts in anticipation of or during
a market decline to attempt to offset the decrease in market value of their
equity securities that might otherwise result. When a Fund is not fully
invested in stocks and anticipates a significant market advance, it may buy
stock index futures in order to gain rapid market exposure that may in part
or entirely offset increases in the cost of common stocks that it intends to
buy.
OPTIONS ON STOCK INDEX FUTURES. The Funds may buy and sell call and put
options on stock index futures to hedge against risks of market price
movements. The need to hedge against these risks will depend on the extent of
diversification of the Fund's common stock portfolio and the sensitivity of
such investments to factors influencing the stock market as a whole.
Call and put options on stock index futures are similar to options on
securities except that, rather than the right to buy or sell stock at a
specified price, options on stock index futures give the holder the right to
receive cash. Upon exercise of the option, the delivery of the futures
position by the writer of the option to the holder of the option will be
accompanied by delivery of the accumulated balance in the writer's futures
margin account which represents the amount by which the market price of the
futures contract, at exercise, exceeds, in the case of a call, or is less
than, in the case of a put, the exercise price of the option on the futures
contract. If an option is exercised on the last trading day before the
expiration date of the option, the settlement will be made entirely in cash
equal to the difference between the exercise price of the option and the
closing price of the futures contract on the expiration date.
BOND INDEX FUTURES AND RELATED OPTIONS. The Funds may buy and sell futures
contracts based on an index of debt securities and options on such futures
contracts to the extent they currently exist and, in the future, may be
developed. The Funds reserve the right to conduct futures and options
transactions based on an index that may be developed in the future to
correlate with price movements in certain categories of debt securities. The
Funds' investment strategies in employing futures contracts based on an index
of debt securities will be similar to that used in other financial futures
transactions. They may also buy and write put and call options on bond index
futures and enter into closing transactions with respect to such options.
FUTURES CONTRACTS FOR SECURITIES AND CURRENCIES. The Funds may buy and sell
futures contracts for securities, and currencies. These Funds may also enter
into closing purchase and sale transactions with respect to these futures
contracts. The Funds will engage in futures transactions only for bona fide
hedging or other appropriate risk management purposes. All futures contracts
entered into by the Funds are traded on U.S. exchanges or boards of trade
licensed and regulated by the CFTC or on foreign exchanges.
When securities prices are falling, a Fund may offset a decline in the value
of its current portfolio securities through the sale of futures contracts.
When prices are rising, a Fund can attempt to secure better prices than might
be available when it intends to buy securities through the purchase of
futures contracts. Similarly, a Fund can sell futures contracts on a
specified currency in an attempt to protect against a decline in the value of
that currency and its portfolio securities denominated in that currency. A
Fund can buy futures contracts on a foreign currency to fix the price in U.S.
dollars of a security denominated in that currency that the Fund has
purchased or expects to buy.
Positions taken in the futures markets are not normally held to maturity, but
are liquidated through offsetting transactions that may result in a profit or
a loss. While the Funds' futures contracts on securities and currencies will
usually be liquidated in this manner, the Funds may instead make or take
delivery of the underlying securities or currencies whenever it appears
economically advantageous to do so. A clearing corporation associated with
the exchange on which futures on securities or currencies are traded
guarantees that, if still open, the sale or purchase will be performed on the
settlement date.
To the extent a Fund enters into a futures contract, it will deposit in a
segregated account with its custodian bank cash or U.S. Treasury obligations
equal to a specified percentage of the value of the futures contract (the
initial margin), as required by the relevant contract market and futures
commission merchant. The futures contract will be marked-to-market daily.
Should the value of the futures contract decline relative to the Fund's
position, the Fund, if required by law, will pay the futures commission
merchant an amount equal to the change in value.
FINANCIAL FUTURES CONTRACTS - GENERAL. Although financial futures contracts
by their terms call for the actual delivery or acquisition of securities, or
the cash value of the index, in most cases the contractual obligation is
fulfilled before the date of the contract without having to make or take
delivery of the securities or cash. A contractual obligation is offset by
buying (or selling, as the case may be) on a commodities exchange an
identical financial futures contract calling for delivery in the same month.
This transaction, which is effected through a member of an exchange, cancels
the obligation to make or take delivery of the securities or cash. Since all
transactions in the futures market are made, offset or fulfilled through a
clearinghouse associated with the exchange on which the contracts are traded,
the Funds will incur brokerage fees when they buy or sell financial futures
contracts.
ILLIQUID SECURITIES Each Fund's policy is not to invest more than 15% (10% in
the case of the Global Growth Fund)of its net assets in illiquid securities.
Illiquid securities are generally any security that cannot be sold within
seven days in the normal course of business at approximately the amount at
which the Fund has valued them.
Each Fund does not consider securities that it acquires outside of the U.S.
and that are publicly traded in the U.S. or on a foreign securities market to
be illiquid assets if: (a) the Fund reasonably believes it can readily
dispose of the securities for cash in the U.S. or foreign market, or (b)
current market quotations are readily available. Each Fund will not acquire
the securities of foreign issuers outside of the U.S. if, at the time of
acquisition, the Fund has reason to believe that it could not resell the
securities in a public trading market.
The Funds' board of trustees has authorized the Funds to invest in legally
restricted securities (such as those issued pursuant to an exemption from the
registration requirements of the federal securities laws) where such
investments are consistent with a Fund's investment objective. To the extent
the manager determines there is a liquid institutional or other market for
these securities, the Fund considers them to be liquid securities. An example
of these securities are restricted securities that may be freely transferred
among qualified institutional buyers under Rule 144A of the Securities Act of
1933, as amended, and for which a liquid institutional market has developed.
The Funds' board of trustees will review any determination by the manager to
treat a restricted security as a liquid security on an ongoing basis,
including the manager's assessment of current trading activity and the
availability of reliable price information. In determining whether a
restricted security is properly considered a liquid security, the manager and
the Funds' board of trustees will take into account the following factors:
(i) the frequency of trades and quotes for the security; (ii) the number of
dealers willing to buy or sell the security and the number of other potential
buyers; (iii) dealer undertakings to make a market in the security; and (iv)
the nature of the security and marketplace trades (e.g., the time needed to
dispose of the security, the method of soliciting offers, and the mechanics
of transfer). To the extent a Fund invests in restricted securities that are
deemed liquid, the general level of illiquidity in the Fund may increase if
qualified institutional buyers become uninterested in buying these securities
or the market for these securities contracts.
The sale of restricted or illiquid securities often requires more time and
results in higher brokerage charges or dealer discounts and other selling
expenses than the sale of securities eligible for trading on national
securities exchanges or in the OTC markets. Restricted securities often sell
at a price lower than similar securities that are not subject to restrictions
on resale.
144A SECURITIES. Subject to its liquidity limitation, each Fund may invest in
certain unregistered securities which may be sold under Rule 144A of the
Securities Act of 1933 (144A securities). Due to changing market or other
factors, 144A securities may be subject to a greater possibility of becoming
illiquid than securities that have been registered with the SEC for sale. In
addition, a Fund's purchase of 144A securities may increase the level of the
security's illiquidity, as some institutional buyers may become uninterested
in purchasing such securities after the Fund has purchased them.
LOANS OF PORTFOLIO SECURITIES To generate additional income, each Fund may
lend certain of its portfolio securities to qualified banks and
broker-dealers. These loans may not exceed 33 1/3% of the value of the Fund's
total assets, measured at the time of the most recent loan. For each loan,
the borrower must maintain with the Fund's custodian collateral (consisting
of any combination of cash, securities issued by the U.S. government and its
agencies and instrumentalities, or irrevocable letters of credit) with a
value at least equal to 100% of the current market value of the loaned
securities. A Fund retains all or a portion of the interest received on
investment of the cash collateral or receives a fee from the borrower. A
Fund also continues to receive any distributions paid on the loaned
securities. A Fund may terminate a loan at any time and obtain the return of
the securities loaned within the normal settlement period for the security
involved.
Where voting rights with respect to the loaned securities pass with the
lending of the securities, the manager intends to call the loaned securities
to vote proxies, or to use other practicable and legally enforceable means to
obtain voting rights, when the manager has knowledge that, in its opinion, a
material event affecting the loaned securities will occur or the manager
otherwise believes it necessary to vote. As with other extensions of credit,
there are risks of delay in recovery or even loss of rights in collateral in
the event of default or insolvency of the borrower. A Fund will loan its
securities only to parties who meet creditworthiness standards approved by
the Fund's board of trustees, i.e., banks or broker-dealers that the manager
has determined present no serious risk of becoming involved in bankruptcy
proceedings within the time frame contemplated by the loan.
PRIVATE INVESTMENTS Consistent with their respective investment goals and
policies, each Fund may from time to time make private investments in
companies whose securities are not publicly traded, including late stage
private placements. These investments typically will take the form of letter
stock or convertible preferred stock. Because these securities are not
publicly traded, there is no secondary market for the securities. Each Fund
will treat these securities as illiquid.
Late stage private placements are sales of securities made in non-public,
unregistered transactions shortly before a company expects to go public. The
Fund may make such investments in order to participate in companies whose
initial public offerings are expected to be "hot" issues. There is no public
market for shares sold in these private placements and it is possible that
initial public offerings will never be completed. Moreover, even after an
initial public offering, there may be a limited trading market for the
securities or the Fund may be subject to contractual limitations on its
ability to sell the shares.
REAL ESTATE SECURITIES Investments in real estate securities are subject to
the risks associated with the real estate industry. Economic, regulatory, and
social factors that affect the value of real estate will affect the value of
real estate securities. These factors include overbuilding and increased
competition, increases in property taxes and operating expenses, changes in
zoning laws, casualty or condemnation losses, variations in rental income,
changes in neighborhood values, the appeal of properties to tenants, and
increases in interest rates. REITs are subject to risks related to the skill
of their management, changes in value of the properties the REITs own, the
quality of any credit extended by the REITs, and general economic and other
factors.
REPURCHASE AGREEMENTS Each Fund generally will have a portion of its assets
in cash or cash equivalents for a variety of reasons, including waiting for a
suitable investment opportunity or taking a defensive position. To earn
income on this portion of its assets, the Fund may enter into repurchase
agreements. Under a repurchase agreement, the Fund agrees to buy securities
guaranteed as to payment of principal and interest by the U.S. government or
its agencies from a qualified bank or broker-dealer and then to sell the
securities back to the bank or broker-dealer after a short period of time
(generally, less than seven days) at a higher price. The bank or
broker-dealer must transfer to the Fund's custodian securities with an
initial market value of at least 102% of the dollar amount invested by the
Fund in each repurchase agreement. The manager will monitor the value of such
securities daily to determine that the value equals or exceeds the repurchase
price.
Repurchase agreements may involve risks in the event of default or insolvency
of the bank or broker-dealer, including possible delays or restrictions upon
the Fund's ability to sell the underlying securities. The Fund will enter
into repurchase agreements only with parties who meet certain
creditworthiness standards, i.e., banks or broker-dealers that the manager
has determined present no serious risk of becoming involved in bankruptcy
proceedings within the time frame contemplated by the repurchase transaction.
The Funds may also enter into reverse repurchase agreements. Under a reverse
repurchase agreement, these Funds agree to sell a security in its portfolio
and then to repurchase the security at an agreed-upon price, date, and
interest payment. Each Fund will maintain cash or high-grade liquid debt
securities with a value equal to the value of the Fund's obligation under the
agreement, including accrued interest, in a segregated account with the
Fund's custodian bank. The securities subject to the reverse repurchase
agreement will be marked-to-market daily. Although reverse repurchase
agreements are borrowings under federal securities laws, the Funds do not
treat them as borrowings for purposes of its investment restrictions,
provided the segregated account is properly maintained.
JOINT TRANSACTIONS Each Fund may participate in joint repurchase agreement
arrangements with, and combine orders to buy or sell securities with orders
from, other funds managed by the manager and its affiliates. Each Fund may
also invest in shares of one or more money market funds managed by the
manager or its affiliates, to the extent permitted by exemptions granted
under the 1940 Act.
SECURITIES INDUSTRY RELATED INVESTMENTS To the extent it is consistent with
their respective investment goals and certain limitations under the 1940 Act,
the Funds may invest their assets in securities issued by companies engaged
in securities related businesses, including companies that are securities
brokers, dealers, underwriters or investment advisors. These companies are
considered to be part of the financial services industry. Generally, under
the 1940 Act, a Fund may not acquire a security or any interest in a
securities related business to the extent such acquisition would result in
the Fund acquiring in excess of 5% of a class of an issuer's outstanding
equity securities or 10% of the outstanding principal amount of an issuer's
debt securities, or investing more than 5% of the value of the Fund's total
assets in securities of the issuer. In addition, any equity security of a
securities-related business must be a marginable security under Federal
Reserve Board regulations and any debt security of a securities-related
business must be investment grade as determined by the Board. The Funds do
not believe that these limitations will impede the attainment of their
investment goals.
TEMPORARY INVESTMENTS When the manager believes a market or economic
conditions are unfavorable for investors, the manager may invest up to 100%
of a Fund's assets in a temporary defensive manner or hold a substantial
portion of its assets in cash, cash equivalents or other high quality
short-term investments. Unfavorable market or economic conditions may
include excessive volatility or a prolonged general decline in the securities
markets, the securities in which a Fund normally invests, or economies of the
countries where a Fund invests.
Temporary defensive investments generally may include high-grade commercial
paper, repurchase agreements, and other money market equivalents. To the
extent allowed by exemptions granted under the Investment Company Act of
1940, as amended, and a Fund's other investment policies and restrictions,
the manager also may invest a Fund's assets in shares of one or more money
market funds managed by the manager or its affiliates. The manager also may
invest in these types of securities or hold cash while looking for suitable
investment opportunities or to maintain liquidity.
UNSEASONED COMPANIES To the extent that a Fund may invest in smaller
capitalization companies or other companies, it may have significant
investments in relatively new or unseasoned companies that are in their early
stages of development, or in new and emerging industries where the
opportunity for rapid growth is expected to be above average. Securities of
unseasoned companies present greater risks than securities of larger, more
established companies.
OFFICERS AND TRUSTEES
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Franklin Global Trust has a board of trustees. The board is responsible for
the overall management of the Trust, including general supervision and review
of each Fund's investment activities. The board, in turn, elects the officers
of the Trust who are responsible for administering the Trust's day-to-day
operations. The board also monitors each Fund to ensure no material conflicts
exist among share classes. While none is expected, the board will act
appropriately to resolve any material conflict that may arise.
The name, age and address of the officers and board members, as well as their
affiliations, positions held with the Trust, and principal occupations during
the past five years are shown below.
Frank H. Abbott, III (79)
1045 Sansome Street, San Francisco, CA 94111
TRUSTEE
President and Director, Abbott Corporation (an investment company); director
or trustee, as the case may be, of 28 of the investment companies in Franklin
Templeton Investments; and FORMERLY, Director, MotherLode Gold Mines
Consolidated (gold mining) (until 1996) and Vacu-Dry Co. (food processing)
(until 1996).
Harris J. Ashton (68)
191 Clapboard Ridge Road, Greenwich, CT 06830
TRUSTEE
Director, RBC Holdings, Inc. (bank holding company) and Bar-S Foods (meat
packing company); director or trustee, as the case may be, of 47 of the
investment companies in Franklin Templeton Investments; and FORMERLY,
President, Chief Executive Officer and Chairman of the Board, General Host
Corporation (nursery and craft centers) (until 1998).
*Harmon E. Burns (55)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT AND TRUSTEE
Vice Chairman, Member - Office of the Chairman and Director, Franklin
Resources, Inc.; Executive Vice President and Director, Franklin Templeton
Distributors, Inc.; Executive Vice President, Franklin Advisers, Inc.;
Director, Franklin Investment Advisory Services, Inc., Franklin/Templeton
Investor Services, Inc. and Franklin Templeton Services, Inc.; and officer
and/or director or trustee, as the case may be, of most of the other
subsidiaries of Franklin Resources, Inc. and of 51 of the investment
companies in Franklin Templeton Investments.
Robert F. Carlson (72)
2120 Lambeth Way, Carmichael, CA 95608
TRUSTEE
Vice President and past President, Board of Administration, California Public
Employees Retirement Systems (CALPERS); director or trustee, as the case may
be, of 11 of the investment companies in Franklin Templeton Investments; and
FORMERLY, member and Chairman of the Board, Sutter Community Hospitals,
member, Corporate Board, Blue Shield of California, and Chief Counsel,
California Department of Transportation.
S. Joseph Fortunato (68)
Park Avenue at Morris County, P.O. Box 1945
Morristown, NJ 07962-1945
TRUSTEE
Member of the law firm of Pitney, Hardin, Kipp & Szuch; and director or
trustee, as the case may be, of 49 of the investment companies in Franklin
Templeton Investments.
Edith E. Holiday (48)
3239 38th Street, N.W., Washington, DC 20016
TRUSTEE
Director, Amerada Hess Corporation (exploration and refining of oil and gas)
(1993-present), Hercules Incorporated (chemicals, fibers and resins)
(1993-present), Beverly Enterprises, Inc. (health care) (1995-present), H.J.
Heinz Company (processed foods and allied products) (1994-present) and RTI
International Metals, Inc. (manufacture and distribution of titanium) (July
1999-present); director or trustee, as the case may be, of 25 of the
investment companies in Franklin Templeton Investments; and FORMERLY,
Assistant to the President of the United States and Secretary of the Cabinet
(1990-1993), General Counsel to the United States Treasury Department
(1989-1990), and Counselor to the Secretary and Assistant Secretary for Public
Affairs and Public Liaison-United States Treasury Department (1988-1989).
*Charles B. Johnson (67)
777 Mariners Island Blvd., San Mateo, CA 94404
CHAIRMAN OF THE BOARD AND TRUSTEE
Chairman of the Board, Chief Executive Officer, Member - Office of the
Chairman and Director, Franklin Resources, Inc.; Chairman of the Board and
Director, Franklin Investment Advisory Services, Inc.; Vice President,
Franklin Templeton Distributors, Inc.; Director, Franklin/Templeton Investor
Services, Inc. and Franklin Templeton Services, Inc.; officer and/or director
or trustee, as the case may be, of most of the other subsidiaries of Franklin
Resources, Inc. and of 48 of the investment companies in Franklin Templeton
Investments.
*Rupert H. Johnson, Jr. (60)
777 Mariners Island Blvd., San Mateo, CA 94404
PRESIDENT AND TRUSTEE
Vice Chairman, Member - Office of the Chairman and Director, Franklin
Resources, Inc.; Executive Vice President and Director, Franklin Templeton
Distributors, Inc.; Director, Franklin Advisers, Inc., Franklin Investment
Advisory Services, Inc. and Franklin/Templeton Investor Services, Inc.;
Senior Vice President, Franklin Advisory Services, LLC; and officer and/or
director or trustee, as the case may be, of most of the other subsidiaries of
Franklin Resources, Inc. and of 51 of the investment companies in Franklin
Templeton Investments.
Frank W.T. LaHaye (71)
20833 Stevens Creek Blvd., Suite 102, Cupertino, CA 95014
TRUSTEE
Chairman, Peregrine Venture Management Company (venture capital); Director,
The California Center for Land Recycling (redevelopment); director or
trustee, as the case may be, of 28 of the investment companies in Franklin
Templeton Investments; and FORMERLY, General Partner, Miller & LaHaye and
Peregrine Associates, the general partners of Peregrine Venture funds.
Gordon S. Macklin (72)
8212 Burning Tree Road, Bethesda, MD 20817
TRUSTEE
Director, Martek Biosciences Corporation, WorldCom, Inc. (communications
services), MedImmune, Inc. (biotechnology), Overstock.com (internet
services), White Mountains Insurance Group, Ltd. (holding company) and
Spacehab, Inc. (aerospace services); director or trustee, as the case may be,
of 47 of the investment companies in Franklin Templeton Investments; and
FORMERLY, Chairman, White River Corporation (financial services) (until 1998)
and Hambrecht & Quist Group (investment banking) (until 1992), and President,
National Association of Securities Dealers, Inc. (until 1987).
Martin L. Flanagan (40)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
President, Member - Office of the President, Chief Financial Officer and
Chief Operating Officer, Franklin Resources, Inc.; Executive Vice President
and Director, Franklin/Templeton Investor Services, Inc.; President and Chief
Financial Officer, Franklin Mutual Advisers, LLC; Executive Vice President,
Chief Financial Officer and Director, Templeton Worldwide, Inc.; Executive
Vice President, Chief Operating Officer and Director, Templeton Investment
Counsel, Inc.; Executive Vice President, Franklin Advisers, Inc. and Franklin
Investment Advisory Services, Inc.; Chief Financial Officer, Franklin
Advisory Services, LLC; Chairman and Director, Franklin Templeton Services,
Inc.; officer and/or director of some of the other subsidiaries of Franklin
Resources, Inc.; and officer and/or director or trustee, as the case may be,
of 51 of the investment companies in Franklin Templeton Investments.
David P. Goss (53)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
Associate General Counsel, Franklin Templeton Investments; President, Chief
Executive Officer and Director, Franklin Select Realty Trust, Property
Resources, Inc., Property Resources Equity Trust, Franklin Real Estate
Management, Inc. and Franklin Properties, Inc.; officer and director of some
of the other subsidiaries of Franklin Resources, Inc.; officer of 52 of the
investment companies in Franklin Templeton Investments; and FORMERLY,
President, Chief Executive Officer and Director, Franklin Real Estate Income
Fund and Franklin Advantage Real Estate Income Fund (until 1996).
Barbara J. Green (52)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
Vice President and Deputy General Counsel, Franklin Resources, Inc.; Senior
Vice President, Templeton Worldwide, Inc. and Templeton Global Investors,
Inc.; officer of 52 of the investment companies in Franklin Templeton
Investments; and FORMERLY, Deputy Director, Division of Investment
Management, Executive Assistant and Senior Advisor to the Chairman, Counselor
to the Chairman, Special Counsel and Attorney Fellow, U.S. Securities and
Exchange Commission (1986-1995), Attorney, Rogers & Wells (until 1986), and
Judicial Clerk, U.S. District Court (District of Massachusetts) (until 1979).
Edward B. Jamieson (52)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
Executive Vice President and Portfolio Manager, Franklin Advisers, Inc.;
officer of other subsidiaries of Franklin Resources, Inc.; and officer and
trustee of five of the investment companies in Franklin Templeton
Investments.
Charles E. Johnson (44)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
President, Member - Office of the President and Director, Franklin Resources,
Inc.; Senior Vice President, Franklin Templeton Distributors, Inc.; President
and Director, Templeton Worldwide, Inc. and Franklin Advisers, Inc.;
Director, Templeton Investment Counsel, Inc.; President, Franklin Investment
Advisory Services, Inc.; officer and/or director of some of the other
subsidiaries of Franklin Resources, Inc.; and officer and/or director or
trustee, as the case may be, of 32 of the investment companies in Franklin
Templeton Investments.
Edward V. McVey (63)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
Senior Vice President, Franklin Templeton Distributors, Inc.; officer of one
of the other subsidiaries of Franklin Resources, Inc. and of 29 of the
investment companies in Franklin Templeton Investments.
Christopher J. Molumphy (38)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
Executive Vice President, Franklin Advisers, Inc.
Kimberley Monasterio (36)
777 Mariners Island Blvd., San Mateo, CA 94404
TREASURER AND PRINCIPAL ACCOUNTING OFFICER
Senior Vice President, Franklin Templeton Services, Inc.; and officer of 33
of the investment companies in Franklin Templeton Investments.
Murray L. Simpson (63)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT AND SECRETARY
Executive Vice President and General Counsel, Franklin Resources, Inc.;
officer and/or director of some of the subsidiaries of Franklin Resources,
Inc.; officer of 52 of the investment companies in Franklin Templeton
Investments; and FORMERLY, Chief Executive Officer and Managing Director,
Templeton Franklin Investment Services (Asia) Limited (until January 2000)
and Director, Templeton Asset Management Ltd. (until 1999).
*This board member is considered an "interested person" under federal
securities laws.
Note: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers and the
father and uncle, respectively, of Charles E. Johnson.
The Trust currently does not pay fees to noninterested board members. Board
members who serve on the audit committee of the Trust and other funds in
Franklin Templeton Investments receive a flat fee of $2,000 per committee
meeting attended, a portion of which is allocated to the Trust. Members of a
committee are not compensated for any committee meeting held on the day of a
board meeting. Noninterested board members also may serve as directors or
trustees of other funds in Franklin Templeton Investments and may receive
fees from these funds for their services. The fees payable to noninterested
board members by the Trust are subject to reductions resulting from fee caps
limiting the amount of fees payable to board members who serve on other
boards within Franklin Templeton Investments. The following table provides
the total fees paid to noninterested board members by the Trust and by
Franklin Templeton Investments.
TOTAL FEES
RECEIVED FROM NUMBER OF BOARDS
FRANKLIN IN FRANKLIN
TEMPLETON TEMPLETON
INVESTMENTS/1 INVESTMENTS ON
NAME ($) WHICH EACH SERVES/2
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Frank H. Abbott 156,953 28
Harris J. Ashton 359,404 47
S. Joseph Fortunato 359,629 49
Edith E. Holiday 248,305 27
Frank W.T. LaHaye 165,529 28
Gordon S. Macklin 359,504 47
1. For the calendar year ended December 29, 2000.
2. We base the number of boards on the number of registered investment
companies in Franklin Templeton Investments. This number does not include the
total number of series or funds within each investment company for which the
board members are responsible. Franklin Templeton Investments currently
includes 52 registered investment companies, with approximately 156 U.S.
based funds or series.
Noninterested board members are reimbursed for expenses incurred in
connection with attending board meetings, paid pro rata by each fund in
Franklin Templeton Investments for which they serve as director or trustee.
No officer or board member received any other compensation, including pension
or retirement benefits, directly or indirectly from the Fund or other funds
in Franklin Templeton Investments. Certain officers or board members who are
shareholders of Franklin Resources, Inc. may be deemed to receive indirect
remuneration by virtue of their participation, if any, in the fees paid to
its subsidiaries.
Board members historically have followed a policy of having substantial
investments in one or more of the funds in Franklin Templeton Investments, as
is consistent with their individual financial goals. In February 1998, this
policy was formalized through adoption of a requirement that each board
member invest one-third of fees received for serving as a director or trustee
of a Templeton fund in shares of one or more Templeton funds and one-third of
fees received for serving as a director or trustee of a Franklin fund in
shares of one or more Franklin funds until the value of such investments
equals or exceeds five times the annual fees paid such board member.
Investments in the name of family members or entities controlled by a board
member constitute fund holdings of such board member for purposes of this
policy, and a three year phase-in period applies to such investment
requirements for newly elected board members. In implementing such policy, a
board member's fund holdings existing on February 27, 1998, are valued as of
such date with subsequent investments valued at cost.
MANAGEMENT AND OTHER SERVICES
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MANAGER AND SERVICES PROVIDED Each Fund's manager is Franklin Advisers, Inc.
(Advisers). The manager is a wholly owned subsidiary of Franklin Resources,
Inc. (Resources), a publicly owned company engaged in the financial services
industry through its subsidiaries. Charles B. Johnson and Rupert H. Johnson,
Jr. are the principal shareholders of Resources.
The manager provides investment research and portfolio management services,
and selects the securities for each Fund to buy, hold or sell. The manager
also selects the brokers who execute the Funds' portfolio transactions. The
manager provides periodic reports to the board, which reviews and supervises
the manager's investment activities. To protect the Funds, the manager and
its officers, directors and employees are covered by fidelity insurance.
The manager and its affiliates manage numerous other investment companies and
accounts. The manager may give advice and take action with respect to any of
the other funds it manages, or for its own account, that may differ from
action taken by the manager on behalf of each Fund. Similarly, with respect
to each Fund, the manager is not obligated to recommend, buy or sell, or to
refrain from recommending, buying or selling any security that the manager
and access persons, as defined by applicable federal securities laws, may buy
or sell for its or their own account or for the accounts of any other fund.
The manager is not obligated to refrain from investing in securities held by
the Fund or other funds it manages.
The Funds, their manager, sub-advisor and principal underwriter have each
adopted a code of ethics, as required by federal securities laws. Under the
code of ethics, employees who are designated as access persons may engage in
personal securities transactions, including transactions involving securities
that are being considered for a Fund or that are currently held by a Fund,
subject to certain general restrictions and procedures. The personal
securities transactions of access persons of the Funds, their manager,
sub-advisor and principal underwriter will be governed by the codes of
ethics. The codes of ethics are on file with, and available from, the U.S.
Securities and Exchange Commission (SEC).
The Funds' sub-advisor is Fiduciary International, Inc., an indirect, wholly
owned subsidiary of Fiduciary Trust Company International. The sub-advisor
has an agreement with the manager to provide portfolio management services to
the Funds. The sub-advisor recommends the optimal equity allocation and
provides advice regarding the Funds' investments. The sub-advisor also
determines which securities will be purchased, retained or sold and executes
these transactions. The sub-advisor is a research driven, fundamental
investor whose strategy is based on a top-down evaluation of the equity
markets, a thematic approach to stock selection which divides the market into
broad economic sectors and an analysis of specific industry fundamentals. It
will identify themes, often including more than one market sector, which
provide the best opportunities for growth. The sub-advisor relies on a team
of analysts to provide in-depth industry expertise and uses both qualitative
and quantitative analysis to identify companies with superior products,
research capabilities and quality of management and determine those companies
with superior earning power and expected growth rates. Such advantages as a
particular marketing niche, proven technology, sound financial records,
strong management, and industry leadership are all factors the sub-advisor
believes point to strong growth potential. The sub-advisor projects growth
rates and stock price targets for the short, medium and long term, and
considers both absolute and relative price/earnings ratios in evaluating
stocks. The sub-advisor's activities are subject to the board's review and
control, as well as the manager's instruction and supervision.
MANAGEMENT FEES Each Fund pays the manager a fee equal to an annual rate of:
o 0.800% of the value of net assets up to and including $500 million;
o 0.700% of the value of net assets over $500 million up to and including $1
billion;
o 0.650% of the value of net assets over $1 billion up to and including $1.5
billion;
o 0.600% of the value of net assets over $1.5 billion up to and including
$6.5 billion;
o 0.575% of the value of net assets over $6.5 billion up to and including
$11.5 billion;
o 0.555% of the value of net assets over $11.5 billion up to and including
$16.5 billion;
o 0.540% of the value of net assets over $16.5 billion up to and including
$19 billion;
o 0.530% of the value of net assets over $19 billion up to and including
$21.5 billion; and
o 0.520% of the value of net assets in excess of $21.5 billion.
The fee is computed at the close of business on the last business day of each
month according to the terms of the management agreement. Each class of each
Fund's shares pays its proportionate share of the fee.
The manager pays the sub-advisor a fee equal to an annual rate of:
FRANKLIN GLOBAL AGGRESSIVE GROWTH FUND
o 0.600% of the value of net assets up to and including $100 million;
o 0.500% of the value of net assets over $100 million up to and including
$250 million;
o 0.450% of the value of net assets over $250 million up to and including
$500 million;
o 0.400% of the value of net assets over $500 million.
FRANKLIN GLOBAL GROWTH FUND
o 0.550% of the value of net assets up to and including $100 million;
o 0.500% of the value of net assets over $100 million up to an including
$250 million;
o 0.450% of the value of net assets over $250 million up to and including
$500 million;
o 0.400% of the value of net assets over $500 million.
ADMINISTRATOR AND SERVICES PROVIDED Franklin Templeton Services, Inc. (FT
Services) has an agreement with each Fund to provide certain administrative
services and facilities for the Fund. FT Services is wholly owned by
Resources and is an affiliate of each Fund's manager and principal
underwriter.
The administrative services FT Services provides include preparing and
maintaining books, records, and tax and financial reports, and monitoring
compliance with regulatory requirements.
ADMINISTRATION FEES Each Fund pays FT Services a monthly fee equal to an
annual rate of 0.20% of each Fund's average daily net assets.
SHAREHOLDER SERVICING AND TRANSFER AGENT Franklin/Templeton Investor
Services, Inc. (Investor Services) is each Fund's shareholder servicing agent
and acts as the Funds' transfer agent and dividend-paying agent. Investor
Services is located at 777 Mariners Island Blvd., San Mateo, CA 94404. Please
send all correspondence to Investor Services to P.O. Box 997151, Sacramento,
CA 95899-9983.
For its services, Investor Services receives a fixed fee per account. Each
Fund also will reimburse Investor Services for certain out-of-pocket
expenses, which may include payments by Investor Services to entities,
including affiliated entities, that provide sub-shareholder services,
recordkeeping and/or transfer agency services to beneficial owners of the
Funds. The amount of reimbursements for these services per benefit plan
participant Fund account per year will not exceed the per account fee payable
by the Fund to Investor Services in connection with maintaining shareholder
accounts.
CUSTODIAN The Chase Manhattan Bank, at its principal office at MetroTech
Center, Brooklyn, NY 11245, and at the offices of its branches and agencies
throughout the world, acts as custodian of each Fund's assets. As foreign
custody manager, the bank selects and monitors foreign sub-custodian banks,
selects and evaluates non-compulsory foreign depositories, and furnishes
information relevant to the selection of compulsory depositories.
AUDITOR PricewaterhouseCoopers LLP, 333 Market Street, San Francisco, CA
94105, is the Funds' independent auditor. The auditor gives an opinion on the
financial statements included in the Trust's Annual Report to Shareholders
and reviews the Trust's registration statement filed with the SEC.
PORTFOLIO TRANSACTIONS
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The manager selects brokers and dealers to execute the Funds' portfolio
transactions in accordance with criteria set forth in the management
agreement and any directions that the board may give.
When placing a portfolio transaction, the manager seeks to obtain prompt
execution of orders at the most favorable net price. For portfolio
transactions on a securities exchange, the amount of commission paid is
negotiated between the manager and the broker executing the transaction. The
determination and evaluation of the reasonableness of the brokerage
commissions paid are based to a large degree on the professional opinions of
the persons responsible for placement and review of the transactions. These
opinions are based on the experience of these individuals in the securities
industry and information available to them about the level of commissions
being paid by other institutional investors of comparable size. The manager
will ordinarily place orders to buy and sell over-the-counter securities on a
principal rather than agency basis with a principal market maker unless, in
the opinion of the manager, a better price and execution can otherwise be
obtained. Purchases of portfolio securities from underwriters will include a
commission or concession paid by the issuer to the underwriter, and purchases
from dealers will include a spread between the bid and ask price.
The manager may pay certain brokers commissions that are higher than those
another broker may charge, if the manager determines in good faith that the
amount paid is reasonable in relation to the value of the brokerage and
research services it receives. This may be viewed in terms of either the
particular transaction or the manager's overall responsibilities to client
accounts over which it exercises investment discretion. The services that
brokers may provide to the manager include, among others, supplying
information about particular companies, markets, countries, or local,
regional, national or transnational economies, statistical data, quotations
and other securities pricing information, and other information that provides
lawful and appropriate assistance to the manager in carrying out its
investment advisory responsibilities. These services may not always directly
benefit the Funds. They must, however, be of value to the manager in carrying
out its overall responsibilities to its clients.
It is not possible to place a dollar value on the special executions or on
the research services the manager receives from dealers effecting
transactions in portfolio securities. The allocation of transactions to
obtain additional research services allows the manager to supplement its own
research and analysis activities and to receive the views and information of
individuals and research staffs of other securities firms. As long as it is
lawful and appropriate to do so, the manager and its affiliates may use this
research and data in their investment advisory capacities with other clients.
If the Funds' officers are satisfied that best execution is obtained, the
sale of Fund shares, as well as shares of other funds in Franklin Templeton
Investments, also may be considered a factor in the selection of
broker-dealers to execute the Funds' portfolio transactions.
Because Franklin Templeton Distributors, Inc. (Distributors) is a member of
the National Association of Securities Dealers, Inc., it may sometimes
receive certain fees when the Funds tender portfolio securities pursuant to a
tender-offer solicitation. To recapture brokerage for the benefit of the
Funds, any portfolio securities tendered by a Fund will be tendered through
Distributors if it is legally permissible to do so. In turn, the next
management fee payable to the manager will be reduced by the amount of any
fees received by Distributors in cash, less any costs and expenses incurred
in connection with the tender.
If purchases or sales of securities of the Funds and one or more other
investment companies or clients supervised by the manager are considered at
or about the same time, transactions in these securities will be allocated
among the several investment companies and clients in a manner deemed
equitable to all by the manager, taking into account the respective sizes of
the funds and the amount of securities to be purchased or sold. In some cases
this procedure could have a detrimental effect on the price or volume of the
security so far as the Funds are concerned. In other cases it is possible
that the ability to participate in volume transactions may improve execution
and reduce transaction costs to the Funds.
Because the Funds may, from time to time, invest in broker-dealers, it is
possible that the Funds will own more than 5% of the voting securities of one
or more broker-dealers through whom each Fund places portfolio brokerage
transactions. In such circumstances, the broker-dealer would be considered an
affiliated person of the Funds. To the extent the Funds place brokerage
transactions through such a broker-dealer at a time when the broker-dealer is
considered to be an affiliate of the Funds, the Funds will be required to
adhere to certain rules relating to the payment of commissions to an
affiliated broker-dealer. These rules require the Funds to adhere to
procedures adopted by the board relating to ensuring that the commissions
paid to such broker-dealers do not exceed what would otherwise be the usual
and customary brokerage commissions for similar transactions.
DISTRIBUTIONS AND TAXES
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The Funds calculate dividends and capital gains the same way for each class.
The amount of any income dividends per share will differ, however, generally
due to the difference in the distribution and service (Rule 12b-1) fees of
each class. Distributions are subject to approval by the board. The Funds do
not pay "interest" or guarantee any fixed rate of return on an investment in
their shares.
DISTRIBUTIONS OF NET INVESTMENT INCOME The Funds receive income generally in
the form of dividends and interest on their investments. This income, less
expenses incurred in the operation of a Fund, constitutes a Fund's net
investment income from which dividends may be paid to you. Any distributions
by a Fund from such income will be taxable to you as ordinary income, whether
you receive them in cash or in additional shares.
DISTRIBUTIONS OF CAPITAL GAIN The Funds may derive capital gain and loss in
connection with sales or other dispositions of their portfolio securities.
Distributions from net short-term capital gain will be taxable to you as
ordinary income. Distributions from net long-term capital gain will be
taxable to you as long-term capital gain, regardless of how long you have
held your shares in a Fund. Any net capital gain realized by a Fund generally
will be distributed once each year, and may be distributed more frequently,
if necessary, to reduce or eliminate excise or income taxes on a Fund.
Beginning in the year 2001 for shareholders in the 15% federal income tax
bracket (or in the year 2006 for shareholders in the 28% or higher bracket),
capital gain dividends from a Fund's sale of securities held for more than
five years may be subject to a reduced rate of tax.
EFFECT OF FOREIGN INVESTMENTS ON DISTRIBUTIONS Most foreign exchange gain
realized on the sale of debt securities is treated as ordinary income by a
Fund. Similarly, foreign exchange loss realized on the sale of debt
securities generally is treated as ordinary loss. This gain, when
distributed, will be taxable to you as ordinary income, and any loss will
reduce a Fund's ordinary income otherwise available for distribution to you.
This treatment could increase or decrease a Fund's ordinary income
distributions to you, and may cause some or all of a Fund's previously
distributed income to be classified as a return of capital.
A Fund may be subject to foreign withholding taxes on income from certain
foreign securities. This, in turn, could reduce ordinary income distributions
to you.
INFORMATION ON THE TAX CHARACTER OF DISTRIBUTIONS The Funds will inform you
of the amount of your ordinary income and capital gain dividends at the time
they are paid, and will advise you of their tax status for federal income tax
purposes shortly after the close of each calendar year. If you have not held
Fund shares for a full year, a Fund may designate and distribute to you, as
ordinary income or capital gain, a percentage of income that is not equal to
the actual amount of such income earned during the period of your investment
in the Fund.
ELECTION TO BE TAXED AS A REGULATED INVESTMENT COMPANY Each Fund intends to
elect and qualify during the current fiscal year to be treated as regulated
investment companies under Subchapter M of the Internal Revenue Code (Code).
As regulated investment companies, the Funds generally pay no federal income
tax on the income and gains they distribute to you. The board reserves the
right not to maintain the qualification of a Fund as a regulated investment
company if it determines such course of action to be beneficial to
shareholders. In such case, a Fund will be subject to federal, and possibly
state, corporate taxes on its taxable income and gain, and distributions to
you will be taxed as ordinary dividend income to the extent of such Fund's
earnings and profits.
EXCISE TAX DISTRIBUTION REQUIREMENTS To avoid federal excise taxes, the Code
requires a Fund to distribute to you by December 31 of each year, at a
minimum, the following amounts: 98% of its taxable ordinary income earned
during the calendar year; 98% of its capital gain net income earned during
the twelve-month period ending October 31; and 100% of any undistributed
amounts from the prior year. Each Fund intends to declare and pay these
distributions in December (or to pay them in January, in which case you must
treat them as received in December) but can give no assurances that its
distributions will be sufficient to eliminate all taxes.
REDEMPTION OF FUND SHARES Redemptions (including redemptions in kind) and
exchanges of Fund shares are taxable transactions for federal and state
income tax purposes. If you redeem your Fund shares, or exchange your Fund
shares for shares of a different Franklin Templeton fund, the IRS will
require that you report any gain or loss on your redemption or exchange. If
you hold your shares as a capital asset, the gain or loss that you realize
will be capital gain or loss and will be long-term or short-term, generally
depending on how long you hold your shares.
Beginning in the year 2001 for shareholders in the 15% federal income tax
bracket (or in the year 2006 for shareholders in the 28% or higher bracket),
gain from the sale of Fund shares held for more than five years may be
subject to a reduced rate of tax.
Any loss incurred on the redemption or exchange of shares held for six months
or less will be treated as a long-term capital loss to the extent of any
long-term capital gain distributed to you by a Fund on those shares. All or a
portion of any loss that you realize upon the redemption of your Fund shares
will be disallowed to the extent that you buy other shares in such Fund
(through reinvestment of dividends or otherwise) within 30 days before or
after your share redemption. Any loss disallowed under these rules will be
added to your tax basis in the new shares you buy.
DEFERRAL OF BASIS If you redeem some or all of your shares in a Fund, and
then reinvest the sales proceeds in such Fund or in another Franklin
Templeton fund within 90 days of buying the original shares, the sales charge
that would otherwise apply to your reinvestment may be reduced or eliminated.
The IRS will require you to report any gain or loss on the redemption of your
original shares in a Fund. In doing so, all or a portion of the sales charge
that you paid for your original shares in a Fund will be excluded from your
tax basis in the shares sold (for the purpose of determining gain or loss
upon the sale of such shares). The portion of the sales charge excluded will
equal the amount that the sales charge is reduced on your reinvestment. Any
portion of the sales charge excluded from your tax basis in the shares sold
will be added to the tax basis of the shares you acquire from your
reinvestment.
U.S. GOVERNMENT SECURITIES States grant tax-free status to dividends paid to
you from interest earned on certain U.S. government securities, subject in
some states to minimum investment or reporting requirements that must be met
by a Fund. Investments in Government National Mortgage Association or
Federal National Mortgage Association securities, bankers' acceptances,
commercial paper and repurchase agreements collateralized by U.S. government
securities generally do not qualify for tax-free treatment. The rules on
exclusion of this income are different for corporations.
DIVIDENDS-RECEIVED DEDUCTION FOR CORPORATIONS Each Fund anticipates that a
portion of the dividends it pays will qualify for the dividends-received
deduction. You may be allowed to deduct these qualified dividends, thereby
reducing the tax that you would otherwise be required to pay on these
dividends. The dividends-received deduction will be available only with
respect to dividends designated by a Fund as eligible for such treatment. All
dividends (including the deducted portion) must be included in your
alternative minimum taxable income calculation.
INVESTMENT IN COMPLEX SECURITIES The Funds may invest in complex securities.
These investments may be subject to numerous special and complex tax rules.
These rules could affect whether gain or loss recognized by a Fund is treated
as ordinary or capital or as interest or dividend income, accelerate the
recognition of income to a Fund (possibly causing a Fund to sell securities
to raise the cash for necessary distributions) and/or defer a Fund's ability
to recognize a loss and, in limited cases, subject a Fund to U.S. federal
income tax on income from certain foreign securities. These rules may affect
the amount, timing or character of the income distributed to you by a Fund.
ORGANIZATION, VOTING RIGHTS AND PRINCIPAL HOLDERS
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Each Fund is a diversified series of Franklin Global Trust, an open-end
management investment company, commonly called a mutual fund. The Trust was
organized as a Delaware business trust on September 26, 2000 and is
registered with the SEC.
Each Fund currently offers four classes of shares, Class A, Class B, Class C
and Advisor Class. Each Fund may offer additional classes of shares in the
future. The full title of each class of each Fund is:
o Franklin Global Aggressive Growth Fund - Class A
o Franklin Global Aggressive Growth Fund - Class B
o Franklin Global Aggressive Growth Fund - Class C
o Franklin Global Aggressive Growth Fund - Advisor Class
o Franklin Global Growth Fund - Class A
o Franklin Global Growth Fund - Class B
o Franklin Global Growth Fund - Class C
o Franklin Global Growth Fund - Advisor Class
Shares of each class represent proportionate interests in each Fund's assets.
On matters that affect each Fund as a whole, each class has the same voting
and other rights and preferences as any other class. On matters that affect
only one class, only shareholders of that class may vote. Each class votes
separately on matters affecting only that class, or expressly required to be
voted on separately by state or federal law. Shares of each class of a series
have the same voting and other rights and preferences as the other classes
and series of the Trust for matters that affect the Trust as a whole.
Additional series may be offered in the future.
The Trust has noncumulative voting rights. For board member elections, this
gives holders of more than 50% of the shares voting the ability to elect all
of the members of the board. If this happens, holders of the remaining shares
voting will not be able to elect anyone to the board.
The Trust does not intend to hold annual shareholder meetings. The Trust or a
series of the Trust may hold special meetings, however, for matters requiring
shareholder approval. A meeting may be called by the board to consider the
removal of a board member if requested in writing by shareholders holding at
least 10% of the outstanding shares. In certain circumstances, we are
required to help you communicate with other shareholders about the removal of
a board member. A special meeting also may be called by the board in its
discretion.
From time to time, the number of Fund shares held in the "street name"
accounts of various securities dealers for the benefit of their clients or in
centralized securities depositories may exceed 5% of the total shares
outstanding.
The board members may own shares in other funds in Franklin Templeton
Investments.
BUYING AND SELLING SHARES
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The Funds continuously offer their shares through securities dealers who have
an agreement with Franklin Templeton Distributors, Inc. (Distributors). A
securities dealer includes any financial institution that, either directly or
through affiliates, has an agreement with Distributors to handle customer
orders and accounts with the Funds. This reference is for convenience only
and does not indicate a legal conclusion of capacity. Banks and financial
institutions that sell shares of the Funds may be required by state law to
register as securities dealers.
For investors outside the U.S., the offering of Fund shares may be limited in
many jurisdictions. An investor who wishes to buy shares of a Fund should
determine, or have a broker-dealer determine, the applicable laws and
regulations of the relevant jurisdiction. Investors are responsible for
compliance with tax, currency exchange or other regulations applicable to
redemption and purchase transactions in any jurisdiction to which they may be
subject. Investors should consult appropriate tax and legal advisors to
obtain information on the rules applicable to these transactions.
All checks, drafts, wires and other payment mediums used to buy or sell
shares of the Funds must be denominated in U.S. dollars. We may, in our sole
discretion, either (a) reject any order to buy or sell shares denominated in
any other currency or (b) honor the transaction or make adjustments to your
account for the transaction as of a date and with a foreign currency exchange
factor determined by the drawee bank. We may deduct any applicable banking
charges imposed by the bank from your account.
When you buy shares, if you submit a check or a draft that is returned unpaid
to the Fund we may impose a $10 charge against your account for each returned
item.
If you buy shares through the reinvestment of dividends, the shares will be
purchased at the net asset value determined on the business day following the
dividend record date (sometimes known as the "ex-dividend date"). The
processing date for the reinvestment of dividends may vary and does not
affect the amount or value of the shares acquired.
GROUP PURCHASES As described in the prospectus, members of a qualified group
may add the group's investments together for minimum investment purposes.
A qualified group is one that:
o Was formed at least six months ago,
o Has a purpose other than buying Fund shares at a discount,
o Has more than 10 members,
o Can arrange for meetings between our representatives and group members,
o Agrees to include Franklin Templeton fund sales and other materials in
publications and mailings to its members at reduced or no cost to
Distributors,
o Agrees to arrange for payroll deduction or other bulk transmission of
investments to the Fund, and
o Meets other uniform criteria that allow Distributors to achieve cost
savings in distributing shares.
DEALER COMPENSATION Distributors and/or its affiliates may provide financial
support to securities dealers that sell shares of Franklin Templeton
Investments. This support is based primarily on the amount of sales of fund
shares and/or total assets with Franklin Templeton Investments. The amount of
support may be affected by: total sales; net sales; levels of redemptions;
the proportion of a securities dealer's sales and marketing efforts in
Franklin Templeton Investments; a securities dealer's support of, and
participation in, Distributors' marketing programs; a securities dealer's
compensation programs for its registered representatives; and the extent of a
securities dealer's marketing programs relating to Franklin Templeton
Investments. Financial support to securities dealers may be made by payments
from Distributors' resources, from Distributors' retention of underwriting
concessions and, in the case of funds that have Rule 12b-1 plans, from
payments to Distributors under such plans. In addition, certain securities
dealers may receive brokerage commissions generated by fund portfolio
transactions in accordance with the rules of the National Association of
Securities Dealers, Inc.
Distributors routinely sponsors due diligence meetings for registered
representatives during which they receive updates on various Franklin
Templeton funds and are afforded the opportunity to speak with portfolio
managers. Invitation to these meetings is not conditioned on selling a
specific number of shares. Those who have shown an interest in Franklin
Templeton funds, however, are more likely to be considered. To the extent
permitted by their firm's policies and procedures, registered
representatives' expenses in attending these meetings may be covered by
Distributors.
EXCHANGE PRIVILEGE If you request the exchange of the total value of your
account, declared but unpaid income dividends and capital gain distributions
will be reinvested in the Fund and exchanged into the new fund at net asset
value when paid. Backup withholding and information reporting may apply.
If a substantial number of shareholders should, within a short period, sell
their Fund shares under the exchange privilege, the Fund might have to sell
portfolio securities it might otherwise hold and incur the additional costs
related to such transactions. On the other hand, increased use of the
exchange privilege may result in periodic large inflows of money. If this
occurs, it is each Fund's general policy to initially invest this money in
short-term, interest-bearing money market instruments, unless it is believed
that attractive investment opportunities consistent with the Fund's
investment goals exist immediately. This money will then be withdrawn from
the short-term, interest-bearing money market instruments and invested in
portfolio securities in as orderly a manner as is possible when attractive
investment opportunities arise.
The proceeds from the sale of shares of an investment company generally are
not available until the seventh day following the sale. The funds you are
seeking to exchange into may delay issuing shares pursuant to an exchange
until that seventh day. The sale of Fund shares to complete an exchange will
be effected at net asset value at the close of business on the day the
request for exchange is received in proper form.
SYSTEMATIC WITHDRAWAL PLAN Our systematic withdrawal plan allows you to sell
your shares and receive regular payments from your account on a monthly,
quarterly, semiannual or annual basis. The value of your account must be at
least $5,000 and the minimum payment amount for each withdrawal must be at
least $50. For retirement plans subject to mandatory distribution
requirements, the $50 minimum will not apply. There are no service charges
for establishing or maintaining a systematic withdrawal plan.
Each month in which a payment is scheduled, we will redeem an equivalent
amount of shares in your account on the day of the month you have indicated
on your account application or, if no day is indicated, on the 20th day of
the month. If that day falls on a weekend or holiday, we will process the
redemption on the next business day. For plans set up before June 1, 2000, we
will continue to process redemptions on the 25th day of the month (or the
next business day) unless you instruct us to change the processing date.
Available processing dates currently are the 1st, 5th, 10th, 15th, 20th and
25th days of the month. When you sell your shares under a systematic
withdrawal plan, it is a taxable transaction.
Redeeming shares through a systematic withdrawal plan may reduce or exhaust
the shares in your account if payments exceed distributions received from the
Fund. This is especially likely to occur if there is a market decline. If a
withdrawal amount exceeds the value of your account, your account will be
closed and the remaining balance in your account will be sent to you. Because
the amount withdrawn under the plan may be more than your actual yield or
income, part of the payment may be a return of your investment.
To discontinue a systematic withdrawal plan, change the amount and schedule
of withdrawal payments, or suspend one payment, we must receive instructions
from you at least three business days before a scheduled payment. The Fund
may discontinue a systematic withdrawal plan by notifying you in writing and
will discontinue a systematic withdrawal plan automatically if all shares in
your account are withdrawn or if the Fund receives notification of the
shareholder's death or incapacity.
REDEMPTIONS IN KIND In the case of redemption requests , the board reserves
the right to make payments in whole or in part in securities or other assets
of the Fund, in case of an emergency, or if the payment of such a redemption
in cash would be detrimental to the existing shareholders of the Fund. In
these circumstances, the securities distributed would be valued at the price
used to compute the Fund's net assets and you may incur brokerage fees in
converting the securities to cash. The Fund does not intend to redeem
illiquid securities in kind. If this happens, however, you may not be able to
recover your investment in a timely manner.
SHARE CERTIFICATES We will credit your shares to your Fund account. We do
not issue share certificates unless you specifically request them. This
eliminates the costly problem of replacing lost, stolen or destroyed
certificates. If a certificate is lost, stolen or destroyed, you may have to
pay an insurance premium of up to 2% of the value of the certificate to
replace it.
Any outstanding share certificates must be returned to the Fund if you want
to sell or exchange those shares or if you would like to start a systematic
withdrawal plan. The certificates should be properly endorsed. You can do
this either by signing the back of the certificate or by completing a share
assignment form. For your protection, you may prefer to complete a share
assignment form and to send the certificate and assignment form in separate
envelopes.
GENERAL INFORMATION If dividend checks are returned to the Fund marked
"unable to forward" by the postal service, we will consider this a request by
you to change your dividend option to reinvest all distributions. The
proceeds will be reinvested in additional shares at net asset value until we
receive new instructions.
Distribution or redemption checks sent to you do not earn interest or any
other income during the time the checks remain uncashed. Neither the Funds
nor their affiliates will be liable for any loss caused by your failure to
cash such checks. The Funds are not responsible for tracking down uncashed
checks, unless a check is returned as undeliverable.
In most cases, if mail is returned as undeliverable we are required to take
certain steps to try to find you free of charge. If these attempts are
unsuccessful, however, we may deduct the costs of any additional efforts to
find you from your account. These costs may include a percentage of the
account when a search company charges a percentage fee in exchange for its
location services.
Sending redemption proceeds by wire or electronic funds transfer (ACH) is a
special service that we make available whenever possible. By offering this
service to you, the Funds are not bound to meet any redemption request in
less than the seven day period prescribed by law. Neither the Funds nor their
agents shall be liable to you or any other person if, for any reason, a
redemption request by wire or ACH is not processed as described in the
prospectus.
Franklin Templeton Investor Services, Inc. (Investor Services) may pay
certain financial institutions that maintain omnibus accounts with the Funds
on behalf of numerous beneficial owners for recordkeeping operations
performed with respect to such owners. For each beneficial owner in the
omnibus account, the Fund may reimburse Investor Services an amount not to
exceed the per account fee that the Fund normally pays Investor Services.
These financial institutions also may charge a fee for their services
directly to their clients.
There are special procedures for banks and other institutions that wish to
open multiple accounts. An institution may open a single master account by
filing one application form with the Fund, signed by personnel authorized to
act for the institution. Individual sub-accounts may be opened when the
master account is opened by listing them on the application, or by providing
instructions to the Fund at a later date. These sub-accounts may be
registered either by name or number. The Fund's investment minimums apply to
each sub-account. The Fund will send confirmation and account statements for
the sub-accounts to the institution.
If you buy or sell shares through your securities dealer, we use the net
asset value next calculated after your securities dealer receives your
request, which is promptly transmitted to the Fund. If you sell shares
through your securities dealer, it is your dealer's responsibility to
transmit the order to the Fund in a timely fashion. Your redemption proceeds
will not earn interest between the time we receive the order from your dealer
and the time we receive any required documents. Any loss to you resulting
from your dealer's failure to transmit your redemption order to the Fund in a
timely fashion must be settled between you and your securities dealer.
Certain shareholder servicing agents may be authorized to accept your
transaction request.
For institutional accounts, there may be additional methods of buying or
selling Fund shares than those described in this SAI or in the prospectus.
In the event of disputes involving multiple claims of ownership or authority
to control your account, the Fund has the right (but has no obligation) to:
(a) freeze the account and require the written agreement of all persons
deemed by the Fund to have a potential property interest in the account,
before executing instructions regarding the account; (b) interplead disputed
funds or accounts with a court of competent jurisdiction; or (c) surrender
ownership of all or a portion of the account to the IRS in response to a
notice of levy.
PRICING SHARES
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When you buy and sell shares, you pay the net asset value (NAV) per share.
The value of a mutual fund is determined by deducting the fund's liabilities
from the total assets of the portfolio. The net asset value per share is
determined by dividing the net asset value of the fund by the number of
shares outstanding.
Each Fund calculates the NAV per share of each class each business day at the
close of trading on the New York Stock Exchange (normally 1:00 p.m. Pacific
time). The Funds do not calculate the NAV on days the New York Stock Exchange
(NYSE) is closed for trading, which include New Year's Day, Martin Luther
King Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day.
When determining its NAV, each Fund values cash and receivables at their
realizable amounts, and records interest as accrued and dividends on the
ex-dividend date. If market quotations are readily available for portfolio
securities listed on a securities exchange or on the Nasdaq National Market
System, each Fund values those securities at the last quoted sale price of
the day or, if there is no reported sale, within the range of the most recent
quoted bid and ask prices. Each Fund values over-the-counter portfolio
securities within the range of the most recent quoted bid and ask prices. If
portfolio securities trade both in the over-the-counter market and on a stock
exchange, each Fund values them according to the broadest and most
representative market as determined by the manager.
The Fund values portfolio securities underlying actively traded call options
at their market price as determined above. The current market value of any
option the Fund holds is its last sale price on the relevant exchange before
the Fund values its assets. If there are no sales that day or if the last
sale price is outside the bid and ask prices, the Fund values options within
the range of the current closing bid and ask prices if the Fund believes the
valuation fairly reflects the contract's market value.
Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed well before the close of
business of the NYSE on each day that the NYSE is open. Trading in European
or Far Eastern securities generally, or in a particular country or countries,
may not take place on every NYSE business day. Furthermore, trading takes
place in various foreign markets on days that are not business days for the
NYSE and on which a Fund's NAV is not calculated. Thus, the calculation of
the Fund's NAV does not take place contemporaneously with the determination
of the prices of many of the portfolio securities used in the calculation
and, if events materially affecting the values of these foreign securities
occur, the securities will be valued at fair value as determined by
management and approved in good faith by the board.
Generally, trading in corporate bonds, U.S. government securities and money
market instruments is substantially completed each day at various times
before the close of the NYSE. The value of these securities used in computing
the NAV is determined as of such times. Occasionally, events affecting the
values of these securities may occur between the times at which they are
determined and the close of the NYSE that will not be reflected in the
computation of the NAV. If events materially affecting the values of these
securities occur during this period, the securities will be valued at their
fair value as determined in good faith by the board.
Other securities for which market quotations are readily available are valued
at the current market price, which may be obtained from a pricing service,
based on a variety of factors including recent trades, institutional size
trading in similar types of securities (considering yield, risk and maturity)
and/or developments related to specific issues. Securities and other assets
for which market prices are not readily available are valued at fair value as
determined following procedures approved by the board. With the approval of
the board, each Fund may use a pricing service, bank or securities dealer to
perform any of the above described functions.
THE UNDERWRITER
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Franklin Templeton Distributors, Inc. (Distributors) acts as the principal
underwriter in the continuous public offering of each Fund's shares.
Distributors is located at 777 Mariners Island Blvd., San Mateo, CA 94404.
Distributors pays the expenses of the distribution of Fund shares, including
advertising expenses and the costs of printing sales material and
prospectuses used to offer shares to the public. Each Fund pays the expenses
of preparing and printing amendments to its registration statements and
prospectuses (other than those necessitated by the activities of
Distributors) and of sending prospectuses to existing shareholders.
Distributors does not receive compensation from the Funds for acting as
underwriter of the Funds' Advisor Class shares.
PERFORMANCE
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Performance quotations are subject to SEC rules. These rules require the use
of standardized performance quotations or, alternatively, that every
non-standardized performance quotation furnished by the Funds be accompanied
by certain standardized performance information computed as required by the
SEC. Average annual total return quotations used by the Funds are based on
the standardized methods of computing performance mandated by the SEC.
An explanation of these and other methods used by the Funds to compute or
express performance follows. Regardless of the method used, past performance
does not guarantee future results, and is an indication of the return to
shareholders only for the limited historical period used.
Because the Funds are new, they have no performance history and thus no
performance quotations have been provided.
AVERAGE ANNUAL TOTAL RETURN Average annual total return is determined by
finding the average annual rates of return over certain periods that would
equate an initial hypothetical $1,000 investment to its ending redeemable
value. The calculation assumes income dividends and capital gain
distributions are reinvested at net asset value. The quotation assumes the
account was completely redeemed at the end of each period and the deduction
of all applicable charges and fees. If a change is made to the sales charge
structure, historical performance information will be restated to reflect the
maximum initial sales charge currently in effect.
The following SEC formula is used to calculate these figures:
n
P(1+T) = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of each period at the end of
each period
CUMULATIVE TOTAL RETURN Like average annual total return, cumulative total
return assumes income dividends and capital gain distributions are reinvested
at net asset value, the account was completely redeemed at the end of each
period and the deduction of all applicable charges and fees. Cumulative total
return, however, is based on the actual return for a specified period rather
than on the average return over the periods indicated above.
VOLATILITY Occasionally statistics may be used to show a Fund's volatility
or risk. Measures of volatility or risk are generally used to compare a
Fund's net asset value or performance to a market index. One measure of
volatility is beta. Beta is the volatility of a fund relative to the total
market, as represented by an index considered representative of the types of
securities in which the fund invests. A beta of more than 1.00 indicates
volatility greater than the market and a beta of less than 1.00 indicates
volatility less than the market. Another measure of volatility or risk is
standard deviation. Standard deviation is used to measure variability of net
asset value or total return around an average over a specified period of
time. The idea is that greater volatility means greater risk undertaken in
achieving performance.
OTHER PERFORMANCE QUOTATIONS Sales literature referring to the use of the
Funds as a potential investment for IRAs, business retirement plans, and
other tax-advantaged retirement plans may quote a total return based upon
compounding of dividends on which it is presumed no federal income tax
applies.
Each Fund may include in its advertising or sales material information
relating to investment goals and performance results of funds belonging to
Franklin Templeton Investments. Franklin Resources, Inc. is the parent
company of the advisors and underwriter of Franklin Templeton funds.
COMPARISONS To help you better evaluate how an investment in the Fund may
satisfy your investment goal, advertisements and other materials about the
Fund may discuss certain measures of Fund performance as reported by various
financial publications. Materials also may compare performance (as calculated
above) to performance as reported by other investments, indices, and
averages. These comparisons may include, but are not limited to, the
following examples:
o Dow Jones(R) Composite Average and its component averages - a
price-weighted average of 65 stocks that trade on the New York Stock
Exchange. The average is a combination of the Dow Jones Industrial Average
(30 blue-chip stocks that are generally leaders in their industry), the Dow
Jones Transportation Average (20 transportation stocks), and the Dow Jones
Utilities Average (15 utility stocks involved in the production of
electrical energy).
o Standard & Poor's(R) 500 Stock Index or its component indices - a
capitalization-weighted index designed to measure performance of the broad
domestic economy through changes in the aggregate market value of 500
stocks representing all major industries.
o New York Stock Exchange composite or component indices - an
unmanaged index of all industrial, utilities, transportation, and finance
stocks listed on the NYSE.
o Wilshire 5000 Equity Index - represents the return on the market value
of all common equity securities for which daily pricing is available.
Comparisons of performance assume reinvestment of dividends.
o Lipper - Mutual Fund Performance Analysis and Lipper - Equity Fund
Performance Analysis - measure total return and average current yield for
the mutual fund industry and rank individual mutual fund performance over
specified time periods, assuming reinvestment of all distributions,
exclusive of any applicable sales charges.
o CDA Mutual Fund Report, published by CDA Investment Technologies, Inc. -
analyzes price, current yield, risk, total return, and average rate of
return (average annual compounded growth rate) over specified time periods
for the mutual fund industry.
o Mutual Fund Source Book, published by Morningstar, Inc. - analyzes
price, yield, risk, and total return for mutual funds.
o Financial publications: The WALL STREET JOURNAL, and BUSINESS WEEK,
CHANGING TIMES, FINANCIAL WORLD, FORBES, FORTUNE, and MONEY magazines -
provide performance statistics over specified time periods.
o Consumer Price Index (or Cost of Living Index), published by the U.S.
Bureau of Labor Statistics - a statistical measure of change, over time, in
the price of goods and services in major expenditure groups.
o STOCKS, BONDS, BILLS, AND INFLATION, published by Ibbotson Associates -
historical measure of yield, price, and total return for common and small
company stock, long-term government bonds, Treasury bills, and inflation.
o Historical data supplied by the research departments of CS First Boston
Corporation, the J.P. Morgan(R)companies, Salomon Smith Barney Inc., Merrill
Lynch, Lehman Brothers(R)and Bloomberg(R)L.P.
o Morningstar - information published by Morningstar, Inc., including
Morningstar proprietary mutual fund ratings. The ratings reflect
Morningstar's assessment of the historical risk-adjusted performance of a
fund over specified time periods relative to other funds within its
category.
ADDITIONAL COMPARISONS - FRANKLIN GLOBAL AGGRESSIVE GROWTH FUND
o Savings and Loan Historical Interest Rates - as published in the U.S.
Savings & Loan League Fact Book.
o Russell 3000(R) Growth Index - measures the performance of those Russell
3000 Index companies with higher price-to-book ratios and higher forecasted
growth values. The stocks in this index are also members of either the
Russell 1000 Growth or the Russell 2000 Growth indexes.
o Standard & Poor's(R) MidCap 400 Index - consists of 400 domestic stocks
chosen for market size (median market capitalization of $676 million),
liquidity and industry group representation. It is a market-value weighted
index, with each stock affecting the index in proportion to its market
value. This index, calculated by S&P, is a total return index with
dividends reinvested.
ADDITIONAL COMPARISONS - FRANKLIN GLOBAL GROWTH FUND
o Valueline Index - an unmanaged index which follows the stock of
approximately 1,700 companies.
o Russell 3000(R)-Index measures the performance of the 3,000 largest U.S.
companies based on total market capitalization.
o Russell 2000 Small Stock Index - consists of the smallest 2,000
companies in the Russell 3000 Index, representing approximately 11% of the
Russell 3000 total market capitalization.
From time to time, advertisements or information for each Fund may include a
discussion of certain attributes or benefits to be derived from an investment
in the Fund. The advertisements or information may include symbols,
headlines, or other material that highlights or summarizes the information
discussed in more detail in the communication.
Advertisements or information also may compare each Fund's performance to the
return on certificates of deposit (CDs) or other investments. You should be
aware, however, that an investment in the Fund involves the risk of
fluctuation of principal value, a risk generally not present in an investment
in a CD issued by a bank. CDs are frequently insured by an agency of the U.S.
government. An investment in a Fund is not insured by any federal, state or
private entity.
In assessing comparisons of performance, you should keep in mind that the
composition of the investments in the reported indices and averages is not
identical to any Fund's portfolio, the indices and averages are generally
unmanaged, and the items included in the calculations of the averages may not
be identical to the formula used by a Fund to calculate its figures. In
addition, there can be no assurance that a Fund will continue their
performance as compared to these other averages.
MISCELLANEOUS INFORMATION
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The Funds may help you achieve various investment goals such as accumulating
money for retirement, saving for a down payment on a home, college costs and
other long-term goals. The Franklin College Costs Planner may help you in
determining how much money must be invested on a monthly basis to have a
projected amount available in the future to fund a child's college education.
(Projected college cost estimates are based upon current costs published by
the College Board.) The Franklin Retirement Planning Guide leads you through
the steps to start a retirement savings program. Of course, an investment in
a Fund cannot guarantee that these goals will be met.
The Funds are members of Franklin Templeton Investments, one of the largest
mutual fund organizations in the U.S., and may be considered in a program for
diversification of assets. Founded in 1947, Franklin is one of the oldest
mutual fund organizations and now services approximately 3 million
shareholder accounts. In 1992, Franklin, a leader in managing fixed-income
mutual funds and an innovator in creating domestic equity funds, joined
forces with Templeton, a pioneer in international investing. The Mutual
Series team, known for its value-driven approach to domestic equity
investing, became part of the organization four years later. Together,
Franklin Templeton Investments has over $229 billion in assets under
management for more than 5 million U.S. based mutual fund shareholder and
other accounts. Franklin Templeton Investments offers 107 U.S. based open-end
investment companies to the public. Each Fund may identify itself by its
Nasdaq symbol or CUSIP number.
Currently, there are more mutual funds than there are stocks listed on the
New York Stock Exchange. While many of them have similar investment goals, no
two are exactly alike. Shares of the Funds are generally sold through
securities dealers, whose investment representatives are experienced
professionals who can offer advice on the type of investments suitable to
your unique goals and needs, as well as the risks associated with such
investments.
DESCRIPTION OF RATINGS
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PREFERRED STOCKS RATINGS
STANDARD & POOR'S RATINGS GROUP (S&P(R))
AAA: This is the highest rating that may be assigned by S&P to a preferred
stock issue and indicates an extremely strong capacity to pay the preferred
stock obligations.
AA: A preferred stock issue rated AA also qualifies as a high quality
fixed-income security. The capacity to pay preferred stock obligations is
very strong, although not as overwhelming as for issues rated AAA.
A: An issue rated A is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions.
BBB: An issue rated BBB is regarded as backed by an adequate capacity to pay
the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to make payments for a
preferred stock in this category than for issues in the A category.
BB, B and CCC: Preferred stock rated BB, B, and CCC are regarded, on balance,
as predominately speculative with respect to the issuer's capacity to pay
preferred stock obligations. BB indicates the lowest degree of speculation
and CCC the highest degree of speculation. While these issues will likely
have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.
CC: The rating CC is reserved for a preferred stock issue in arrears on
dividends or sinking fund payments but that is currently paying.
C: A preferred stock rated C is a non-paying issue.
D: A preferred stock rated D is a non-paying issue with the issuer in default
on debt instruments.
NR: Indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy.
Plus (+) or Minus (-): To provide more detailed indications of preferred
stock quality, the ratings from "AA" to "CCC" may be modified by the addition
of a plus or minus sign to show relative standing within the major rating
categories.
CORPORATE BOND RATINGS
MOODY'S INVESTORS SERVICE, INC. (MOODY'S)
INVESTMENT GRADE
Aaa: Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or exceptionally
stable margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa: Bonds rated Aa are judged to be high quality by all standards. Together
with the Aaa group, they comprise what are generally known as high-grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large, fluctuation of protective elements may be of greater
amplitude, or there may be other elements present that make the long-term
risks appear somewhat larger.
A: Bonds rated A possess many favorable investment attributes and are
considered upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
that suggest a susceptibility to impairment sometime in the future.
Baa: Bonds rated Baa are considered medium-grade obligations. They are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may
be lacking or may be characteristically unreliable over any great length of
time. These bonds lack outstanding investment characteristics and, in fact,
have speculative characteristics as well.
BELOW INVESTMENT GRADE
Ba: Bonds rated Ba are judged to have predominantly speculative elements and
their future cannot be considered well assured. Often the protection of
interest and principal payments is very moderate and, thereby, not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B: Bonds rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms
of the contract over any long period of time may be small.
Caa: Bonds rated Caa are of poor standing. These issues may be in default or
there may be present elements of danger with respect to principal or interest.
Ca: Bonds rated Ca represent obligations that are speculative to a high
degree. These issues are often in default or have other marked shortcomings.
C: Bonds rated C are the lowest rated class of bonds and can be regarded as
having extremely poor prospects of ever attaining any real investment
standing.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond ratings. The modifier
1 indicates that the security ranks in the higher end of its generic rating
category; modifier 2 indicates a mid-range ranking; and modifier 3 indicates
that the issue ranks in the lower end of its generic rating category.
S&P
INVESTMENT GRADE
AAA: This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.
AA: Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong and, in the majority of instances,
differ from AAA issues only in a small degree.
A: Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions.
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay principal and interest for bonds in this
category than for bonds in the A category.
BELOW INVESTMENT GRADE
BB, B, CCC, CC: Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of the obligations.
BB indicates the lowest degree of speculation and CC the highest degree of
speculation. While these bonds will likely have some quality and protective
characteristics, they are outweighed by large uncertainties or major risk
exposures to adverse conditions.
C: Bonds rated C are typically subordinated debt to senior debt that is
assigned an actual or implied CCC- rating. The C rating also may reflect the
filing of a bankruptcy petition under circumstances where debt service
payments are continuing. The C1 rating is reserved for income bonds on which
no interest is being paid.
D: Debt rated D is in default and payment of interest and/or repayment of
principal is in arrears.
Plus (+) or minus (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
SHORT-TERM DEBT & COMMERCIAL PAPER RATINGS
MOODY'S
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations. These obligations have an original
maturity not exceeding one year, unless explicitly noted. Moody's commercial
paper ratings are opinions of the ability of issuers to repay punctually
their promissory obligations not having an original maturity in excess of
nine months. Moody's employs the following designations for both short-term
debt and commercial paper, all judged to be investment grade, to indicate the
relative repayment capacity of rated issuers:
P-1 (Prime-1): Superior capacity for repayment.
P-2 (Prime-2): Strong capacity for repayment.
S&P
S&P's ratings are a current assessment of the likelihood of timely payment of
debt having an original maturity of no more than 365 days. Ratings are graded
into four categories, ranging from "A" for the highest quality obligations to
"D" for the lowest. Issues within the "A" category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety, as follows:
A-1: This designation indicates the degree of safety regarding timely payment
is very strong. A "plus" (+) designation indicates an even stronger
likelihood of timely payment.
A-2: Capacity for timely payment on issues with this designation is strong.
The relative degree of safety, however, is not as overwhelming as for issues
designated A-1.
A-3: Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects
of changes in circumstances than obligations carrying the higher designations.
